Smart Idea 1: Build your SaaS business around an exit strategy

Our recently published white paper: 7 Smart Ideas to Grow your SaaS Business contains leading edge information on how to grow your SaaS business. Here we look at one of the ideas:

Smart Idea 1: Build your SaaS business around an exit strategy

It may sound slightly ‘back to front’, but the most effective way to generate growth is to calculate the end target required in order to exit the business, whether that’s selling it or anything else. This can be a challenge, as SaaS business are usually not valued in ‘traditional’ ways, such as multiples of net profits or average contract values.

Due to the nature of a SaaS business, its value will often be judged on the split between monthly revenue and professional services; the latter being less desirable, as it can potentially slow down new implementations. Committed monthly recurring revenue (MRR), meanwhile, is an excellent health barometer for your company, as it adjusts down to account for any customers who are about to turn off their subscription.

Other key metrics to consider when valuing your business are the number of users and the value per user. Unlike average figures, these statistics will outline growth in deal size, and whether certain customers account for a greater proportion of revenue – which can leave SaaS companies vulnerable if those clients terminate their contract.

Understanding the breakdown of your services, and each customer’s worth, is critical to working out the customer acquisition cost (CAC) versus their lifetime value (LTV). This is something we discuss in-depth in our guide to SaaS marketing but, suffice to say, the lifetime value needs to be higher than the acquisition cost to ensure long-term growth.

This ratio will outline how many leads are required to expand, and using the CAC figure you can work out what sales and marketing expenditure is needed to reach your lead generation target, over what time period.

Once you’ve calculated the marketing resources essential to acquire leads, you should define whether your exit strategy will be based on profit, turnover or users. This will allow you to not only convert your target to a metric, but to focus your energy on achieving that goal. For example:

• If a profit of X is your target, your strategy should be to monitor costs and organically grow your business
• If turnover is your key metric then profit doesn’t matter as much, and your strategy should centre on investing in growth, to generate a higher business value when it comes to selling
• If user numbers are your main focus, you may need a low cost or free trial offer to get as many prospects on board as possible. A ‘freemium’ model, whereby the basic product is free but users pay for proprietary features, could prove very effective in this scenario

Do you want more smart ideas? Simply click here to download our free guide.