Because of the losses in the early days, which get bigger the more successful the company is at acquiring customers, it is much harder for management and investors to figure out whether a SaaS business is financially viable.

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A great way to understand any business model is to answer the following simple question:

Can I make more profit from my customers than it costs me to acquire them?

This is effectively a study of the unit economics of each customer. To answer the question, we need two metrics:

• LTV – the Lifetime Value of a typical customer
• CAC – the Cost to Acquire a typical Customer

(How to calculate LTV and CAC)

Entrepreneurs are usually overoptimistic about how much it costs to acquire a customer. This probably comes from a belief that customers will be so excited about what they have built, that they will beat a path to their doors to buy the product. The reality is often very different!

More Growth Strategy Stats

For SaaS companies valued at over $1billion, the median amount of financing raised is $206million

SAAS companies with >$250K median ACV book nearly 25% of their contracts at 3 years or longer

The venture-backed companies that were acquired most often had a 7 percent share of female execs, as opposed to 3 percent at unsuccessful (unacquired) firms

Internet sales-driven companies have a much greater reliance on marketing, with 65% of the median company’s CAC budget devoted to marketing

In 2018, the revenue of General Dynamics amounted to nearly 36.2 billion U.S. dollars.

SaaS, and other recurring revenue businesses are different because the revenue for the service comes over an extended period of time (the customer lifetime)

The best SAAS businesses have a LTV to CAC ratio that is higher than 3, sometimes as high as 7 or 8

86% of SaaS businesses treat “New Customer Acquisition” as their highest growth priority, both in terms of executive support and funding available

The fastest growing SaaS companies scale their organizations rapidly, growing their teams by an average of 56% each year

55% of SaaS companies rate Customer Retention as the key metric to measure