Is your SaaS business viable?

The first is a good way to figure out if you will be profitable in the long run, and the second is about measuring the time to profitability (which also greatly impacts capital efficiency).

The best SaaS businesses have a LTV to CAC ratio that is higher than 3, sometimes as high as 7 or 8. And many of the best SaaS businesses are able to recover their CAC in 5-7 months. However many healthy SaaS businesses don’t meet the guidelines in the early days, but can see how they can improve the business over time to get there.

The second guideline (Months to Recover CAC) is all about time to profitability and cash flow. Larger businesses, such as wireless carriers and credit card companies, can afford to have a longer time to recover CAC, as they have access to tons of cheap capital. Startups, on the other hand, typically find that capital is expensive in the early days. However even if capital is cheap, it turns out that Months to recover CAC is a very good predictor of how well a SaaS business will perform. Take a look at the graph below, which comes from the same model used earlier. It shows how the profitability is anemic if the time to recover CAC extends beyond 12 months.

SaaS & Tech Growth Strategy Articles

• Segmentation, Targeting, and Positioning
  If you try to target everyone you end up not reaching anyone.
• Maximizing Revenue with Effective SaaS Sales Strategies
  Maximizing Revenue with Effective SaaS Sales StrategiesSaaS sales strategies have evolved significantly over the past few years, with the industry seeing a compound annual growth rate (CAGR) of 18% from 2020 to 2027, according to a report by Allied Market Research. This growth has resulted in a highly competitive market, where differentiation and customer retention […]
• How To Assess Your Brand, Website, Marketing & Competitors
  There are two things required to reach a destination - first to know where you want to go, but second to also know where you stand today.
• Personas and The “Broken Telephone” Game
  We've all played the telephone game.
• SaaS Trends and Stats You Must Know in 2022
  SaaS Trends and Stats You Must Know in 2022SaaS in 2022 will be a year of growth and innovation with heavy focus on the customer experience. With the impact of COVID-19 on every area of business and consumer needs changing, the SaaS industry underwent radical but essential change throughout 2020 and 2021 To succeed, companies […]
• Creating A Strategic Marketing Approach for Software & Technology Companies
  The most successful marketing campaigns are executed with a clear vision and goal.
• What Is MRR
  The simple answer is that MRR is your Monthly Recurring Revenue and one of the key metrics that SaaS companies use to evaluate success.
• Understanding the Benefits of Visualizations with GA4: A Guide for SaaS Companies
  Understanding the Benefits of Visualizations with Google Analytics 4 (GA4): A Guide for SaaS CompaniesData visualizations are powerful tools for communicating complex information in a clear and concise manner. They allow us to present data in an easily understood way, regardless of the viewer's level of expertise. Whether it's communicating information internally to team members […]
• The Importance of a Business Plan
  Before you can begin putting together an effective marketing plan, it’s important to make sure you have a business plan in place. Today Andy talks about understanding the long term and short term goals and objectives of your business, before you start planning your marketing. One of the things I wanted to talk about today […]

SaaS + Software Stats

• Investment in marketing automation tools is expected to reach $25 billion by the year 2023
• After $10M in ARR, the median growth rate slows to just under 50%
• The fastest growing SaaS companies raise an average of $9.5M in Series A funding
• Customer Acquisition Cost (CAC) = sum of all sales & marketing expenses/ number of new customers added
• The fastest growing SaaS companies scale their organizations rapidly, growing their teams by an average of 56% each year
• The median TTM revenue growth rate + adj. EBITDA margin for publicly traded SaaS companies was ~37%, implying that just under one half met or exceed “The Rule of 40%”
• SaaS IPOs have more than doubled over the last 12 years
• Only 8% of large companies use internet sales strategies. The proportion of companies relying on internet sales increases as company size decreases
• 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.

SaaS & Tech Growth Strategy Stats

• The boom in the industry is creating more jobs for techies. Data reveals there were 627,000 unfilled positions in tech in April 2017
• In 2018, the revenue of General Dynamics amounted to nearly 36.2 billion U.S. dollars.
• In 2018, the U.S. imported aerospace products worth about 53.98 billion U.S. dollars.
• Software and online services are in a period of dizzying growth
• In 2020, China is expected to generate 55 billion U.S. dollars in the global medical technology market.
• The best SaaS companies achieve 5-7% annual revenue churn – equivalent to a loss of $1 out of every $200 each month
• 36% of SaaS businesses managed to reduce their revenue churn over the last 12-months
• Getting paid in advance is really smart idea if you can do it without impacting bookings, as it can provide the cash flow that you need to cover your cash problem
• Analysed by contract value, field sales are primarily evident for companies with median deals over $25K. Inside sales strategies are most popular for companies with $1K-$25K median deal sizes