And How They Can Tank Your Business’s Value
If there were any doubts about the potential of software-as-a-service (SaaS), the coronavirus put them to rest. Demand for SaaS businesses increased exponentially during the pandemic as businesses scrambled to contend with a distributed workforce. This growth and demand will continue into the immediate future — per Gartner, end-user spending on public cloud services is slated to reach $482 billion by 2022.
A well-managed SaaS business, in other words, has the potential to generate a great deal of revenue, both through regular operations and via an eventual sale. With that said, there are certain pitfalls you must avoid if you seek to maximize the value of your business because these common SaaS business mistakes will have the opposite effect.
Though profitable, the SaaS marketing landscape is intensely competitive. You cannot afford to simply coast on existing subscribers. If your business is to succeed, you need a comprehensive, data-driven strategy for growth and retention.
Such a strategy should account for:
- Niche. Who is your audience, and why are they interested in your software?
- Marketing. How will you generate awareness of your software?
- Market Trends. What emerging trends and events might impact your business in the short term? In the long-term?
- Competition. Who are your chief competitors, and what unique selling point distinguishes you from them?
- Acquisition. What is your process for onboarding new customers? How will you upsell/retain existing subscribers?
Focusing on the Wrong Metrics
In order to inform and measure your strategy on an ongoing basis, you need data. You need to ensure you measure the right metrics so that you have a clear picture of your business’s overall health and progress. These metrics include:
- Activation/Conversion rate
- Net Promoter Score (NPS)
- Customer churn
- Revenue churn
- Monthly/Annual Recurring Revenue (MRR/ARR)
- Cost per Customer Acquisition
- Customer Lifetime Value
- Active Users
- Retention Rate
Failure to Provide Adequate Support
A business is only as good as its customer service. Support is one of the cornerstones of customer service. Particularly if you operate in the business-to-business (B2B) space, your SaaS app is likely complex.
There are many moving parts and a great deal that can go wrong, particularly where integration is concerned. Subscribers should be able to find support when and where they require it. Ideally, you’ll want to maintain a self-service support portal for general inquiries such as password resets, with 24/7 technicians on-call for more complicated issues.
Neglecting the Importance of Website Content
I have seen many otherwise brilliant SaaS businesses apps brought low by poor-quality website content. Although in a perfect world the quality and functionality of a product speaks for itself, the reality is that your audience may not have the time to evaluate software via a live demo. They want to know at a glance what the software does, how it works, and whether or not it can solve their problems.
That’s one side of content marketing as it pertains to the SaaS sector. Website copy aside, content such as blog posts, white papers, infographics, and video are among the most powerful marketing tools in your arsenal. They are a means of raising awareness, drawing in traffic, and demonstrating a deeper understanding of your audience by providing them with valuable education and insights.
A Lack of Integration
Per Statista, the average organization uses approximately 110 SaaS apps. It’s an overwhelming number, and one that contributes heavily to app fatigue and the formation of data silos. The solution, according to tech venture capitalist firm OMERS Ventures, is orchestration.
“The latest generation of SaaS builders recognize that app overload is real, and they want to win in a niche market,” the firm explains. “They will focus on allowing seamless and effective integration of any other apps that their target customer persona can possibly use. The goal is that one SaaS product can act as the single point of entry for a business [using multiple] apps, but makes the user feel like they’re only using one.”
If your SaaS app isn’t designed with integration in mind, it will very likely fall short of more integration-friendly competitors.
Your business’s financials are among the most important factors when it comes to attracting prospective buyers. Yet many SaaS developers tend to neglect their finances. This is a problem, particularly when it comes to attracting prospective buyers.
Even those that don’t usually neglect to organize their financial statements in a way that’s appealing and/or understandable to investors.
- Expand your Profit & Loss statements to include as much pertinent information as possible.
- Using a profit and loss template will allow keeping a check on your revenue and spending.
- Create separate tabs for each payroll account within your company.
- Don’t just track revenue—monitor when that revenue is actualized.
- Try to focus more on annual subscriptions than monthly contracts.
Your sales team is the bread and butter of your SaaS app. They’re responsible for onboarding and managing your business’s relationship with some of its most important clients. You need to make sure they’ve everything they need to accomplish this.
Customer Relationship Management (CRM) aside, you want to ensure you set realistic quotas and prioritize the right skills and expertise in your hiring practices. More importantly, you want to incentivize more than acquisition. Sales teams should also have ample reason to prioritize retention.
The days of restrictive contracts, obfuscated prices, and inflexible software packages are well behind us. For your software to be competitive, it must be fairly and competitively priced. Pricing data should be clearly visible on your website; if your price models are flexible/based on use case, at least give customers a baseline.
Focus on Growth, Build for Value
Many SaaS businesses can be valuable investments and a worthwhile candidates for flipping. You just need to make sure you manage it properly in the interim. All else being equal, a properly-maintained business will always sell for more.