Push Your SaaS Company to the Growth Stage
The recent pandemic expedited digitization and business transformation in every industry – and this was made possible by innovative software-as-a-service (SaaS) companies, big and small. Companies that did not have sufficient capital to invest in technology during the pandemic will likely turn to SaaS after returning to pre-pandemic numbers. This is because not only did COVID-19 accelerate digital preferences among consumers, but it also made organizations realize the importance of having systems that are adaptable to new challenges.
That is why it’s no surprise that the SaaS industry has been growing steadily. However, some SaaS companies that have passed the Seed Stage, find themselves stuck in the Early Stage and unable to make it to the Growth Stage. Discover what your SaaS company can do to accelerate growth in the whitepaper, SaaS Finance Leaders: 5 Steps to Drive Your Company from Early to Growth Stage, available for download below.
According to the whitepaper by Jeff Epstein, Operating Partner at Bessemer Venture Partners, proving your recurring revenue model is the key to arriving at the Growth Stage. In other words, you should be meeting quarterly sales targets and proving a consistently positive ROI on investments.
Three Key Goals in the Growth Stage of a SaaS Company
At the Growth Stage, SaaS companies have proven that their recurring revenue model works, and it must now prove to be sustainable and expandable. The objective here is to retain and add sales contracts for existing customers. Set and continuously measure the following three key goals:
1. Manage Your Customer Lifetime Value (CLTV)
Ensure the existing contract is attractive for the customer and offer add-ons or valuable additional services. Don’t abandon market research and continue to monitor competitor offerings and global industry trends. Aim to achieve a Net Renewal Rate greater than 100%.
2. Show Capital Efficiency
Capital efficiency is achieved when your Annual Gross Profit divided by Total Capital Invested is greater than 100%. To measure capital efficiency, ensure you have detailed tracking of all expenses and streams of revenue by customer.
3. Define/Track Gross and Net Churn
Success in the Growth Stage is achieved by obtaining new customers — and also holding onto existing customers. Churn rates are indicators of if your company can make it through the Growth Stage. Calculate and analyze your churn metrics by product, channel, customers, or other dimensions.
Five Steps to Achieve SaaS Growth Stage
With your quantifiable key goals in mind and proper measuring of each goal, consider the many systems you can integrate into your SaaS tech stack to increase CLTV, increase capital efficiency, and decrease churn. Consider these five steps to accomplish your Growth Stage goals:
- Integrate systems for quote-to-cash: Track CLTV in one contract between CRM and ERP.
- Establish flexible, contract-based billing: Create value with expanded offerings and value-based pricing.
- Build end-to-end revenue management: Gain visibility into deferred revenue to guide valuation.
- Create real-time SaaS and GAAP dashboards: Align to one source of truth and metrics.
- Forecast and plan the future: Accelerate decisions with visibility into billings, cash, and revenue.