SaaS companies are in hot water after over a decade of success, and SaaS startups may bear the brunt of that stress. Fortunately, there are a few steps SaaS company owners can take to mitigate some of the economic damage that would otherwise befall them.
SaaS–an acronym which stands for “Software as a Service”–companies embody an industry in which the product is largely static and accessed remotely by clients rather than living on those clients’ devices. Such company services can range from outsourced customer management, or CRM, to things like web hosting and cloud storage.
Because SaaS companies’ overhead is positioned to be relatively low, they have a little bit of freedom that many brick-and-mortar businesses are not afforded.
There are a few things you can do to keep your SaaS startup from going under during strenuous times, the first of which involves reaching out to vendors, sponsors, or landlords responsible for hosting your product, and negotiating any possible discounts.
This is, of course, easier said than done, but given that many of these sources of expenses are also affected by the ongoing pandemic, they may be more open to negotiating to everyone’s benefit.
It is ideal to establish a cash reserve of between 12 and 24 months’ worth of expenses for future conflicts. If that isn’t something that’s doable for now, it’s understandable.
Another metric to track is how quickly (or slowly) customers are paying their accounts. You can expect this number to fluctuate during economic crises, but having the pertinent information up front is especially important during times such as these. Once you know what your outstanding balances are, you can begin to forecast for the coming year.
And, as with your vendors, allowing customers some flexibility for now may strengthen your relationships with them – a move that increases your company’s longevity for sure.
Tracking your product’s lifetime value (LTV) – your growth and profitability – is also important, especially during a period of time when customers may reasonably request discounted services. Knowing this value will help you determine how many customers are sticking around after the free trial period (if that’s your thing), and it will help shape your development going forward.
Lastly, keep an eye on your refund and credit numbers to ensure that you nip any downward trends as quickly as possible. If you notice that you’re assigning an unreasonable number of credits to accounts as a measure of good faith, this metric will help you pinpoint exactly where you can cut back on the charity.
Now is the time where accessibility and profitability have to be balanced, and as difficult as it can be to do that, keeping track of these metrics will help.