Throughout my career as a founder of efficy, I’ve been asked –more than once—why we chose to be a SaaS (Software as a Service) business (which wasn’t an obvious choice in 2005, when the majority of apps were still Windows Client Server based). The answer is simple: because it’s easier.
In the long run, it’s an easy way of doing business: when you have a large percentage (say, around 85%) of recurring customers, you don’t need to struggle as much to make sure you can, at least, pay your staff. Having that bit of financial security helps you focus on making the business grow, instead of stressing over how and where to get new clients. It’s easier to manage, and as a business, everybody should try and have the same recurring scheme.
The second reason is that it’s a business that’s profoundly aligned with the customer’s objective. If you’re bad at your service, the customer will churn, and it will immediately hurt your business. This makes you think of customer satisfaction first and foremost, all the time, and it aligns your business with that objective. Of course, this should be the aim of any company, but not all of them do it – in my opinion, focusing on customer satisfaction will always be a smart business model.
The value of having a SaaS business
SaaS is also an incredibly resilient type of business. Because we’re helping other companies be managed in an easier, more comfortable way, it’s easier to overcome a crisis when you’re working with SaaS products. If you do your work well and your customers are satisfied, any crisis or recession will not affect you as much as it would affect other types of business. This was our experience during COVID and the Pandemic – because we were a recurring SaaS CRM business and we had a strong, solid relationship with our customers, we weren’t affected as much.
This resilience allowed us to continue to pay all our staff members their full salaries during the crisis. The fact we were fully (remotely) operational was also great for our customers because we could help them for a reduced cost. We even launched an initiative to provide free services for companies in need! All of this was possible because of the type of business we are.
Things to keep in mind when you make a SaaS product
If you’d like to start working in SaaS product, I have a first piece of advice: bill your customer annually, upfront. For the majority of SaaS businesses, this will reduce their cash needs a lot. It’s also something that’s become commonplace and that customers are accepting nowadays. Invoicing monthly doesn’t make sense, because you need to finance yourself for the whole year – therefore, if you invoice your clients annually, it’s a much better financial decision, and it will make annual planning easier for you.
I’d also advise them to always analyze the churn and understand why a customer leaves you, when they do. You need to truly know and understand why they left, and then immediately work on a plan to fix that issue. It’s important to keep improving your business and your company, and these situations, although difficult, are the best teachers in this respect.
Start measuring your growth with these indicators
Finally, these are the KPIs I believe are important for SaaS companies in the early stages. Even as your company gets bigger and thrives, I think you’ll need to keep focusing on these two:
- ARR: the new business generated by the company on a yearly basis. In order to set this, you should take a look at your costs and make sure that the cost you put in Sales and Marketing is not higher than the new business you want to generate for each year.
- The churn rate: To set this, you should benchmark yourself against your peers, and keep in mind you need to be at least ‘as good as’ or, if possible, even better.
SaaS is a wonderful business to venture into. It’s resilient, customer-oriented, and it gives you the possibility to continuously help other businesses achieve their goals. As with any type of entrepreneurship, the road is not easy, but if you take it one step at a time, you’ll surely build a business you can be proud of.
If you’d like some more tips on how to kickstart your business, check out my previous blog post here.
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