4 Smart Investments for SaaS That Can Save You Thousands

By September 29, 2016 July 14th, 2017 SaaS

As a small business owner, there are thousands of ways you can invest your money.  With so many choices out there, how are you supposed to know what to spend on? For SaaS, you might hear it’s good to invest in employees right from the get go, or you might hear it’s better to invest in paid ads and marketing with those investment dollars.  I’m sure there are lots of ways that work for different people, but from my experience after working with hundreds of small businesses over the years, there are definitely things you should NOT do, and things you should.

I had one customer who thought it’d be a good idea to keep his costs so low that he had to do all the development himself.  There weren’t any other employees, and his network of professionals was miniscule. Needless to say, the development took years, and someone beat him to the punch and his product didn’t gain traction. I had another customer who burned through the investor dollars so fast that it seemed like he was in a race and he won when he hit 0.

It’s best to think of your spending by how impactful the spend is to your business operating.  Take all the crucial pillars of your business and make investments there. Then let all the small expenditures fill in last.  For me, I love to make the analogy of getting strawberries at Costco. I love strawberries. But at Costco, they are bigger and fresh. And they are in the refrigerated section.  When I go to get my strawberries, I’m in shorts and a t-shirt, and usually have my two kids. So I have to make a run for it, find the best-looking strawberries available, and then beat it outta there. And yet, even in the coldness I sometimes am drawn to the chopped pineapple or fresh blueberries seeking my attention.

It’s just like deciding on where to spend money. There will always be more to spend it on. We all need to make decisions on what is important in our businesses and focus on it, and invest there. So here are four smart investments I’ve seen over the years that have saved them thousands.

  1. Outsource

Outsourcing can really be a smart choice for SAAS companies. Even startup SAAS companies who are trying to save money at every turn can seriously benefit from investing in outsourcing. For my customer, it seemed counter-intuitive to outsource accounting, marketing, or administrative tasks to an outside source when he knew that he could do it all himself. The reality is that just because you or your employees can manage bookkeeping, doesn’t mean it’s financially smart for you to spend your time doing so. About one third of companies use outsourcing to free up internal resources, and over a third use outsourcing to access technology that they don’t have in house. In general, your company’s resources are better spent keeping your employees focused on SaaS, and paying specialists to help you with the stuff they have the knowledge and resources to accomplish.  

  1. Create an Online Presence

The power of inbound online marketing is a hot topic amongst today’s leading businesses. Some view it as a fad, others see it as the new norm in advertising. I personally have observed that creating an online presence is a worthwhile investment for any company, but even more so for SaaS companies. Because your product is a renewable subscription of a cloud based software, there is a massive online market for you to churn out informative blog posts and how to videos about your industry. Also, it’s safe to say that most of your customers are active online and on social media. Not only that, but with 85% of marketers now using inbound marketing strategies, you can’t really afford not to in a competitive field like SaaS. According to Kissmetrics, early stage SaaS companies typically have to spend up to 39% of their revenue on sales & marketing, making investing in marketing a reality no matter how you slice it. Your customers are already online, and they are already looking to you as a resource for technical knowledge—why not capitalize on it?

  1. Keep your Customers Happy

All SaaS companies are looking for more customers. In the mad dash to find and nurture new leads, it is extremely important to remember to pay attention to your current customers. As an accountant, one of the biggest mistakes I see companies making is underestimating the value of current customers. It costs anywhere from 5 to 25 times more to earn a new customer than to keep an old one. Not only that, but according to Profitwell, increasing customer retention rate had an average 6.71% impact on the bottom line of over 500 SaaS companies. Compare this to acquisition, which only made a 3.32% impact. Retention rates, lifetime value, and churn are all extremely important metrics that a company needs to manage in order to maintain a good ROI—and don’t even get me started on the consequences of negative peer reviews. Taking the time to invest in keeping your customer’s satisfied is arguably one of the best financial decisions your company can make.

  1. Invest in your Employees

Every company needs to know what expenses are best to skimp on, and when to invest. My customer who refused to invest in valuable employees showed me the detriment of trying to do everything yourself. If there’s one area where SaaS companies can invest a little more, it’s in their employees. A SaaS company’s value lies in their employees: they are the ones creating the new technologies and keeping everything moving. You do not need to have the same labor to revenue ratio that another service company would have. SaaS companies have the unique set-up that allows them to make more money by investing more in their employees.

Did any of these money saving tips surprise you? Let us know what you’re thinking at @LucidBooks

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