We love working with SaaS companies. There is a spirit of hard work, enthusiasm, and excitement that permeates the SaaS field. This unique culture is one of the things that sets the SaaS industry apart, along with another, less glamorous aspect: you guessed it, subscription payments.
As an SaaS company, you are all too familiar with this reality. By being a subscription based service, you are playing the long game when it comes to getting ROI for your customer acquisition. The money you invest on winning new customers does not get paid back right away, sometimes not even in that year.
This can be really hard for new SaaS startups to deal with. You need customers, but winning them takes investment, sometimes thousands of dollars of investment. Then, once you win a customer, you need to wait months before they begin to return on the investment of acquiring. This becomes an even bigger issue if you lose customers as you work out the kinks of being a new business, since an unsatisfied customer means all of that customer acquisition investment goes to waste.
This phenomenon of being essentially penalized for growth is hard enough for up and coming SaaS companies that are growing at a slow or steady pace. But for SaaS companies that really take off, they quickly realize that the more they are growing, the they fall into a P/L hole. The more you grow, the more you lose, because with each new customer, your customer acquisition investment is skyrocketing, and none of those customers are paying any more than a monthly subscription.
The good news is, this investment P/L hole that fastquickly growing Saas companies fall into pays off in a big way, and understanding the way that the dip in investment works will help you not get unnecessarily scared of too much growth. The investment that new customers cost SaaS companies often scares them into pumping the breaks right when they need to be investing 100% into growing, since getting a hold of the market share is half the battle in keeping your SaaS company afloat. The key is finding a way to cushion the blow until your growth pays off.
The way to do this is to plan ahead and stay informed. When you’re taking off as an SaaS company, you need to prioritize the following things to make sure your P/L dip is only a temporary one:
- Understand why you are in this hole- There are a lot of reasons that new businesses lose money, and if you are attributing your loss in profit to delayed ROI on customer acquisition and that’s not really what’s going on, you can get yourself into big trouble. Talk to your accountant and make sure that growing is wise, and that you aren’t leaking money in other places without realizing it.
- Keep your customers satisfied so that they stick around long enough to get you your return on your investment- this is extraordinarily important for an SaaS company. Churn is horrible for an SaaS company, ensuring you will never get the ROI from acquiring that customer, and essentially guaranteeing you will be getting bad word of mouth reviews. Keeping your current customers happy is more important than getting new customers. Always.
- Don’t spend frivolously elsewhere- to make it through the rough patch while you wait for your subscriptions to pay off, you’re going to need to cut corners elsewhere. This is just a reality of being a growing SaaS company, and your accountant can work with you on the best places to trim the fat
- Plan for the dry period so it doesn’t cause your company to shut down from lack of funds- This might sound like a worst case scenario, but it happens. If you’re choosing to forgo finding an investor who can help get your company going, you need to make sure you have enough funds set aside to get you through the growth period of your company. Growing is necessary for survival, but it can also kill you if you aren’t prepared.
Persevering through a dry spell instead of scaring yourself out of growing is an important step to getting the market share your company needs for long term success. Stay vigilant and determined, and in no time you’ll be reaping the rewards of a quickly growing company.