In one article, the truth about the growth of SaaS business

However, the biggest problem with Chinese SaaS is that it is difficult to grow , so from a business perspective, it is not a viable business model . That is to say, either do SaaS or do software, and when they are In one article mixed together, they become nothing.

So, what is the true growth logic of SaaS? What kind  of business organization and what kind of business method can we build to support growth?

I hope this short article is clear.

The internal logic of SaaS growth

The growth mentioned here refers to the growth of revenue, and more specifically, the growth of ARR.

The growth process consists of three parts of growth: new customer ARR, expansion ARR, and churn ARR.

How difficult is this? Especially the new customer ARR, as long as you are willing to invest, the growth will be as high as possible.

In theory, it really should be. That is, by attracting Afghanistan Phone Number a large number of customers to increase market share, it is possible to become a future winner.

However, the SaaS business has a characteristic: the initial cost of acquiring customers is very high, and the subscription revenue model can only be recovered and profitable year by year in the future. So the SaaS business will inevitably start to incur losses, manifested in deeply negative cash flow .

Second, when to step on the accelerator and when to step on the brakes?

Afghanistan Phone Number
Afghanistan Phone Number

But the real problem will happen after getting financing.

As more and more customers were acquired, losses also widened rapidly. Sometimes it can be big enough to make you and your investors nervous.

Is this SaaS business really viable?

Many entrepreneurs and investment clients judge this matter from the perspective of the “track”, which is actually completely unsolved. Because every track has successes and failures, the success of others’ tracks has nothing to do with you.

Let go of the track obsession first and return to the essence of business. You have to prove two things:

First, is it possible to make a profit? Second, how long does it take to make a profit?

The way to verify the first question is LTV/CAC, that is, whether it will be profitable in the long run. The second question is calculated by CAC payback. How long does it take for CAC to pay back?

As you may have seen, these two verification methods are only judgment criteria under ideal conditions (but without this, you have no other verification methods), and there will be considerable variables in actual situations.

 

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