Saas guide: Increasing your value as you scale
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The value of your SaaS business should always be one of your top considerations. With the industry growing by 18% annually, everyone wants to get in on the action, so there will always be opportunities to sell if you decide that you want to.
But to feel happy about your SaaS business and its valuation, you need to know not only how to value and sell it but also how to grow it in a way that increases its value.
Countless factors can influence your SaaS company’s price, and they go much further than its age or number of customers. In the Software-as-a-Service world, things can change quickly, so you want to reassure investors that your product is at the height of its lifecycle and as relevant as ever.
But how can you do that?
Let’s look at some of the most effective ways you can increase your business value as you grow. But first, let’s understand a few of the main factors that influence value in the first place.
What determines how much a SaaS business is worth?
Many factors can determine the perceived value of a SaaS business. And some of them might not be as obvious as in some other industries.
For instance, since churn is such a big concern in the SaaS world, prospective buyers will expect you to have a wide variety of marketing channels to compensate for it.
After all, if you’re losing customers at a rapid rate, it’s only natural to assume that you’ll need a comprehensive customer acquisition strategy to compensate for it. One or two methods can dry up, but if you have a broader strategy, that won’t have as much of an impact.
Another crucial aspect that impacts SaaS valuations is how complex a product is. If someone needs in-depth technical knowledge to understand and manage it, that could deter less technically proficient investors.
Finally, the competition that you’re going against will also be important. If there are established and large companies that you are trying to go up against, matching their wide-range of features will be an uphill battle when you’re trying to get people to sign up.
Still, if you can position a smaller SaaS product as a simpler and more efficient solution, that could give you opportunities to appeal to a narrower audience despite some overlap in your features with the big players.
How to increase your SaaS value as you scale
As your business grows and acquires more customers, the natural expectation is that the value will increase proportionally as well. But as you might have already gathered in the previous section, growth is not the only metric, so sometimes your business’s value might lag behind the MRR numbers you are achieving.
Therefore, let’s look at some ways how you can ensure that your value stays consistent as you scale your SaaS business.
Provide outstanding support
One of the biggest risks companies run when scaling too quickly is reducing the quality of their services. And that means not only the product itself but also the support system that you have in place.
As you experience rapid growth in the number of customers, you may find that your current support capabilities cannot stay on pace. Adding and training new people isn’t always easy, especially if you were handling support yourself.
That’s why it’s a good idea to consider whether outsourcing the support functions would be a good option in your situation. That would help take advantage of the best practices utilized by the outsourced service and ensure consistent performance, no matter how rapidly you grow.
You should also think about adding automation features that would help make the job easier. For instance, you could run an NPS survey to gain insights about what you could do differently and set up a chatbot to provide immediate assistance when a live person wasn’t available.
Failing to respond to customers quickly is one of the fastest ways to ruin your reputation, so avoid it if you don’t want your company’s value to suffering even when other metrics are solid.
Try to lower the churn rate
Churn is one of the biggest headaches SaaS owners face. Even though it’s an unavoidable reality, the fact that a significant percentage of the customers won’t be there next year is a scary thought since that puts pressure to be constantly generating leads.
We already talked about how having multiple marketing channels can help compensate for the losses that accumulate because of churn, but that’s only part of the solution.
By actually reducing the churn rate itself, you can provide an immediate boost not only to your ARR but to your company’s value as well.
A low churn means your customers are happy and find value in your product for a long time, which is something that all investors love.
But how can you decrease your churn rate?
Well, the first step of the process is understanding why the churn is occurring at all. By organizing exit interviews or even a quick survey, you can gain insights about why people decide to leave and try to address those issues as soon as possible.
You should also try to maintain an engaged and responsive relationship with your audience for as long as they use your product. By showcasing your product’s benefits and revealing multiple uses, you will increase the likelihood of people making the most of what it has to offer, which will persuade them to stay with you.
Finally, continue analyzing your data and looking for which customers benefit the most from your product. Once you identify the best group of customers, focus your marketing and efforts on them, which will naturally decrease your churn rate as these ideal customers start making up a larger percentage of your user base.
Don’t run outrageous sales campaigns
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Marketers love discounts and sales. But for SaaS companies, the new users that are acquired this way will always be tainted in the eyes of prospective buyers.
Sure, it’s a fast way to get an influx of new users. And if you just want more usage data, running these types of campaigns can be worth it.
But if your primary strategy for boosting revenue is to run promotions, that means that your product is either valued incorrectly or that you aren’t targeting the right people.
If you scale your business using special offers, buyers will usually not view these users as very valuable. Once the promotion ends, they will be much more likely to drop off, leaving you where you started.
Some prospective buyers won’t even consider companies that frequently run steep discounts. Therefore, avoid this strategy and try to develop a sustainable pricing approach that showcases your value and gets people to stay long term.
Final words
Scaling your SaaS business is very exciting, but if you want to make sure that its value increases together with the growing number of users, there are some things you need to consider.
By following the advice above, you will have a much better chance of maintaining the value of your business as you grow or even increasing it by generating excitement about how fast your SaaS company is taking off.