Simon Ingleson
CEO and Founder
RosterElf
Like many of us, I get asked all the time at networking and business meetings, “…so Simon what do you do?
I cringe. Not because I’m don’t love my tech business, but because I know I will get the usual blank stare when I give my reply.
My answer is normally, “I am founder of a cool Saas business” and then await the normal awkward silence. This happens before I can even explain I run an amazing cloud based staff rostering, time and attendance and payroll integration business founded in Perth.
Upon hearing my answer, my new contact will either drop their ego and politely ask…”Sorry… a WHAT business?” or nervously nod as if they know what I’m taking about when clearly they think I’m talking Swahili.
Either way…I normally go into an explanation and here is how the conversation usually goes from this point.
Saas stands for “Subscription as A Service.” It’s normally a cloud based B2B solution where users pay a subscription on a regular basis to use the platform either on a usage basis or a monthly set amount. Think Xero, Salesforce, Mail Chimp as the headliners. These are all SaaS business.
Whilst Saas is a massive tech segment overseas, sadly in Australia, this form of tech startup is rare and most punters have no idea about the business model or how its works.
The challenge with Saas is users pay a low fee each month (my average user is around $80/month) so you need a lot of them to pay the bills. We call revenue in Saas world Monthly Reoccurring Revenue (MRR) which equates to all of your incoming revenue normalized in to a monthly amount.
For example, if I have 1000 customers all spending $80 a month, my MRR is $80,000.
So rather than with enterprise software where customers have a long sales cycle but prepay big bucks for services, Saas is a game of slow and steady growth month on month to build a regular and growing revenue stream.
Below is what RosterElf’s MRR looks like since we founded in 2015. Each month, more customers and more revenue…slow and steady growth in a north direction.
Watching revenues compound month by month is the fun but patient game of saas.
Other than a fair degree of patience and a quality hair dresser to cover the greys, it is about getting a few core metrics right.
1. MRR growing faster than Churn.
Churn happens when customers that stop using the service each month. No matter how good your Saas product is, churn is inevitable even if is just normal rates of business closures happening amongst your customer base.
With RosterElf, we have worked hard to get churn down to less than 1-2% each month which is great. In the world of Saas, if you don’t focus on retention as much as acquisition, you will quickly find that you are losing as many customers as you gain each month and the net result is nil or negative growth.
2. CAC < 12 Months MRR
Sorry for more Saas lingo but this metric is really vital for investors looking at Saas business models. CAC stands for “Cost to Aquire a Customer”.
Basically if the CAC takes more than 12 months of MRR to recover, the model is not efficient. For example, if your average customer has a MRR of $80, you should have a marketing machine that can deliver each new customer for a cost of less than $960 ($80 x 12). Yep my head hurts too don’t worry
A Saas business like RosterElf will try all sorts of channels from SEO to Adwords and Social, from email marketing to partners and resellers. But always these channels should be judged on if they deliver an efficient way of acquiring new customers.
If you’re investing in a Saas business this is one of the most important metrics to understand and is one of the best indicators that the business model can stand the test of time.
3. Cost to Service and Onboard.
Let’s say your average customer is worth $80 a month, hosting lunches to pitch to new prospects doesn’t really add up (especially if you have an expensive wine habit like me).
As the diagram below shows, if a Saas business is priced under say, $100 a month, it is vital that the model of on-boarding new customers and providing support to existing customers is as efficient and low cost as possible.
Much of my time in the last 12 months has been getting this metric right. We have a business which is simple to use with great tools and mostly self-service but with low-touch support in via phone, email and live chat for 24/7 backup as needed. Customer self-support as much as possible is key.
In a nutshell…It’s been a fun, challenging, frustrating and exciting journey to date. For Saas founders the biggest skill to learn is patience. It takes time, trial and error and you have to be prepared to pivot to ensure you get to a sustainable business model that is growing at a healthy rate.
I’m pleased to say we have passed what I call ‘startup land’ and have found a product that customers love and rarely leave plus marketing growth channels and a support machine that are efficient. MRR is paying the bills and continues to grow. We are now calmly tweaking and scaling our business one region and segment at a time. Definitely the fun bit.
So, next time you meet a tech founder who says they run a “Saas business”, I hope your instant response is “Awesome, I know what Saas is…tell me about it.”
Cheers
Simon