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Top 5 data points that may make or break your SaaS acquisition

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To market your Software-as-a-Service (SaaS) startup at a cost and terms that produce you happy, you will need data that convinces buyers that what youre requesting is fair. Put yourself in the buyers shoes: What do they need? What motivates them? Only then do you want to understand how to address their concerns.

Your probably candidate is really a financial buyer: A person who sees your startup being an attractive investment on the medium to longterm. Financial buyers compare asking prices to future earnings potential to find out whether its fair trade.

Factors audience look at include: How easy might it be to scale your SaaS startup? Will they earn a profits on return (ROI) in 3 to 5 years? Ultimately, you’re in charge of proving your startup can be an exceptional investment opportunity. And, in this, metrics matter.

No financial buyer worth their salt will need a chance you if you don’t have the info to back up your claims. After all cold, hard numbers like monthly recurring revenue (MRR), customer churn, acquisition costs, customer lifetime value, and much more.

Before listing a SaaS startup on a marketplace like MicroAcquire, review the below data points. Otherwise, you may spend months together with your hook in the water without the bites. Time kills all deals, so act now before its too late.

The info that influences buyer decisions

It doesnt matter if its a person or perhaps a highly-capitalized private equity firm financial buyers value a very important factor only: earning a return on the investment.

The earlier they earn that return, the higher, so its reasonable to assume your SaaS startup ought to be growing fast at the very least for the sector and point towards an exit opportunity in a couple of years. Generally, buyers also desire to see profits (historical and projected).

Opportunity is equally important is there growth levers youve yet to pull? When you can convince the customer youre sitting down on an untapped market, they’re more prone to cause you to an offer. But that wont mean much if you don’t may also prove the long-term resilience of one’s business.

It is possible to and should create a convincing case for these high-level goals, but moreover, back them up with data. Build your rationale from your own data first also it becomes a good foundation that buyers cant shake.

1. Growth (revenue and profit)

Considering growth alone, acquiring a SaaS startup is like purchasing a stock. The customer expects the worthiness of one’s business, that is usually a multiple of revenue or profit, to improve as time passes. Any pattern that supports this theory is really a tick in the buyers box.

Annual recurring revenue (ARR)

Annual recurring revenue (ARR) can be your annualized income from subscriptions. Naturally, your ARR should increase as time passes. Stagnant or declining ARR is really a red flag (unless youre going to win a big contract or new market). Buyers will probably ask for at the very least 3 years of data.

Monthly recurring revenue (MRR)

Monthly recurring revenue (MRR) can be your monthly income from subscriptions. Like ARR, your MRR also needs to increase year over year. Fluctuating MRR might indicate seasonality, overdependence on marketing campaigns, or a concern with churn or your product.

Earnings before interest, taxes, depreciation, and amortization (EBITDA)

Earnings before interest, taxes, depreciation, and amortization (EBITDA) indicates a startups profitability. It ignores the consequences of financing and capital expenses to point profitable growth potential, especially in SaaS businesses.

Again, EBITDA should increase as time passes as you scale. Buyers also use EBITDA to compare SaaS companies of exactly the same sector: A yardstick for the position on the market. Buyers may also be more likely to use EBITDA within their valuation of one’s company.

2. Opportunity

Heres where in fact the comparison between acquiring a SaaS company and purchasing a stock ends. Buyers have far more influence on the returns of acquiring a SaaS startup when compared to a currency markets investment. Their expertise alone creates opportunities that you could help elicit.

Churn

Churn means various things with respect to the context, but mostly, it’s the lack of revenue or customers, expressed as a share. The amount of customers or total revenue lost in confirmed period are tallied, then divided by the clients or revenue in the beginning.

Although theres no industry standard for reporting churn, most online language resources claim typically 3% to 8% for SaaS. Anything greater than 10% could indicate an underlying problem together with your business, so expect buyers to question you about any of it.

Compare churn with other similarly sized startups in your sector. If youre below typical, youll reassure buyers of one’s customers loyalty in addition to a quality product. High churn means a leaky ship youre spending more to displace lost revenue that is unsustainable over time.

Customer acquisition cost (CAC)

Customer acquisition cost (CAC) may be the amount you may spend to get a new customer. The low this number, the higher, because it implies your marketing is fertile ground. A minimal churn and CAC tells the customer they are able to grow the business enterprise without an excessive amount of extra work.

A higher CAC, however, particularly if your churn can be high, indicates that you may not need found product-market fit yet. Without a dealbreaker necessarily, it might mean plenty of work with the customer. Consider waiting to list your SaaS startup and soon you reduce these numbers.

Customer lifetime value (CLV)

Customer lifetime value (CLV) may be the revenue you anticipate to earn in a customers lifecycle (or time spent together with your company). This number ought to be at the very least 3 x that of one’s CAC (a CLV to CAC ratio of 3:1) to point a wholesome and resilient business.

Financial buyers can look at all three opportunity metrics (churn, CAC, and CLV) to judge your startup. Could it be who is fit or does it need expert attention? Perhaps you rely an excessive amount of on paid ads, for instance, rather than enough on SEO or referrals.

Side note: Some financial buyers search for SaaS businesses with something missing. Then they fill that gap to supercharge growth. Youll command an improved price if youve already done the effort, but if youre pretty quickly to sell your startup, consider presenting your weakness being an opportunity.

3. Market

Are you currently a whale in a puddle or perhaps a guppie in the ocean? Most SaaS companies are somewhere in-between. Even though youre the marketplace leader in your sector, this type of privileged position and a head start for buyers seldom lasts. Whos waiting to beat down your visitors doors?

Number and size of competitors

Competition is inescapable running a business. Your specific selling points can, but dont always, compensate for a saturated market. Someone might copy everything you do and take action better. Buyers, therefore, wish to know the size and amount of your competition to ready their defenses.

A saturated market may not be an issue if its large or growing at an instant clip (such as for example ecommerce). However, too little competition might indicate that nobody else thinks youre doing something worthwhile. In any event, the info helps buyers infer potential returns.

Past acquisition data

If your buyer is really a professional, like a private-equity firm or venture capitalist, their market knowledge could put you at a disadvantage. If you don’t understand how much startups like yours typically sell for, your buyer might lowball you without you realizing it until its too late.

Make reference to multiple reports such as for example those from acquisitions marketplaces like MicroAcquire, read valuation articles and case studies, and get in touch with other founders. At what multiples do startups of one’s size and sector usually get acquired? Thats your yardstick for negotiations.

4. Persistence

How can you prove the near future longevity or persistence of one’s business? Its insufficient showing profit and revenue growth in the event that you expect some outside influence to neuter your organization model. Collect the next data to convince buyers that the nice times are here to last.

Intellectual property (IP)

For a SaaS business, your intellectual property (IP) is everything. Its the lifeblood of one’s business, what folks pay you for each month or year. You need to persuade buyers that youve future-proofed your IP with watertight patents and ownership rights.

If your intellectual property isnt patented, how easy could it be to copy? If your product is open-source, you will need a rationale explaining why it wont impact your organization model. Similarly, have your contractors signed IP waivers for what they build on company time?

A very important factor the pandemic has made painfully clear is that trends in cases like this, residing at home dont last forever. Netflix, Peloton, and the mighty Zoom are losing momentum given that lockdown orders have lifted. What trends does your organization enjoy and can they last?

Tickets

Your customer care tickets reveal various data about your startup. They are able to indicate a buggy or immature product, operational inefficiencies, technological dependencies, poor messaging, and much more. Put simply, theyre an enthusiastic way of measuring how well youre doing.

While certain tickets may be an easy task to solve a bug, for instance others, like a weak engineering team or misunderstanding of one’s target market, could possibly be catastrophic. Buyers would want to review your customer care tickets, so make sure that you know very well what secrets they reveal.

5. Positioning

How well perhaps you have positioned your startup to customers and stakeholders? Buyers are searching for your personal sauce, the matter that customers love. The facts you do this delights customers? Do your messages attract a big audience? Are you currently delivering on your own promises?

Brand

It is possible to gauge the strength, reach, and effectiveness of one’s brand in multiple ways. Ideally, you wish to collect just as much data as possible and summarize it in a written report for audience. Ive included three important brand metrics below to kick things off.

Media coverage

Just how many mentions in industry or mainstream press perhaps you have won? Was this press positive, negative, or neutral? Articles about your startup or that mention your startup in a discussion of another topic help prove that youve built legitimacy and credibility in the general public eye.

Impressions

Just how many of one’s prospects connect to your marketing campaigns? So how exactly does this equate to that of one’s competitors? This measures your share of voice. Put simply, just how much attention your prospects offer you over your competition.

Web site traffic

Your site traffic tells a variety of stories. Ideally, you wish to demonstrate growth here as you do profit and revenue. Your bounce rate (the percentage of visitors that visit but dont stay), however, ought to be low, as this means that that youve nailed your messaging and user experience (UX).

Reviews

In 2021, over 91 percent of customers read a minumum of one online review before buying. The more reviews that are positive you attract, the bigger the chance a prospect will obtain you. Buyers would want to see reviews, case studies, and testimonials to gauge your visitors opinions.

Net promoter score (NPS)

Your net promoter score (NPS) measures how likely your visitors are to recommend your product or services to other folks. Not merely does this reveal client satisfaction, but additionally customer quality are they loyal, engaged, and happy? Or fickle and frustrated?

Customers trust their friends and family over advertising, so an army of customer champions will probably be worth its weight in gold. Social proof also saves buyers marketing dollars through word-of-mouth referrals. Keep your NPS above the SaaS average of 28 to wow audience.

Buyers are naturally skeptical. The aforementioned is a snapshot of the info you may share. Gather just as much data as possible to substantiate your claims. Once your case is too persuasive to ignore, you may just sell your SaaS startup at the purchase price and terms you need. All the best.

Andrew Gazdecki is really a 4x founder with 3x exits, former CRO, and founder of MicroAcquire. Gazdecki has been featured in THE BRAND NEW York Times, Forbes, Wall Street Journal, and Entrepreneur Magazine, and also prominent industry blogs such as for example Axios, TechCrunch and VentureBeat.

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