At Capchase, our mission is to help SaaS companies grow faster with capital and insights. That’s why we published the first-ever Capchase SaaS Benchmark Report last month, wherein we crunched key growth data from over 450 SaaS businesses with recurring revenues between $1-15M.
If you haven’t checked it out yet, get your copy today to see what best-in-class performance looks like for early-stage SaaS startups in ARR Growth, Gross Margin, Rule of 40, LTV/CAC and more.
But understanding what good performance looks like—and how your business measures up—is only half the battle. In a down economy, you need to adapt to survive and even well-funded businesses need to move away from the mantra of growth at all costs.
In this article I share advice on how to keep your business growing over the next 6 - 12 months and on track for long-term success.
Consider your next round very carefully
Given the depressed valuation multiples and VC funds retrenching from the market, raising a round in the coming months will be challenging as your revenue and growth will have to be much higher in order to achieve the desired valuation. Even if you are able to fundraise successfully, rounds will take longer, as greater analysis and due diligence is required. And whether you’re approaching new or existing investors, you can expect less capital invested, on less favorable terms.
Realistically, only businesses in the top quartile of the SaaS metrics that we share in The Capchase SaaS Benchmark Report have any hope of raising capital in the current environment. Make sure you understand where you’re positioned before approaching investors. If you’re not performing above the median, it’ll be wise to optimize those areas where you’re falling short first.
The most sensible course of action for most SaaS startups right now is to look at ways to extend your runway—aim for 24 months—to buy time for growth to materialize or the market to improve.
To extend runway, stay disciplined and consider all your options
To extend your runway, you could consider cutting non-performing products, decreasing R&D and G&A expenses and doubling down on creative strategies to recover CAC instantly to reduce burn associated with growth.
The top-performing SaaS companies spend 40-55% of their revenue in sales and marketing expenses, including tools, ads, salaries and commissions. They are now facing a dilemma—do they continue to invest in growth or do they focus on profitability?
The answer to maintaining growth is almost always more funds, but while the equity markets are closed, startups should look at alternatives like non-dilutive financing.
As a non-dilutive lender, we can help you extend your runway and raise an equity round at the right time. In the current market context this might mean using Capchase to delay your next equity round until you’ve either grown into your valuation, or the market is in a better place.
Focus on customer retention and payment terms
Operationally, B2B SaaS businesses should closely monitor their customer base and try to anticipate churn from sectors that are the most exposed to a downturn. Industries such as e-commerce and marketing are more exposed to changing market conditions as superfluous spend tends to be reduced first.
Focus aggressively in retention and upselling. It’s much easier—and cheaper—to sell to an existing happy customer than to acquire a net new customer. Net retention rate can have a similar impact on burn as growth and is usually much more efficient.
Another high-focus dilemma is payment terms for your customers. Do you charge upfront to have more cash (and thus your customers finance you) or do you charge monthly to reduce adoption barriers (and thus you finance your customers)?
Not an easy choice, and it depends on your payback period, ability to retain customers and business operations. If you have more than 24 months of runway and good retention, I would suggest you charge monthly to increase conversion. Alternatively, and especially if you have a long time-to-value motion, try to get upfront payment for every new customer, even at the expense of a discount.
Download your copy of The Capchase SaaS Benchmark Report
Whether you’re planning to raise funding in 2022, or preparing to weather market uncertainties, it’s more important than ever to have a razor-sharp understanding of what good performance looks like.
Download your copy of The Capchase SaaS Benchmark to:
- Understand what top and median performance looks like at different revenue stages.
- Increase your chances of fundraising by seeing how you compare to your peers.
- Know what your performance needs to look like if you’re aiming for an IPO.