While no one seems to know for certain whether the economy is going to get worse or better from here on out, many consumers, investors, and businesses alike have cut back their spending just in case. This has resulted in an environment where many startups that were flush with cash just a couple of years ago are now trying to make their money stretch as far as possible.
For startups that began within the past year, the situation is even worse—with the odds of securing a big funding round becoming smaller than ever, and with only a bit of bootstrapped funds or maybe a small series A under your belt, it may feel like your business didn’t even get a chance.
However, as our latest 2023 Benchmark Report revealed, growth is still possible in this economy—it’s just going to take some more creative problem-solving.
If you’re trying to scale a startup despite being on a budget, read on for tips on how to lower SaaS expenses optimize your cash management, and streamline your operations to achieve growth.
Scaling SaaS: How understanding your financials helps you manage costs
Before you think about cutting or increasing costs, you first need to understand the current state of your finances. To learn how to examine your financials, check out this article on building FinOps efficiency, and this article about tracking your revenue.
But for now, here are a few areas in which your business can benefit when you understand how to manage your finances—all of them are important for scaling.
- Sustainability. By understanding how to maintain a healthy cash flow, you can cover your day-to-day operating expenses and ensure your business remains financially viable in the long run.
- Prioritization. By identifying areas where expenses are higher or lower than expected, you can strategically allocate funds to prioritize investments that align with your performance and growth goals. This can help you make the most of every dollar.
- Growth planning. Managing your finances properly enables you to seize opportunities and invest in growth initiatives at the right time. This agility allows you to stay ahead of the competition.
- Debt management. Optimizing your finances allows you to meet debt obligations without strain and avoid excessive interest charges. It also lets you improve your creditworthiness and ability to take on more debt in the future.
- Crisis management. It’s important to have a safety net during times of economic instability or unexpected expenses. Planning ahead to ensure you have this safety net can help you survive recessions, funding hurdles, or fluctuations in your market.
- Investor confidence. Investors are naturally drawn to SaaS startups with a clear and positive cash flow. It reflects a well-managed business with a keen eye on financial sustainability.
If you want to check how much runway you’re working with and how your business metrics could be improved if you were able to supplement your runway with non-dilutive capital, try our runway calculator. And if you want to see projections of your ARR, deals closed, and cumulation cash flow over the next 12 months, try our ARR calculator.
7 cost-saving techniques for scaling SaaS startups
Here are 7 cost-saving techniques that can help you increase your working capital and optimize your operations so you can continue to grow, despite a challenging economic environment.
1. Embrace lean (or agile) operations
“Lean operations” is a business management style that focuses on minimizing waste, redundancies, and inefficiencies within your business processes. In the SaaS world, a different version of this called “agile” is more common, and there are several other versions popular in other industries as well.
Whatever specific methodology you want to use, the point is this: Aim to increase productivity and revenue potential while reducing unnecessary expenses and time wasters. This can be accomplished by techniques like process mapping, which allows you to identify and eliminate inefficiencies, or by using Scrum or Kanban as a framework for managing work and tracking progress.
You can also encourage lean operations by encouraging employee collaboration, investing in training that can enhance the capacity of existing talent, reducing multitasking, and establishing concrete performance indicators.
2. Avoid subscription creep
Subscriptions are necessary for keeping your business running, but they can also cause a serious drain on your financial resources—especially since they have a tendency to sneak up on you over time.
To combat subscription creep, start by conducting regular audits of all company subscriptions, big and small. Identify underused or unnecessary services and consider canceling or re-negotiating the terms of these subscriptions.
Additionally, scrutinize any upsells or add-ons that may not align with your team's core needs. Assess whether these additions genuinely contribute to your operations and productivity. Remember that subscriptions can fluctuate in usefulness—so even if an add-on was necessary last year, it may be unnecessary this year.
You should also consider implementing a centralized subscription management system to track usage and costs more effectively. This system can provide valuable insights into which subscriptions are providing the most value and which may be expendable.
3. Automate & streamline whenever possible
Automation has many benefits: It frees up your team’s time to focus on more strategic initiatives, it makes their jobs less repetitive, it allows for higher productivity, it reduces the chance of human error, and in many cases, it reduces the need to hire as many people.
Identify repetitive tasks that can be automated using software or tools, such as customer service chatbots, automated email marketing, or invoice generation software. Workflow automation tools like Workato or Salesforce are a great value-add for almost any organization, while more specific tools exist for more specific needs.
And for things that can’t be automated, try to streamline workflows as much as possible to boost productivity and eliminate waste. Ask your team if there are any redundancies or bottlenecks in their current workflow, and find tools or systems that can help.
4. Encourage remote work or co-working spaces
While remote work remains a controversial topic, for newer startups that haven’t yet invested too much in office space and are looking to save some money, there are very few downsides.
Encouraging remote work is a cost-effective strategy to eliminate expenses related to real estate, utilities, and office perks while attracting top talent from a broader pool of skilled professionals. There’s also evidence that remote work encourages higher productivity.
You can make the most of a remote work environment by embracing modern collaboration tools like Slack, Zoom, or Asana to foster productivity and team collaboration. These tools enable seamless communication and project management, allowing your team to work together efficiently regardless of their physical locations. You should also create a remote work policy to set expectations and guidelines for your distributed team.
If you still prefer in-person collaboration or want a hybrid work environment, you could also opt for renting a co-working space. Co-working spaces offer flexible rental agreements, eliminating the commitment of a long-term lease. They also provide access to amenities like conference rooms, high-speed internet, and communal areas, creating an environment conducive to productivity and creativity.
5. Make the most of open-source software & free tools
Open-source software and free tools offer an excellent opportunity to save money without compromising functionality—so long as you choose the right ones. Many popular open-source software databases, such as Apache and PostgreSQL, provide effective alternatives to costly proprietary solutions and can be leveraged for tasks like server hosting, web development, and database management.
Additionally, take advantage of free tools that can support various aspects of your startup's operations. Google Drive, Trello, and Slack all offer free versions that can support collaboration, project management, and communication, especially if your team is small.
However, free and open-source tools can come with downsides: they’re generally clunkier, limited in functionality, and less intuitive than their paid counterparts. When considering whether to use a free vs. a paid service, take into account the tool’s function, security, scope of features, and your team’s skill level and capacity for learning to use a new tool.
6. Hire strategically & consider outsourcing
Payroll is a constant expense, so determining when it’s best to hire full-time employees, contract workers, part-time employees, and when to outsource specific tasks or projects is crucial to managing your budget effectively. It’s also important to ensure you get the most out of your team and aren’t wasting talent.
When hiring full-time employees, focus on recruiting individuals who bring essential skills and experiences that align with your startup's growth trajectory. You should also engage in regular training to up-level your team’s skills and avoid overstaffing or hiring for roles that may not be immediately necessary. Scaling your team on an as-needed basis ensures that you are only paying for talent that adds immediate value to your business.
For tasks that require specialized expertise, are project-based, or are a mix of both, consider hiring part-time workers, temporary contract workers, or outsourcing. While this may require more oversight to ensure the work is up to your quality standards, this can help you lower payroll expenses significantly.
7. Focus on core competencies
While it may seem counterintuitive to scale by narrowing your focus, honing in on core competencies enables you to build a solid foundation for expansion. As your startup achieves success in its specialized area, it creates opportunities to leverage that success for further growth, all while minimizing the risks and expenses associated with diversification.
Avoid diverting resources to areas that fall outside your core expertise, and instead, prioritize investments that enhance your core products or services, add value to your existing offerings, and strengthen your market position. Listen to customer feedback and incorporate new features and services that directly address the needs of your current audience.
And if you do choose to invest in new, more experimental projects, monitor them closely to ensure they’re giving you the returns you’re looking for. Be prepared to abandon ship and pivot if they don’t work out, and don’t get stuck falling for the sunk-cost fallacy.
What about increasing revenue?
Of course, while cost-saving strategies are nice, the best thing to do to fix a tight budget and scale is to increase your revenue. Not only does increasing revenue tangibly show that your business is growing and becoming more successful, but it also allows you to access more capital for investing in product development, marketing, customer acquisition, and other things that can help you scale your startup even more.
Here are some strategies you can use to increase your revenue.
- Improve product or service quality. Delivering a high-quality product or service is essential for attracting and retaining customers. Continuously gather feedback from your users to identify areas of improvement and address any pain points, then work on solving those problems.
- Invest in a better customer experience. Streamline onboarding processes, provide excellent customer support, and personalize interactions to meet individual needs. Happy customers are less likely to churn and more likely to advocate for your brand.
- Upsell and cross-sell. Increase customer LTV and overall revenue by encouraging customers to explore additional features, premium plans, or complimentary products that align with their needs.
- Diversify products and services. Analyze market trends and customer demands to identify opportunities for diversification that can open up new revenue streams. However, ensure that any expansion aligns with your startup's core competencies and doesn't dilute your focus.
- Expanding into new markets. Consider targeting new geographical regions or industries with untapped potential. Conduct thorough market research to understand local needs and preferences and tailor your offerings accordingly.
- Update your pricing strategy. Analyze your competitors' pricing strategies and conduct pricing experiments to determine the most effective approach. Consider offering tiered pricing plans to cater to various customer segments or offering flexible payments with B2B BNPL.
Capchase Pay: A unique solution for revenue acceleration
Capchase Pay is a B2B BNPL solution that allows you to increase your revenue without making any changes to your product, sales strategy, or pricing. By allowing customers to pay in flexible installments for long-term contracts, you can secure your entire ARR in full upfront while your customer gets to enjoy a reduced financial burden.
To project what your ARR, deals closed, and cumulative cash flow may look like over the next 12 months with and without the help of Capchase Pay, try our ARR calculator.
Scaling a startup is a balancing act. Capchase can help
While scaling a startup is more difficult in the current environment, it’s not impossible. Even if you’re on a budget, there are a variety of actions you can take to reduce your expenses, improve your performance, and increase your revenue so you can tackle new expansion projects.
Whether you’re looking to increase your revenue, expand your customer base, or inject some extra working capital into your business to get through a challenging month, Capchase can help. Our B2B BNPL solution can help you accelerate your sales, increase ARR, and expand your customer base, while our non-dilutive financing solution can help you access flexible capital without giving up equity.
To learn more about either of our offerings, book a demo with us today.