How To Value SaaS Business

This post focuses on how SaaS metrics relate to customer onboarding, company growth, and the generation of sustainable income needed and sufficient to not only stay afloat in the turbulent sea of web marketing but thrive.

Recall that SaaS is Software as a Service or just cloud technologies.

Specialists of the resource Price Intelligently, which studies strategy and psychology of pricing in the Internet environment, give marketers the following advice:

"Your customers don't care about your costs, so never try to build a pricing strategy around that."

This quote is 100% true. Consumers in the SaaS sphere, as in other marketing niches, want to know only how your service will solve their problems, help them earn money, etc. However, this fair statement does not mean that you should not understand the structure of your expenses, in particular, such as their most important component as customer acquisition cost (CAC).

Most SaaS companies understand the importance of Customer Acquisition Cost as a criterion for the success of a marketing strategy. But they do it more on an intuitive level, which is not sufficient for confident profit optimization.

The cost of acquiring customers is a matter of concern for many marketers working in any market sector. But CAC analysis and optimization are vital for SaaS because it is for this type of business that success depends on the maximum profit brought by the Lifetime Value of the Customer (LVC).

Acquiring new customers is the main expense of any startup, and this is where a significant amount of time and money is spent before a newborn business begins to yield a return on investment.

In terms of your planned pricing strategy, it is vital to remember the Customer Acquisition Cost. When you have high-value customers who are willing to spend a lot of money, you should calculate their CACs to see if they are prohibitively expensive to you. The flip side of the coin - also quite a realistic turn of events - may be an invasion of Freemium users, who may have cost you inexpensively, but also do not buy the paid version of the service.

The cost of attracting a customer is part of the price equation that allows you to understand what makes up your profit. Your success or the death of your business under the weight of your inefficiency is what Customer Acquisition Cost stands for in web marketing practice.

The situation when you have to wait months or even years before the incoming cash flows overlap the total value of the acquired customers, and you finally start making a profit is quite common in the SaaS and IT market in general.

The key to success is developing a business model to ensure you get more money from your customers than you spend acquiring them.

For more information on this topic, see the article: https://www.eleken.co/blog-posts/saas-valuation-how-to-boost-the-value-of-your-business-before-a-sale

Previously published at https://www.reddit.com/user/IT_Spongecake/comments/joj4pl/saas_valuation/