All SaaS startups foster a secret (or not-so-secret) hope of hitting the milestone of being a unicorn. In the parlance of venture capital, a “unicorn” is a private startup whose value is greater than $1B USD.
The SaaS marketplace has a crucial point of overlap with the fantasy stories many of us were told as small children. Unicorns are real, but they’re extremely rare. A few that come to mind would be Marqeta, 6Sense, BrightInsight, WorkBoard, and others on that scale.
Here’s what this all means for you as a SaaS CFO. If you can figure out the steps those companies followed to get where they are, you can replicate some of their results.
And we can guarantee that every single SaaS unicorn CFO would say the same thing if you asked them where to start: begin with your metrics and models.
How to lower your customer acquisition cost
Customers are the central factor in the success of any recurring revenue business. You’ll never obtain SaaS unicorn status without an ever-expanding pool of satisfied customers.
But there’s one more crucial element at play. Your customers must become less costly to acquire as you get more and more of them. Note that we didn’t say “should”: lowering your customer acquisition cost (CAC) is a non-negotiable part of long-term business success.
Here are some of the best ways to achieve a lower CAC quickly and painlessly:
- Double down on what’s working: Investing in SaaS Subscription & Financial Management Software can help you instantly identify your most profitable customer segments and service offerings. Once you have that data, you can go all in on your highest-returning segments and make money faster.
- Get serious about social: Cultivating engagement on social media is one of the best ways to get word-of-mouth referrals. Some startups have more active audiences on LinkedIn, while others find Facebook or even Instagram more promising based on their target customers.
- Sculpt your marketing funnel: A robust marketing funnel is one of your strongest bets to cut your CAC across time. A well-built funnel acts as a self-selection mechanism for interested customers. High-potential prospects will move further and further down your funnel, while uninterested parties will leave.
Once you’ve started experimenting with different methods to lower your CAC, don’t get too comfortable. There’s still a lot of work to be done.
Enhance each customer’s financial value
There’s one more essential customer SaaS metric to cover before we start analyzing pricing strategies. When you think about your SaaS customers, you’ll want to keep two primary metrics in mind.
The first one is your CAC, which we discussed above. But there’s also your customer lifetime value (CLTV) to consider. Your CLTV measures how much money you generate from each customer before they unsubscribe.
If you picture these two SaaS metrics on a graph, you want to see their lines trend in opposite directions. Your CAC should be sloping downward more and more aggressively, and your CLTV should be sharply rising at the very same time.
The ways to boost your CLTV are limited only by your imagination. But you’ll find that a common theme involves staying close to your customers. Find ways to consistently remind them of your company and the pleasure it brings them without being too pushy.
And don’t forget to track and optimize your other KPIs that will help grow your business and impress investors.
Get strategic about pricing
Pricing is just as important as product quality when maximizing long-term recurring revenue. It’s best to view pricing as a balancing act.
People can love the idea of a product, but if it’s overpriced, they won’t be able to justify purchasing it. At the same time, if you under-price your products too much, you’ll lose revenue (and as you sell more, you’ll steadily lose larger and larger amounts).
This is why some of the most effective SaaS billing models don’t involve fixed-rate monthly pricing. That’s certainly an approach you could try, but keep these in mind as well:
- Usage-based billing: This billing method tends to be well-liked by customers and profitable for SaaS companies because it allows customers more control over their spending. Flexibility is a strong selling point in subscription revenue transactions.
- Hybrid pricing: Hybrid billing is a combination of fixed-price and usage-based billing. Customers pay a flat rate each month which entitles them to a certain amount of use from your product. Once they’ve reached that limit, they can wait for their next billing cycle or pay additional money for more usage.
- Pricing based on features: Feature-based pricing relies heavily on flexibility and personal choice as selling points. Usually, companies who adopt this SaaS billing model have 3 or 4 different pricing tiers that grant users access to varying levels of features.
CFOs play a vital role in guiding their companies to success through attractive and effective SaaS pricing strategies.
Automation: a SaaS unicorn’s secret weapon
There’s one secret we haven’t told you yet. SaaS unicorns know that automation is the secret to unleashing their team’s potential and accessing faster results and higher returns. It’s the pathway to accomplishing more by doing less.
Recommended Next Read
Six Common Reasons to Change Fund Accounting Software