Evaluating the Purity of a SaaS Business


David Cummings on Startups

Recently I was talking to an entrepreneur that has sold his last company and is actively looking for a new business to either start or join. As we got to talking, it became clear that his goal is to get involved with a pure Software-as-a-Service (SaaS), as opposed to a tech-enabled business service where there’s a hybrid between proprietary technology and human-powered services. Some of his drivers for a pure SaaS business include higher valuations at the same revenue levels, greater economies of scale, and perception that there are better opportunities.

Assuming a pure SaaS business is the goal, here are a few financial model considerations to contemplate:

  • Gross margin (especially at scale e.g. > $20mm in revenue)
  • Cost of customer acquisition
  • Lifetime value of the customer
  • Renewal rates
  • Scalable lead generation

The ideal SaaS business will have high gross margins (> 80%), low cost of customer acquisition (< first…

View original post 60 more words

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s