It’s no secret that the economic landscape has shifted for SaaS. Times are turbulent and finance leaders across the board are looking for ways to navigate the downturn.
At Paddle, we were really fortunate to raise our Series D when we did and in the way we did, allowing us to fund our acquisition of ProfitWell. But we’re under no illusion that even a few months later the outcome could have been very different. And the truth is that now, whether you’re well capitalized or not, the biggest challenge SaaS companies are facing is buckling down and making sure you invest in the right places.
Understanding the market shift
The market has changed. The accelerated growth we’ve seen over the past years will return, but for now, it has slowed, cash has become more expensive, and the 10x valuations just aren’t happening.
For finance (and commercial) leaders, this new landscape means switching gears fast and pushing a mindset that prioritizes operational efficiency and staying lean over growth at all costs.
The collective focus for leaders needs to be taking proactive cost-reducing measures now, before they’re required, to extend the cash runway as much as possible and mitigate having to fundraise in this climate — where you face a potential downround.
For those of us in finance roles, companies are looking to us for help identifying where scaling back is possible. But rather than becoming the gatekeeper of funds, it takes a pragmatic approach and an understanding of where continuing to spend has a high (and right) return on investment (ROI).
With that in mind, here are 4 things SaaS companies can do right now to become more operationally efficient:
1. Review your operating costs
Take a look at your top 10 OPEX [operating expense] suppliers to find out where you can save.
This might be by negotiating a better price with your current provider or evaluating new solutions that might be more cost effective. You can also use this as a chance to consolidate your business’ app usage or remove subscriptions and applications that are no longer in use.
2. Review how and where you are incurring expenses
Your cost of goods sold (COGS) is the highest lever you can pull on. Review COGS to discover how and where your biggest expenses are coming from with a view to negotiating more favorable terms.
Determining COGS isn’t clear cut for SaaS, so check out this guide for what to include.
3. Manage your resources
2022 has seen layoffs and hiring freezes from companies of all sizes. Before making those decisions, take a critical look at your hiring plan and current resources. Think about what you can realistically achieve with what you have, and then where you will struggle to progress and grow the business without additional resources.
Don’t be afraid to invest where necessary, for example, to enhance your product or customer experience or to better retain both customers and current employees. Managing your resources effectively also includes looking for areas where you can automate processes and improve scalability.
4. Retain and grow your existing customer base
Customer acquisition is expensive and you already have a set of happy customers. Adding value for them, and selling more to those should be the priority. This might include:
- Refocusing sales teams on the customers or segments that are likely to find value in and be receptive to upsell opportunities.
- Optimizing your payment and billing processes to reduce friction in the customer experience and avoid losing customers needlessly to involuntary churn.
- Building reactivation campaigns to win back recently lost accounts.
It’s not all doom and gloom
In the words of Andy Grove “Bad companies are destroyed by crisis, good companies survive them, great companies are improved by them.”
While being critical in your spending is important, stay open to opportunities and invest in areas that will have a meaningful impact on your long-term growth.
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