A research on the SaaS market

What are the key challenges/problems SaaS businesses face and will face?

Drive revenue growth by acquiring new customers (acquisition), retaining the existing ones (retention) and increasing the revenue generated by them (monetisation). 

  • The key challenges for a SaaS business are different from a traditional software business in that there are two sales that have to be accomplished:
  • Acquiring the customer
  • Keeping the customer (to maximize the lifetime value)
  • This is because the revenue for the service comes over an extended period of time (the customer lifetime). If a customer is happy with the service, they will stick around for a long time, and the profit that can be made from that customer will increase considerably. On the other hand if a customer is unhappy, they will churn quickly, and the business will likely lose money on the investment that they made to acquire that customer. 
  • A research report from JP Morgan talks about the factors that drive public company SaaS valuations. While the top factor impacting the multiple on revenue is revenue growth rate, the report clearly shows how both retention and monetisation are strong secondary factors (which both contribute to revenue growth rate). An upsell increase of 2% means a 28% higher public valuation. A churn decrease of 2% means a 20% higher public valuation. 

Valuation Drivers:

  • Here is a graph from Intercom that shows the correlation between the EV/R multiple and the expected revenue growth of public SaaS companies: 
  • And here is a graph that shows that SaaS valuations have little correlation to profitability (in contrast to what one may think): 

  • References: 

What are the key challenges/problems SaaS marketers/growth people face?

[Acquisition] How do you build a scalable marketing strategy that keeps your costs of acquisition low? 

The following sub-questions are based on the priorities for marketers according to the “State of Inbound” report by Hubspot:
  • How do you generate traffic and leads? - Importance: 6.5
  • How do you prove the ROI of your marketing activities? - Importance: 4.3
  • How do you secure enough budget? - Importance: 2.8
  • How do you manage the website? - Importance: 2.6
  • How do you identify the right technology for your business needs? - Importance 2.5
  • How do you target content for an international audience? - Importance 2.3

The following sub-questions are based on the key marketing priority for marketers according to the “State of Pipeline Marketing 2016” report by Bizible:
  • How do you generate more leads/demand? - Importance: 4.5
  • How do you convert more leads to customers/revenue? - Importance: 3.4
  • How to understand the ROI of marketing activities? - Importance: 0.8
  • How you reduce the cost of customer acquisition? - Importance: 0.4
  • How do you improve marketing and sales alignment? - Importance: 0.6