The future of SaaS businesses is sustainable because they offer a competitive service that customers need. A SaaS business is only as valuable as the revenue that is produced, and to sell this type of business you need to have it valued. Building up a business and selling it can be daunting, especially when you have put a great deal of effort into its sustainability.
Entrepreneurs starting a SaaS company can make a good income by valuing the business and predicting when is the best time to sell. With some of these easy tools, you can determine whether to sell your business in a few months or a year, to maximize profit.
When the Market Dictates It
Apart from evaluating the business from every point to assess its profitability and sustainability, you may be able to predict when an ideal time to sell the business would be. There may be a new competitor on the scene that is undercutting your prices too much to remain relevant in the market. Perhaps you know that one of your biggest clients is preparing to churn. If any of these factors come into play then you will want to sell your business immediately.
Selling a business when the market changes allow a business owner to convert their investment into a liquid asset that can fund another business or retirement.
When Your Metrics Show Value
Metrics can be used to assess the business’ revenue growth, churn, the cost of acquiring the business, and the involvement of the original director of the SaaS company. Most important is the revenue growth and market statistics for the business, as this directly relates to how successful the company is. This is calculated by the monthly recurring revenues (MRR) but also includes the cost of investment to get to that point. The higher the MRR growth rate, the more positive growth that can be expected.
Churn is the rate of customers lost over a specific timeframe and is used to evaluate the probability of further business losses. A negative churn rate is ideal for prospective buyers, as it shows that the business has a stable recurring revenue stream from existing customers.
The role of the founder in the business is also vital because it indicates the original creator’s current personal involvement in the business. If the seller of a SaaS company is too involved to the point that operation would diminish without them, the business may not survive post-sale. All of these factors determine whether the business will be attractive to buyers or not.
The LTV: CAC Ratio
The cost of acquiring a customer (CAC) versus the lifetime value of that customer (LTV) is critical when preparing to sell your SaaS business. The ideal ratio is your CAC must be three times less than the LTV. For example, LTV: CAC 3:1 would be the perfect ratio, illustrating how much money you are spending in the business to sign up new customers and retain existing ones.
This calculation shows you how much money you are investing in a new customer against the output of that business. If you spend too much with a little positive outcome, your ratio will be less than ideal. Keep in mind that it generally takes a year or more to see a return on that investment to obtain new customers.
Choosing to sell your SaaS company can be a tough experience when you’ve put years, money, and personal effort into making it a successful venture. SaaS businesses can be highly profitable when you do sell, but you need to make sure that the metrics show good statistics so that more buyers become interested, and you can increase the sale revenue of the business.