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The best metrics to have to drive value in your SaaS business

It’s often said that the ultimate end game for a SaaS business is to raise investment and then eventually sell the company, in a lot of cases to Salesforce or someone similar!

When either looking to raise, or conduct a sale there’s normally a huge amount of data points and metrics that are analysed throughout the due diligence period, along with the credentials of the leadership team, total addressable market and growth potential etc.

There are countless conversations whether multiples should be derived from revenue, EBITDA, projections and various other scientific and non-scientific methods, but what is clear is that the more accurate, predictable and sustainable your metrics are, the more attractive and valuable your business is.

There is often a lot of time spent looking at New Business Sales projections. Where and when new business will come from and how it will inevitably continue to exponentially grow, helping the business become the next ‘unicorn’. Funnels will be built out and clear quantifiable data will be presented to show where growth will come from.

What is often lacking though is similar attention to detail from an existing customer revenue perspective. Understanding what potential the customer base has, along with accurate forecasting into growth and churn at the same time, will give any investor more confidence. In order to drive the best possible value I’d suggest having the following information for your existing customer base as an absolute minimum::

  • Net Revenue Retention - how much does your customer base grow by MoM and YoY. Add in expansion and upsell and subtract downsell and churn every month

  • (ACV) Average Contract Value and LTV (Life Time Value) across the customer base

  • A clear segmentation plan and customer journey for each

  • Clear adoption metrics understanding which features and functionality are utilised the most, what problem they solve, and in what order customers typically navigate your product suite

  • Clear ICP (ideal customer profile) for the customers where you generate the most value. Note, this is different to your New Business ICP. This is the profile of customers that utilise your product, stay with you the longest and continue to grow and achieve their objectives

  • A Clear ‘at risk’ register showing investors how you spot potential churn, and how you then address and reduce it. You need to accurately forecast what revenue will leave the business as it’s unlikely/impossible you’ll constantly achieve a 100% renewal rate. By being transparent with this shows an investor you understand the risk and what areas of improvement are required.

  • A holistic view of health scores across your customer base, with proven data to show how churn and growth relates to the scores

  • A Voice of the Customer programme to show evidence of your customer needs and what problem you solve. Customers are great at helping you shape your product or service, yet a lot of product roadmaps are built internally without a customer having a seat at the table. Showing an investor the due diligence you have completed here will certainly add value.

Add all this to your normal product roadmap, projections and robust financials and you’ll be in a better position. Obviously, companies are at different stages in their growth, and depending on the investment round you may have limited information. The more of the above you have then the more likely your valuation will be higher. If you’re pre or post investment the end goal will normally be the same and by working closer with your customers, and becoming scientific with your data will help ensure you have the greatest possible business value.

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