How do SaaS Companies Achieve Growth With Debt Funding?
While no two SaaS companies are the same, there are always lessons to learn from the top performers on how they allocate their budget and how they prioritise that spend. At Fuse Three we regularly see SaaS companies seeking further growth and their use of debt funding for the best performers follows regular patterns.
Keep overheads down
Essentially how you spend boils down to your product, your size and your market. You want to find ways to lower your spend on cost of goods sold – from hosting, support, consulting, to third party software. The best performing SaaS companies that we have worked with are those spending less on overheads relative to their peers, this enables them to maximise their spend on activities which are growth focused.
Investing wisely – be customer focused to drive growth
The top performers reinvest the cash saved on overheads on those touchpoints that interact with the potential and existing customers directly: sales, marketing, customer success and product. Achieving high growth rates requires investment in customer acquisition. As we’ve discussed before, churn rates can dramatically impact the performance of your SaaS company. Investing in customer success to retain customers becomes just as important as client acquisition
Top performing SaaS companies, almost without exception, have competent and well funded
Cost of Goods
If your product demands a high portion of spend, think of ways to streamline the product and reinvest those saved dollars back into growth. The top performers all have low COGS which they pump back into sales and marketing.
Top performing traits:
- Customer success – top performers invest heavily into customer success, they win customers and keep them, maintaining low churn rates. They understand the importance of retention as they scale and the significance this has on revenue.
- Invest in Marketing & Sales – reinvest as much as you can in your sales and marketing to drive user acquisition and increase your market share.
- Economy of scale – those SaaS companies with above $10m in revenue achieve higher economies of scale in sales and marketing, this allows further focus on Customer Success which doesn’t benefit from scale in quite the same way.
The top performers know the true financial value of allocating budget on customer touchpoints, reducing churn and building a strong, long term customer base. Making use of debt funding to do so allows SaaS companies to achieve high growth without diluting ownership, maximising performance and future valuations.