The reasons for selling a profitable SaaS business are as numerous as the types of SaaS businesses that exist today. There are number of tasks to get in place in order to sell a SaaS business at a good multiple.
For the purpose of this blog, the goal of this article will be to address those who are far along in their business life cycle and are preparing for an exit in the next 6-18 months.
The three key components when preparing your SaaS business for sale are:
- Customer Acquisition Cost (CAC)
This is one of the key figures that a potential buyer is going to study when considering whether or not to purchase a SaaS business. CAC allows buyers to easily look at a business and understand how much value can be extracted from a customer. Customer Acquisition Cost can be calculated easily by dividing the marketing expense to customers by the period of time it took to acquire those customers.
- Customer Lifetime Value (CLTV or LTV)
The lifetime value of a particular customer can be difficult to calculate, but it an important metric in knowing the health and future of a SaaS business. In general, it can be difficult to accurately calculate LTV on younger SaaS businesses. In most cases, to get a genuine understanding of LTV a business needs a minimum of 12 months of detailed customer data included all expenses related to those customers.
- Rate of Churn
In SaaS, churn is seen as the probability in which a customer is likely to cancel their subscription. The obvious reason that much attention is placed on churn in SaaS businesses is the fact that the longer a customer subscribes to a business’s product or service the more valuable they become. So if a customer churn rate is high, it goes against the main attractive feature that investors and buyers are looking for in acquiring a SaaS business.
Related: Automating Your SaaS Business