How to Sell a SaaS Business
The use of software as a service (SaaS) applications is growing rapidly. Think, for example, about the number of apps you use each day to connect online quickly, and to work more productively. SaaS firms also create tools for the entertainment and leisure industry, and Gartner expects SaaS revenue to exceed $143 billion by 2022.
If you’re thinking about selling a SaaS company, you may have a number of interested buyers. However, it’s difficult to manage your business while you work on a sales transaction. An experienced business broker can oversee many components of the sale process, so you can manage your business.
Key Valuation Metrics
Meet with a broker to discuss the factors that make a SaaS business valuable, and how your company creates value for the buyer. The broker may uncover factors that you haven’t considered.
| Driving Monthly Recurring Revenue
Buyers are attracted to the amount of monthly recurring revenue (MRR) that a SaaS business generates from subscription fees. Companies that generate increasing MRR provide a product that is attracting more subscribers over time, and MRR adds a degree of certainty to monthly revenue projections.
| Forecasting Customer Lifetime Value
Have you used the same auto repair shop for years? Many people do, because they value a repair shop that does quality work at a fair price.
In a similar way, consumers stick with SaaS products that solve a customer problem. Mailchimp, for example, has provided email-marketing services for years, and many users continue to pay monthly fees for the product.
Qualtrics defines customer lifetime value (CLV) as “a measurement of how valuable a customer is to your company with an unlimited time span as opposed to just the first purchase.” The longer you can retain a client, the higher CLV you generate, and that figure increases company value.
| Balancing Customer Acquisition Costs and Churn Rate
Generating revenue comes with a cost, and customer acquisition cost (CAC) is the cost incurred to acquire a new customer. A high cost to acquire a customer can be justified, if you can retain the business for years.
You need to compare CAC with churn rate, which is the percentage of customers who discontinue their subscriptions in a specific period. A low CAC with a low churn rate is ideal, and these factors boost the value of your business.
Potential buyers also want a business that can be taken on with a minimum level of disruption.
Other Valuation Factors
An SaaS staff must have technical knowledge, as well as the ability to resolve problems and address customer service issues.
| Documenting Your Code
To sell your SaaS business, you must consider the buyer’s ability to use the code that runs your software. The source code must be well documented with annotations and notes that help the buyer’s programmers to operate the software. The code must be tested, so that a buyer can rely on the accuracy of the code.
| Managing Customer Service
As technology improves, users have higher standards for the products and services they use. People are likely to switch brands if they find the purchasing process too difficult.” The majority of adults feel that valuing their time is the most important thing a company can do to provide them with good online customer experience.
Every SaaS business must address customer service problems, and the best firms plan and provide effective service. If you maintain a fast response time and resolve problems quickly, you can keep customers happy and minimize your churn rate.
A broker will compile all of your valuation data, and use it to create marketing pieces to promote your business. There are a number of other services that a broker can provide, so that the sales process is easier.
Finding The Right Buyer
An experienced broker has a network of investors, attorneys, and accountants who work on business sales. Your broker will provide the marketing materials to individuals in the network, in order to find a buyer. When potential buyers are identified, the broker will determine if the purchaser has the financial means to buy your business.
This process is much more effective than trying to find a buyer on your own, and you’ll sell the business in less time.
Working Through Due Diligence
When a qualified buyer is identified, the broker will manage the due diligence process. The purchaser will sign a non-disclosure agreement (NDA), so that the buyer cannot use the knowledge gained from due diligence for their own purposes.
Brokers understand which documents are required for due diligence, and the broker will help you organize and provide these records to the buyer. The broker will keep the process on track, so that the record review process doesn’t stall.
The sales process can be frustrating and time-consuming, and a broker will make the process much easier.
Find Your Trusted Advisor
The experts at Raincatcher have helped thousands of owners sell their businesses, and they’re passionate about entrepreneurs. Meet with a broker from Raincatcher so that you have a trusted advisor throughout the sales process.