SaaS Business Drivers

Hello WSO Team,

When looking at a company that engages in SaaS and serves a specific niche, how do you look at the levers and drivers of the business? I would automatically assume that the #1 driver would be the industry performance in which the company operates out of. That said, and taking a deeper approach, what additional research would you do if you had to interview with a Director of Strategy/FP&A or Operations?
Much appreciated!

Comments (7)

Jul 5, 2019

Hi 512Finance, any of these topics helpful:

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  • More suggestions...

You're welcome.

Jul 24, 2019

Difficult to tell but you would look at the usually suspects in terms of metrics:
Bookings, Billings, CAC, LTV, Churn etc.

I would do a Booking/Revenue ratio over time to get a sense of how healthy is the growth of the business. SaaS businesses usually make for pretty smooth revenue charts but terrible when it comes to cash flows (companies usually do multi year contracts, prepayments etc which have a tendency to distort the pretty picture the IS is painting ;) )

    • 1
Oct 13, 2019

@choubix (and @choubix2 ), thank you, how would you use Booking/Revenue? What is good/bad for that metric? What does it show? Thanks!

Oct 20, 2019

If booking/revenue ratio goes down over time, so will revenue in the long run.
A company may show healthy revenue growth but not present its bookings because they are stagnating which will point in the direction of less revenue (and cash) in the business later.

If they do cohort analysis I would look at payback period: how long does it take for each cohort (after deducting direct costs) to payback the S&M cost incurred in their acquisition.

Jul 24, 2019

Often overlooked, a key factor is the sassiness of mgmt

Jul 29, 2019

Is there a specific niche you had in mind? Or any niche, just in general?

Jul 30, 2019