SaaS Interview Question: Bring on a multi-billion dollar enterprise client on at $1M / year or $300K / year?

Is there a correct way of answering this question? Or is it more about demonstrating ability to think both sides of the argument?

During an interview, I said that bringing on for $300K / year could be the better long-term option since the goal of SaaS companies is to keep customers "for life," and a lower cost might contribute to better adoption. Even though I know $1M for a multi-billion dollar enterprise is likely a drop in the bucket when considering overall share-of-wallet. Interviewer seemed to prefer an answer of immediate higher ARR / ACV.

I know it's largely dependent on the company's goals / strategy, but what's the best approach to these types of questions? 

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Comments (4)

Apr 9, 2021 - 12:01am

I've never heard of this type of interview question before. As a SaaS investor myself I'll take the $1M / year contract every day of the week. 

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  • Associate 3 in PE - LBOs
Apr 9, 2021 - 12:20am

I'm assuming this is the type of question where they want to see how you think - if all they give you is contract revenue, you're going to want to ask about cost structure, payment terms / NWC impact, and ability to actually serve the contract.

Apr 9, 2021 - 3:31pm

All things being equal, a $1m ARR customer is better than a $300k ARR customer. Two downsides I see. First, generally speaking, larger accounts have longer sales cycles; if your sales team can sign up 10 $300k customers vs. 2 $1m customers in a one-year period, then going after the smaller accounts might be the better option. Second, there are just fewer large accounts available in the market. If you only sell to companies that can afford $1m/year software, you are restricting your TAM. 

There are also considerations like the support resources required to retain a large enterprise customer. 

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