Customer Profitability Analysis 2 - Whale Curves Not Whale Tails
No One:
Absolutely No One:
Me: Look, I’m glad you are all asking what has happened to my customer profitability analysis for SaaS hobby because I have news.
Since my initial post, I have been talking to people in the start-up world: CEOs, capital providers, incubators, fractional CFOs, etc. I’ve also been talking to people in the profitability analysis world. Here is what I have found.
SaaS: Revenue will fix everything
People have generally said: “Oh, that sounds interesting”. No one has said: “I need this right now.” The general sentiment in SaaSland is that companies were still securing financing deals towards the end of 2022 and many companies still have a bundle of cash on hand.
Some CEOs still believe that this funding lull is temporary and that we will be back to 2021 next week. However that scenario is highly unlikely and this is starting to dawn on the community. VCs remain more sanguine than founders.
The focus is still on revenue generation. Many founders believe that they can sell their way to profitability. And if they can grow revenue at a faster rate than their costs then they are correct (that’s just maths).
However many of these businesses still have a poor understanding of the drivers of cost in their businesses.
Cost won’t become truly real to CEOs until they get down to 4 months of runway. And that’s still months away for the majority of them.
Resources Available
The Profitability Analysis Center of Excellence (PACE) is where those with an interest in profitability analysis hang out. A great set of frameworks, research, and discussion.
Ben Murray’s SaaS Academy has some great introductory courses on SaaS finance and accounting.
SaaS Capital provide some great research, esp. their SaaS spending benchmarks.
The Startup CFO podcast also has some good content.
Where is my offering at?
I am looking to do free customer profitability analyses for 3 SaaS businesses. You probably need to be around Series B or more in size for it to be worth your while.
The first efforts will be very manual but I’ll be looking to automate it as far and as fast as possible (either using a BI tool with built-in APIs to common systems or some kind of specialist cost management tool).
The aim is not perfection but a “good enough” assignment of revenue, costs and profits across the customer portfolio.
The buyer might be either a SaaS business or a VC invested in such a business.
The Southern Right Whale - still plentiful in the wild and not likely to go extinct in the next 12 months