A critical component to escape the vicious cycle of desperately chasing SaaS funding is to have high confidence in a straightforward question:
“𝘊𝘢𝘯 𝘸𝘦 𝘮𝘢𝘬𝘦 𝘮𝘰𝘳𝘦 𝘱𝘳𝘰𝘧𝘪𝘵 𝘧𝘳𝘰𝘮 𝘰𝘶𝘳 𝘤𝘶𝘴𝘵𝘰𝘮𝘦𝘳𝘴 𝘵𝘩𝘢𝘯 𝘪𝘵 𝘤𝘰𝘴𝘵𝘴 𝘶𝘴 𝘵𝘰 𝘢𝘤𝘲𝘶𝘪𝘳𝘦 𝘵𝘩𝘦𝘮?
How will you know?
It’s where Unit Metrics come in, and specifically, these 2:
- LTV – the Lifetime Value of a typical customer
- CAC – the Cost to Acquire a typical Customer
A quote from last week’s CEO Mastermind gives some valuable context about the importance of Unit Metrics:
“𝘐 𝘵𝘩𝘪𝘯𝘬 𝘢𝘣𝘰𝘶𝘵 𝘶𝘯𝘪𝘵 𝘦𝘤𝘰𝘯𝘰𝘮𝘪𝘤𝘴 𝘪𝘯 𝘵𝘸𝘰 𝘸𝘢𝘺𝘴. 𝘛𝘩𝘦 𝘴𝘵𝘢𝘳𝘵𝘪𝘯𝘨 𝘱𝘰𝘪𝘯𝘵 𝘪𝘴 𝘷𝘢𝘭𝘶𝘦. 𝘞𝘩𝘢𝘵 𝘪𝘴 𝘵𝘩𝘦 𝘷𝘢𝘭𝘶𝘦 𝘺𝘰𝘶’𝘳𝘦 𝘨𝘰𝘪𝘯𝘨 𝘵𝘰 𝘤𝘳𝘦𝘢𝘵𝘦 𝘧𝘰𝘳 𝘵𝘩𝘦 𝘤𝘶𝘴𝘵𝘰𝘮𝘦𝘳? 𝘏𝘰𝘸 𝘮𝘶𝘤𝘩 𝘪𝘴 𝘪𝘵 𝘸𝘰𝘳𝘵𝘩 𝘵𝘰 𝘵𝘩𝘦𝘮? 𝘛𝘩𝘢𝘵’𝘴 𝘨𝘰𝘪𝘯𝘨 𝘵𝘰 𝘴𝘦𝘵 𝘵𝘩𝘦 𝘣𝘢𝘳 𝘪𝘯 𝘵𝘦𝘳𝘮𝘴 𝘰𝘧 𝘩𝘰𝘸 𝘺𝘰𝘶 𝘦𝘴𝘵𝘢𝘣𝘭𝘪𝘴𝘩 𝘵𝘩𝘦 𝘱𝘳𝘪𝘤𝘦.
𝘈𝘯𝘥 𝘵𝘩𝘦𝘯 𝘵𝘩𝘦 𝘣𝘢𝘤𝘬𝘴𝘪𝘥𝘦 𝘰𝘧 𝘵𝘩𝘢𝘵 𝘪𝘴, 𝘸𝘩𝘢𝘵 𝘸𝘪𝘭𝘭 𝘪𝘵 𝘤𝘰𝘴𝘵 𝘺𝘰𝘶 𝘵𝘰 𝘥𝘦𝘭𝘪𝘷𝘦𝘳 𝘵𝘩𝘢𝘵? 𝘐𝘧 𝘪𝘵 𝘤𝘰𝘴𝘵𝘴 𝘶𝘴 500 𝘣𝘶𝘤𝘬𝘴 𝘵𝘰 𝘭𝘢𝘯𝘥 𝘢 𝘯𝘦𝘸 𝘶𝘴𝘦𝘳 𝘧𝘰𝘳 𝘢 $150 𝘴𝘶𝘣𝘴𝘤𝘳𝘪𝘱𝘵𝘪𝘰𝘯 𝘪𝘯 𝘢 𝘯𝘦𝘸 𝘤𝘰𝘮𝘱𝘢𝘯𝘺, 𝘸𝘦 𝘣𝘦𝘵𝘵𝘦𝘳 𝘩𝘢𝘷𝘦 𝘢 𝘳𝘦𝘯𝘦𝘸𝘢𝘭 𝘳𝘢𝘵𝘦 𝘰𝘧 90 𝘱𝘭𝘶𝘴 𝘱𝘦𝘳𝘤𝘦𝘯𝘵, 𝘢𝘯𝘥 𝘸𝘦 𝘯𝘦𝘦𝘥 𝘵𝘰 𝘩𝘢𝘷𝘦 𝘢𝘯 𝘦𝘹𝘱𝘢𝘯𝘴𝘪𝘰𝘯 𝘳𝘢𝘵𝘦 𝘵𝘩𝘢𝘵 𝘸𝘪𝘭𝘭 𝘨𝘳𝘰𝘸 𝘵𝘩𝘰𝘴𝘦 𝘴𝘦𝘢𝘵𝘴 𝘵𝘰 𝘱𝘢𝘺 𝘰𝘧𝘧.
Here’s the thing
I spot many B2B SaaS entrepreneurs are over-optimistic about how much it costs to acquire a customer.
There’s a strong belief customers will be so excited about what they have built that they will pull it out of their hands. But unfortunately, that reality is often very different…
Question for you to reflect upon
What’s your current sales cycle telling you about the % of hard-gained customers who will happily renew and expand? What does that tell you?