How to leverage SaaS, Recurring Subscription Revenue can help you meet your Valuation Goals

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One of the biggest challenges for any startup is growing its business efficiently. Recent turbulence in the economy has seen investors growing nervous about how much cash early-stage companies need in terms of “runway,” or put another way, how many months of burn companies need to reach the next milestones. This minimum cash runway has increased from 10-12 months to 18-36 months. Raising capital has become more difficult and is taking longer. The difficulty is due to recent decreases in public valuations and the trickle-down impact on smaller privately held SaaS and recurring revenue businesses. Due to lower valuations, companies get backed into achieving greater milestones to reach their valuation expectations. Higher growth performance is needed to attain the equivalent valuations as before.

The above factors lead to increased cash needs to extend runways and higher growth. The need for more cash with more expensive equity options forces founders to seek alternative sources of capital to extend their runway and preserve dilution.

Industry data show that top-performing SaaS / Recurring Revenue companies spend 40-50% of their ARR on sales and marketing. So, how does a Founder achieve higher growth without diluting? By leveraging their subscription based recurring revenue with a creative, financing partner. At a basic level, growth debt alleviates a large part of a business’ working capital needs. And RevTek’s lines of credit create the ultimate flexibility by only paying when you draw our debt financing.

We take a lot of time upfront to understand a company’s business. We are long-term partners, not transactional, and work to create a capital structure that allows a company to grow and access capital as needed.

At RevTek, our creative financing lets founders inject an exact amount of capital to cover their customer acquisition costs and align the repayment term with future revenue.

We help accelerate growth by offering flexible lines of credit with interest-only periods so you can maximize top-line revenue and enterprise valuation.

We have helped companies with the following:

• Extend runway and reach milestones necessary for a successful exit

• Grow Revenue while raising equity at lower valuations and less dilution to owners/founders

• Accelerate growth and further develop technology to increase valuations for future exit or equity raise

At a basic level, our financing alleviates a large part of a Recurring Revenue SaaS business’ working capital needs to grow more effectively and efficiently…without excessive dilution.

If you are looking to raise capital for your startup, choose RevTek. Our experienced team can provide you with the money you need to expand your tech startup. Contact us today to learn more about how we can help your business grow.

Immediately access our free eBook "Scaling Valuation Secrets for SaaS Companies" Scaling Valuation Secrets for SaaS Companies (revtekcapital.com)

 

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

Debt vs. Equity Financing Pros and Cons

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Whether you are a startup company looking to get off the ground, or an established business looking to push to new heights, you will need outside capital. Without an injection of capital, you likely will not be able to expand your company. For most businesses, there are two primary ways of obtaining this capital: debt and equity. Let’s explore debt vs. equity financing and the pros and cons of each.

Debt Financing

In terms of obtaining capital, debt financing is what people generally think of. This involves an entity such as a bank, a government, or another business, providing capital that will be repaid with interest. Debt financing encapsulates business credit cards, business loans from the government, and bank loans.

Debt financing has some significant advantages:

  • Maintain sole ownership of your business: This is arguably the most significant benefit of debt financing. You will probably have to offer some form of collateral, but you will not have to give up any control or ownership.
  • Keep future profits: When you grow your business, the accounts receivable to the bank does not increase. Regardless of your business’ growth, your debt will only increase based on the interest rate.
  • Flexibility: Another important aspect of debt financing is the flexibility it provides you. Once you obtain the line of credit or the loan, there aren’t restrictions concerning what you can spend the money on. This allows you to use the money as growth capital on whatever you see fit.

While these advantages are important, there are also some important disadvantages to consider.

  • Requires profitability: This is true for all options outside of personal credit cards. Banks and the government do not want to assume any risk in financing small businesses, so businesses that have yet to prove profitable usually cannot obtain these types of loans.
  • Complicated process: The process of obtaining a loan from the bank or government is extremely time-consuming because of the significant vetting involved. Once you obtain the money, the loan repayment plan can be confusing as well.

Equity Financing

While debt financing involves receiving capital that will be paid back later, equity financing is when a company receives capital in exchange for equity (or ownership) in their company. With this arrangement, you do not have to pay the money back, since the payment is partial ownership. Depending on the needs of the company and requirements of the investors, a company can give up a small portion of their equity or all of their equity in a single transaction.

Equity investors typically want to invest in companies that have significant profit potential so that their shares increase in worth. However, some equity investors will also invest in older companies that are restructuring or expanding. Angel investors and venture capitalists are the primary sources of equity financing.

Here are some of the most noteworthy advantages of equity financing:

  • Significant capital: Compared to bank loans, equity financing can raise significantly more money for your business to use. This is particularly true for venture capital, where a group of investors collectively partners with your business. Having that increased cash flow allows you to expand to create even more capital.
  • Risk: Most equity financing providers are not concerned with current profitability. Instead, they are interested in the potential for your business plan to produce long-term profits. As a result, venture capitalists and private equity companies seek out young companies with significant potential, which also presents significant risk.
  • Liability: Because venture capitalists are taking at least partial ownership in your company, you are no longer completely responsible in the case that your business fails. As WealthForge puts it, one “advantage of equity financing is that the investor assumes all the risk.”

However, equity financing also has some cons that you need to consider before pursuing it.

  • Lose equity: This is a rather obvious drawback of equity financing, as the whole premise is to give up some equity to receive capital. Even though it is obvious, it’s worth mentioning again. Once you give up all of your equity, it becomes difficult to obtain additional financing further down the line.
  • Lose control: Private equity firms and other equity investors typically provide some mentorship, which is helpful. However, most of these groups will put someone on your board and want a voice in your company. When you and the firm have different ideas about the direction and practices of your company, you may experience a significant conflict. Your vision may no longer direct the company.

What Does Revtek Capital Offer?

At RevTek Capital, we understand the complications and challenges that come with borrowing money. Whether it be a bank loan or another source, every type of loan has its drawbacks. That’s why we’ve simplified the process for small tech businesses with recurring revenue.

Our model is quite simple: we provide the capital, and you pay it back in manageable monthly payments based on your monthly, recurring revenue. To be eligible, you do not need to be profitable, but you should have a predictable recurring revenue of at least $100,000 a month. The benefits are substantial:

  • We don’t take your equity.
  • We don’t take any control or ownership.
  • Our terms are simple and easy.

If you are looking to raise capital for your startup, choose RevTek. Our experienced team can provide you with the money you need to expand your tech startup. Contact us today to learn more about how we can help your business grow.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

WISP Marketing: Tips on How to Grow a WISP

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Wireless Internet Service Providers (WISPS) are some of the most prevalent and essential in technology because most new technology requires internet access. When marketing a WISP business, the hard part of establishing a need for the service is typically already accomplished. Therefore, the key is convincing potential customers that your particular brand is the best choice in order to build a customer base. This is where a planned marketing strategy can make or break a business.

Tried and True Advertising

The goal in successful WISP advertising is ensuring that everyone who uses wireless networks knows that your Wireless ISP exists. For long term success, this requires that your brand stays top of mind. Therefore, the tried and true strategies of print, radio, and video advertisement should never be forgotten. This marketing type involves door to door knocking, yard signs, door hangers, radio and television commercials, banners, and more.

The line of thought is that your brand should take up as much real estate in the mind of your potential customers as possible. The more people in your coverage area see your branding and advertising, the more likely they are to turn to you when they have a need.

Social Media Advertising

In today's marketing world, it is almost impossible to run a successful business without using some type of Social Media advertising. This is also the most cost-effective marketing method because many aspects of its use are completely free. For instance, Facebook pages for businesses are free to create and allow you to connect and communicate directly with your audience.

Paid targeted advertisement is also available on many different levels. It ensures that the exact customers you need to reach (those who use the internet) will see your services offered. There are limitless ways to advertise through social media. These include video ads, customer testimony, tips and tricks, and shareable graphics shared across multiple platforms.

Education

Just as important as where you advertise your brand is how and what you advertise. Though we've already established that most WISP customers know they need your service, the majority could not tell you specifics about your product. As the provider, this gives you the opportunity to educate your customers and establish yourself as an authority on the subject.

In addition to advertising your brand name, logo, and contact information, your marketing strategy can also promote your field's specifics.

Ways to do this may be:

  • Providing quick outline videos of how WISPS operate
  • Explaining the differences between fixed wireless and Wi-Fi
  • Tutorials on how to troubleshoot issues such as the line of sight
  • How to maximize high-speed internet

Marketing yourself as a brand that is willing to partner with customers to educate them on your product creates customer loyalty. This helps customers ask the right questions and makes sure that they get the most out of your service. Educating your customers ensures retention and an excellent brand reputation.

Referrals

The most cost-effective marketing strategy is allowing your current customers to do advertising work for you. Offering incentives for customer referrals ensures not only that your customers remain happy but that they share that happiness in your brand with others. Examples of these incentives are a credit on the next bill or bonus product.

People are more likely to turn to your brand on their friend's and neighbor's advice than any other type of marketing strategy. Having a reputation for being reliable and recommendable is the most critical strategy in marketing.

Diversify

The key to a great marketing strategy is to make sure that your brand stays one step ahead and uses as many advertising strategies as possible. It is essential not to stick with simply one method, such as only using social media or yard signs, but to use all the avenues where you might find a new customer.

At RevTek Capital, we desire to help your WISP business reach your goals and next level of growth. We have a knowledgeable team ready with these strategies and more available to help you get there. Contact us at (602) 730-4558 to schedule an appointment to hear more about how we can help you employ a winning WISP marketing strategy.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

A Look at the Future of SaaS Investing

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The Software as a Service (SaaS) industry is in the midst of a dynamic growth phase, attracting substantial investments in recent years. According to the findings of a comprehensive report by Grand View Research, the global SaaS market achieved a valuation of USD 158.2 billion in 2020, with a projected compound annual growth rate (CAGR) of 11.7% from 2021 to 2028.

This remarkable expansion is powered by the swift adoption of cloud computing technology, enabling businesses to access software and services via the internet—a strategy that proves to be both cost-effective and operationally efficient compared to traditional on-premises solutions.

Another driving force behind SaaS's trajectory is the escalating demand for digital transformation across industries. As enterprises increasingly transition to online operations, the demand for sophisticated software solutions to streamline business management intensifies.

Key Features of SaaS Moving Forward:

Lowest Risk

All investors look for opportunities where the risk is minimal with a maximized return, whether venture capital, angel investors, traditional loans, or revenue-based financing. In the past, investors have been wary of jumping into the new and unknown market of SaaS, but there has recently been a refocus. Software companies are now gaining a reputation as one of the highest returning investments with little to no capital loss.

Steady Performance

This year has been a test for SaaS in performance against market turbulence. Not only have most tech companies managed to avoid significant loss during the pandemic, but they have also shown remarkable growth. This is due in part to the fact that most product-based services have turned to some technology savior when faced with business struggles. Using software as a service has proven to be cost-effective as there is an increase in working from home, and the subscription business model grows.

New Innovation

The SaaS industry is continually showing great innovation in offering brand new options that change the face of business in all spheres. A few features to keep an eye on as an investor and SaaS developer are:

  • Cloud-based services
  • Artificial Intelligence (AI) integrations
  • Low/No Code Interface
  • Customizable Features
  • Interconnected Applications

There has never been a more opportune time to step into early-stage development of SaaS business. At RevTek Capital, we desire to help you take advantage of this moment and optimize your business's growth for a bright future in SaaS. Contact us today at (602) 730-4558 to discuss your future and capital options.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

SaaS Company Valuation: Multiples and More

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For any Software as a Service (SaaS) company, finding effective financing solutions can prove difficult. Because SaaS is a fairly new business model, many SaaS owners do not know how to accurately value their companies, as there is not a one-size-fits-all equation or standard.

These figures are not only important for long-term selling plans but also for the present as you try to grow your business. Without a correct SaaS valuation, you will severely limit the financing options that are available for your business. We want to help you understand SaaS company valuations and the impact they have on your financing options.

How to Determine the Value of a SaaS Company?

Determining the valuation of your company can be a difficult process that involves the input of outside investors. However, the valuation of SaaS companies on public markets differ from those of private markets, pure-play, and B2B SaaS companies.

For fast-growing public SaaS companies, this valuation number is easily determined. The most common formula for SaaS companies on the public market is Enterprise Value (EV) divided by annual revenue. The Enterprise Value is determined by adding up equity and debt and subtracting all cash on the balance sheet.

Determining the value of high-growth private SaaS companies is much more difficult, however.  One of the best multiple-based formulas for determining the value of your private SaaS company goes something like this: Annualized Recurring Revenue (ARR) x multiple = Company Value.

Factors that Affect the Valuation of a SaaS Company

Multiples

The difficulty with SaaS is that there is not an exact science for determining the SaaS revenue multiple. A multiple is an agreed determined number that will be multiplied against the revenue to determine the value number. To develop this number, anything that affects future monthly revenue, cash flow, gross margins, or the growth rate will be a determining factor.

Thomas Smale, CEO of FE International, says in an article about SaaS valuation that “hundreds of different data points” impact the multiple. For him, “these boil down to the transferability, scalability, and sustainability of the enterprise,” and include factors such as financials, traffic, operations, niche, management teams, and customer base. Deciding which multiples to use for your valuation will largely impact the outcome.

Revenue Growth

Another factor that can influence the value of your SaaS business is revenue. The revenue retention and growth of your company over the last 12 months to 24 months can give great insights as to how your company will continue to grow. A study conducted by SaaS Capital Insights found that “for every 1 percentage point increase in revenue retention, a SaaS company’s value increases by 12% after five years.”

Retaining revenue is of particular importance to your company’s valuation because it impacts many other factors, such as your actual revenue, your addressable market, and growth rate.

Churn

Conversely, churn, which is the loss of expected ARR due to loss of customers or subscriptions, can lead to negative valuation. Some churn is always expected, but if churn is increasing year over year, your company will not be valued at a rate of high profitability.

What Impact Does This Valuation Have on Financing Options?

Regardless of what type of financing options you are seeking, the value of your company will influence the terms of your SaaS financing. For Venture Capital and other types of equity financing, the higher the value, the less ownership you will have to give away.

While higher valuation generally helps you keep more equity, you shouldn’t always choose the investor that values your SaaS company the highest. More influential firms may offer lower valuations but are able to bring expertise and relationships that will ultimately increase the value of the company over time.

In terms of debt financing, valuation can also impact what types of interest rates, terms, and collateral requirements are included. As the chart below shows, there are a variety of debt and hybrid funding options that SaaS companies can choose from depending on their needs and expectations.

From https://www.saastr.com/saas-companies-can-maximize-value-debt/

SaaS Company Valuation

Further down the road, the valuation of your company will have a significant impact on your profits when you try to sell your business. While choosing a lower valuation may allow you to obtain ideal financing options earlier, it also can limit your profits. Therefore it is wise to weigh the cost against your plans for the future.

How does RevTek Finance SaaS Companies?

Here at RevTek, our goal is to give you the best possible financing model that will increase the valuation of your SaaS business. Our model is simple: we provide you with growth capital that you need to expand your operations (and therefore, the value) of your business in exchange for manageable monthly payments based on your monthly, recurring revenue.

We don’t take equity, we don’t need a seat on your board, and our terms and execution are simple. To be eligible, you needn’t be profitable, but you should have a predictable recurring revenue.

To begin a conversation about how to use your SaaS company valuation to gain financing in order to grow to the next level, contact us at (602) 730-4558 to schedule an appointment.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

How To Grow a SaaS Company

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Building a business takes hard work, focus, and most importantly, time. When starting a Software as a Service business, it is tempting to focus on becoming the next overnight success. But in all honesty, very few companies luck into that title.

For every overnight millionaire, there are several hard working business owners steadily reaching sustainable success. Be encouraged that with long term focus and steady planning, you can be next.

Determining how quickly a saas company should grow is not a one-size fits all equation. There are many metrics and statistics that we could throw at you but knowing those numbers does not increase your growth rates. It is learning and putting into practice the tried and true strategies that successful businesses use that will increase the growth of your SaaS Company.

Of course, every area of your business should be streamlined and perfected in order to produce the best quality service. But there are only two basic ways to grow your business: increase your customer base and increase your revenue growth.

Putting it that simply makes it sound easy but the factors that affect both customer and revenue growth are vast. At RevTek Capital, our experience and research working with SaaS businesses have found that there are three main areas where a SaaS company should focus their attention. In order to increase your customer base and thus revenue growth, your company should focus on: offering a quality evolving SaaS product, dynamic marketing strategies, and excellent customer service.

Evolving Products or Services

Without a quality product, a SaaS company has no hope. And with SaaS, the basis of that product or service is software that solves a problem for your target audience. Unfortunately when it comes to the online world, having a good idea and a one-time finished product is not enough. The digital world is constantly evolving and improving, and thus your service must as well if you intend to succeed long term. This is where the use of open-source software comes in.

So how can open-sourcing help a SaaS company grow? There are many ways. First of all, open-source business software will make your success easier from the get-go. If you are able to find open source projects or coding that fits your needs, you will save time and money in software development and can focus on the customization of that software to your brand and business.

Secondly, having the use of an open source community will ensure that your software can constantly evolve and keep up with new developments without wasting your precious time and efforts. This includes fixing bugs and adjusting issues while you and your team can focus on your user experience and new product growth and roll outs.

The key of focus here is to continually provide an updated product without using too much of your own creative energy and time.

Marketing Strategies

Once you are satisfied with the status of the product or service you have to offer, your main focus can shift to building an ever-growing customer base. The best way to do this is by developing a solid marketing strategy. Even as a new business with a small marketing budget, focusing on hiring an experienced content marketer or on learning how to market your company through inexpensive measures such as social media can increase your client base through word of mouth, advertisements, and community connections.

In addition to social media efforts and search engine advertisements, collecting email addresses in order to market directly to an interested audience is a best practice when it comes to online marketing. Using your current client base by sharing testimonials, reviews and instituting a referral program are also great ways to increase your client base without investing too many marketing dollars.

There are many different approaches you can take when it comes to content marketing for SaaS companies, but the key is setting a goal and proven strategies and sticking to them.

Customer Service

The final piece to growing your SaaS company is by focusing on retaining customers in order to decrease your churn and unsubscribe rate. This is mainly done through your customer service efforts. When clients have positive experiences with the personnel of a company and are assured that they will receive an answer or solution to any issues that arise, they are much less likely to leave the company.

Ensuring that your SaaS business has excellent customer service through the use of personable employees, extensive FAQ and troubleshoot directories, an easy to use online interface, and attention to customer satisfaction will help you to build a brand that is known for its quality products and reputation.

The key for your customer service goals is to remember that it is less expensive for you to keep existing customers than to acquire new ones. There is no better place to focus your growth attention and dollars than on maintaining your client relationships.

Capital for Your Growing SaaS Company

At RevTek Capital, it is our main business to partner with you by supplying the capital to help take you to the next level of business. This capital may be used to perfect your product, develop a new marketing strategy, or bolster your customer service efforts.

If you now have a good understanding of how to grow a SaaS company and are ready to take the next step in growing your business, contact our team at (602) 730-4558 to begin today.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

How to Start a SaaS Company

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So you want to start a SaaS business? If you are willing to put in the time, research, effort and practice patience, there is no better time than the present to jump into the software as a service industry. With many businesses moving to the digital world and finding new ways to streamline services and communication, there are unlimited ideas in the market to help people do business better.

It is not only expert software developers, techies, or investors that succeed in starting a SaaS business. Anyone with a good idea, determination, and willingness can be successful at running a SaaS startup.

Outlined below are the basic steps to starting a SaaS Company to help get the gears of your mind turning and a stepping block to start from.

Determine Your SaaS Product

It goes without saying, but before you can begin building a program, seeking investors, or filing paperwork, you need a solid Software as a Service idea. Since you are still reading, the odds are pretty high that you may already have an idea or are at least familiar with the industry and know what part of the market you might fit into.

The key with determining what product you will market is finding something that people want or need that you know enough about or are willing to learn enough about to spend the next several years of your life dedicated to. Starting a company simply for the money with no personal interest is often not a recipe for success.

For When You Have an Idea:

If you already have a service idea in mind, great! You are a step ahead of the game. The key now is to make sure that your idea is needed and make sure that the market is open. For instance, trying to develop a ride-share app to compete with giants in the SaaS industry such as Lyft or Uber is not your best bet.

If your idea is geared toward fixing a pain point that you know is experienced and you can’t find a fix for it, you are on the right track!

For When You Need an Idea:

The best ideas are developed when you personally have dealt with a pain point or issue in an industry and know that a new app or add-on would be a welcome help. For instance, developing an app that is geared towards a particular industry such as food service tabs or office communication. When you know that the addition of a SaaS application would enhance the lives of it’s users and isn’t already available, you are ready to begin.

Assemble Your Team

You may be a superhero able to take on starting and running a business all on your own, but many are not. This is when having a co-founder comes in handy. This does not mean asking a friend who you get along with to help run a company, but finding a business partner who you can work well with that will bring different skills to the table. If you are more creative, finding a co-founder who is more analytical and business oriented may benefit you, and vice versa.

You will also need to assemble a team of experts to do the work. Even if you are tech savvy or involved in the software business, no man is an island and can be everywhere at once. Having a team composed of developers, designers, project managers, content marketers and more will ensure that every base is covered and nothing falls through the cracks. Assembling a team that is trustworthy, dependable, and dedicated can make all the difference in your companies’ success.

Build Your Design

It seems counterintuitive, but it is not important to have every aspect of the product worked out and in perfect condition before developing or launching the service. In many cases, it is after a launch that errors or gaps are found and tweaks need to be made periodically, it is likely that your service will never be perfectly complete.

Even if you think you’ve developed the perfect product, new information can change things quickly therefore it is better to launch a prototype to ensure that your time and efforts will be welcomed and pay off.

A prototype or minimum viable product is essentially a draft. This includes creating a landing page for your brand with the basic functions necessary to begin use of your service. This is a helpful tool when seeking investors because it allows for them to see a clear picture of what you are pitching, rather than complicated or technical jargon.

The first users or early adopters of this product will help give feedback by testing the product and allowing you to assess the overall user experience and how they interact with specific aspects of your service. Employing a prototype or MVP helps you to publicly and officially launch an already tested and efficient product.

Market Strategy

Once you have a product to work with, it is time to develop your Go-To-Market Strategy. Before advertising your product, it is wise to conduct plenty of market research to find out where you fit in and who your target audience is. You must decide what size of business will be your target market, how high the relationship touchpoint between your staff and potential customers will be, what type of plans you offer, and what advertising resources you will use.

Many of these decisions will be determined by the number of users you acquire and may change as your business grows. Most mistakes or failures in the SaaS world are due to lack of forethought and research so it is always smart to be a step ahead and thorough in your marketing plans.

Pricing Models

It’s obvious that your pricing model is important to the success of your company but the process involves much more thought than picking a number and running with it. You must first decide what type of model you will launch with and then reassess and adjust as necessary.

A few Pricing Models and Strategies to choose from are: Flat Rate, Tiered, Per Feature, Free with Ads, or Free Trials. The option you choose will depend on the type of service you offer and amount of users you wish to support.

Financing

The timing of this step is actually very subjective depending on your situation. If you are investing into the company yourself or bankrolling the first few phases you may be able to postpone searching for investors and financing. But if all you have is an idea and shallow pockets, you may need to seek out investors before making any real moves like hiring a team of developers.

There are many different approaches to financing your business, each with it’s pros and cons. Because every scenario is different, we recommend familiarizing yourself with the options and seeking out professionals to help guide you.

At RevTek Capital, we specialize in Revenue Based Financing that allows you to retain complete ownership and control of your company at low monthly costs. Contact us at (602) 730-4558 to discuss if a partnership with RevTek Capital is the best way for you to gain financing for Starting a SaaS Business.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

Your Guide to Monthly SaaS Recurring Revenue

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Recurring Revenue is to SaaS subscription businesses what flowers are to a fruiting plant— it’s the whole point, keeps the business going, and if it’s missing or has an issue, growth stalls. With subscriptions, customers pay a set amount each month and the company can then calculate the cash flow that is expected to come in each month to determine its health.

Though it is not a Generally Accepted Accounting Principle (GAAP), MRR is one of the most important SaaS metrics benchmarks that a business can track in order to know how well the company is doing currently and how well it will do long term.

What is MRR?

Monthly Recurring Revenue (MRR) is the predictable revenue that is expected to be received on a monthly basis. It is what makes SaaS companies attractive in business because rather than receiving revenue one time for one purchase, the service is paid for regularly each month. Because of this, MRR growth is predictable and consistent and allows for accurate projections to be made.

How to Calculate MRR

The simplest way to calculate MRR is to multiply the Average Revenue per account by the total number of users in a given month.

For example: If you have 100 customers paying $10 per month, your MRR = $1,000

This number is the most simple to calculate but can then also be broken down into other important metrics that help to give an accurate picture of where your growth or loss is coming from.

Types of MRR

  • New- Revenue gained from acquiring new customers
  • Expansion- Revenue gained from existing customers in the form of upgrades
  • Contraction- Revenue lost from downgrades
  • Customer Churn- Revenue lost from cancellations

Why MRR is Important

Tracking all types of MRR helps to understand how your company is growing, how to better invest advertising dollars, and where changes should be made. It is commonly known that it costs less to keep and upsell current customers than to find new customers, therefore tracking the MRR churned on a monthly basis helps to know where your service is going wrong or how you are thriving with your net retention rate.

Knowing these exact metrics also helps to predict your annual recurring revenue to make plans for the future of the company.

Common Mistakes

Unfortunately, many small business SaaS companies make a few mistakes when beginning to calculate MRR and this is important to avoid. If not careful, you could be reporting incorrect numbers to your board or investors and also working with incorrect data for predictions and future calculations.

A few common mistakes in calculating MRR are:

Including Trial Members

You should not include anyone into MRR until they are a full paying customer. Including predicted revenue into your monthly revenue will give you an inflated sense new customers and also will contribute to high churn rates because it is not realistic that 100% of those on a trial will convert.

Not Accounting for Discounts

It is important to keep close tabs on the members who are using your product at a discounted rate. Calculating these members in a separate category helps to ensure that you are not accounting for money you don’t currently receive. Your MRR will be seriously skewed if you count members who receive a 50% discount as paying full price.

Calculating Annual Subscriptions Incorrectly

If you have customers that subscribe to annual memberships, it is important to divide their payment by the intended number of months that they are subscribing. Calculating a large payment all at once, in one month will affect all of your projections and will not give you an accurate picture of how your recurring revenue is growing each month.

Securing Capital for Your SaaS Growth

Having accurate calculations for your Monthly Recurring Revenue is absolutely essential because it gives you a clear picture of how quickly your company is growing and allows for you to prepare to take your business to the next level.

At RevTek Capital, we provide revenue-based financing. Meaning, payments are based on your MRR. We understand that monthly revenue can fluctuate, therefore knowing how much MRR you bring in each month helps you to secure an accurate amount of growth capital funding and ensures that you only repay us amounts that are affordable for your business each month.

Our team is not only experienced in capital funding but also in understanding SaaS Recurring Revenue. We can connect you with partnerships to help you track metrics and growth and also help you to secure the funding you need. Contact us today if you have more questions or are ready to begin a partnership with RevTek Capital.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

SaaS Cost Structure: Pricing Models and Strategies

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Software as a Service is a very diverse world that does not have a one-plan-fits-all when offering products, measuring metrics, sales, and marketing, or really any aspect of the SaaS business model.

But one thing can be said about all SaaS Businesses across the board: User Pricing Matters.

The cost you charge for using your subscription-based software is the number one metric that affects your revenue.

Many start-up businesses spend a great deal of time and energy determining the pricing of packages upfront but do not make adjustments as the business grows. Yet, the most successful SaaS companies are constantly collecting data, tweaking price points, and adjusting package offerings in order to ensure they are providing the best value and receiving the most revenue per customer possible.

Whether you are a young or established B2C or B2B SaaS Company, it is a great idea to assess your SaaS Cost Structure plans. Outlined below are some popular pricing models, strategies, and tactics that many software companies use for boosting total revenue growth.

SaaS Pricing Models

Many pricing models are available in the SaaS world, and the possibilities are almost endless. The pricing model you choose to employ may depend on the type of business you run: small or large. It also depends on the type of business you cater to: start-ups or enterprises. In any case, here are a few popular options to choose from:

Flat Rate Pricing

Flat rate pricing is undoubtedly the least complicated. This type of pricing entails offering one SaaS product or set of features for one price. It is the easiest model to advertise because all marketing dollars are spent on one plan that is easy to communicate.

However, the drawbacks are that there is no way to tailor plans according to an individual business's needs, and there is no way to up-sell a current client. Flat rate pricing may be an easy way to roll out a new business but should quickly be re-assessed and joined by differing plans in order to grow your business.

Tiered Pricing

Tiered pricing is the most commonly used model in the SaaS business world. It entails focusing on feature pricing where multiple plans are offered at different rates depending on the provided features. This model is beneficial to most companies because it allows for flexibility to take on clients of different sizes and sign up according to their own needs. It also gives a clear path towards upselling for current clients who may need access to more features. The flexibility of a tiered pricing plan also gives you the option to tweak and roll out new features that each plan may include.

A drawback is that it has the potential to be confusing. Offering users too many choices may lead to choice paralysis and cause potential clients to become overwhelmed. Therefore, it is commonly found that businesses that provide an average of 3.5 tiered pricing plans have the highest conversion rate of new customers.

Per Pricing

These models are the most complicated yet provide great flexibility and value for you and the customer. Per pricing refers to different pricing scenarios based per action, such as per user, per usage, per features, etc. These options allow customers to save money by only paying for the features they actually use or how many active users they employ. Which allows you to provide only service or labor for actions that are actually used as well. There is an excellent opportunity for feature upgrades with this model, as users become long-term users of your product. Also, it can lower the risk for companies to adopt your product.

Drawbacks, though, are that it requires an extra element on your part to track what features or amount of users are using the product. It can also lead to more frustration from users that feel limited, which in turn leads to higher churn as they do not have much at stake in leaving your company. These pricing plans are perhaps a good option, depending on which Per Pricing Model you use. A small business with only a few users that need access to the most cost-saving option or large enterprises that have the potential for many users or high user turnover.

Pricing Strategies & Tactics

No matter the type of model you intend to employ, there are many other strategies and tactics available to achieve growth. These may be used in place of your standard pricing model for a time. Or in addition to your standard options.

Objective-Based Pricing

This option is often used when trying to reach a new growth level. The pricing is offered based on the objective trying to be achieved. For a new SaaS business, this may mean offering a plan at an unsustainably low price in order to corner the market, with the intention of quickly upselling for better, more profitable features.

For an established business rolling out new plans or features, this may mean offering a plan at a high price and advertising towards those who desire to be the first to have something new. Then, slowly lower the cost as the novelty wears off to attract new upsells or clients.

Number Focused Pricing

This tactic is all about the specific numbers offered for your pricing. Many scientific studies have assessed human psychology and processing speeds when looking at numbers. Such as in charm pricing, where a user is more likely to purchase a product for $399 than $400.

This tactic may also include the positioning of your plans where the "most popular" plan is highlighted and placed in the center, whether that is the medium-priced plan or not. Basing your pricing plans on scientific research is proven to produce better results and revenue for you.

Freemium or Trial Pricing

Many SaaS businesses employ freemium or trial plans in order to allow the customer to try the product before buying. This method is a tried and true way of upselling existing users. In this strategy, it is key to offer a great experience with a base plan worth purchasing once a user needs to access higher features or a trial period runs out. Most popular SaaS companies use some version of this strategy.

Where To Start?

When deciding how to set or redesign your SaaS Cost Structure, there is an essential balance to maintaining your own business's needs with the client's needs. It is important to offer pricing that builds revenue and covers your business costs. Still, it is most important to provide pricing that reflects the value of what you are offering.

At RevTek Capital, we desire to see your business thrive by offering pricing plans that work for your company and your clients. We have a knowledgeable team of professionals familiar with SaaS Cost Structures. We can advise you on strategies, develop growth plans, and help you secure capital to reach that next growth step in your SaaS Business.

Contact our team at (602) 730-4558 to begin the process of securing capital to assess your SaaS Cost Structure today!

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

How to Qualify for SaaS Financing

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As a SaaS business owner, one of the most exciting days for an early-stage company is when the business is up and running, and you begin turning a profit, even if that profit is quite small. It is proof that all your hard work and efforts have been worth it, even before significant sales and marketing show up.

Up until this point, you may have been able to fund the business yourself or with the help of family and business partners, but it’s not realistic that you can bootstrap long term. Accelerating your business growth and turning early-stage wins into reliable revenue requires an influx of funding from another source. However, you, like many other SaaS companies, may not know where to start.

What are your financing options, and how do you know if your SaaS business qualifies?

SaaS Funding Solutions

You have several options when it comes to financing your SaaS business. However, not all these solutions will be the best decision for your unique business. Three main categories identify ways to raise SaaS Capital.

Debt Financing

Venture debt financing operates much like other debt financing options such as a mortgage or a car loan. In this scenario, your business takes out a traditional term loan with a bank or private company and makes regular monthly repayments with interest. These loans may carry low-interest rates but do not often offer large loans for the full amount a business truly needs to increase growth.

Revenue-based financing is a debt financing option that bases repayments on each month of recurring revenue rather than a fixed payment plan. Therefore, you will never have to make a payment that you cannot afford.

Equity Financing

This form of cash flow exchanges equity in the business for funding. Often referred to as venture capital or angel investors, an individual or firm will provide funding for your business or portfolio company in exchange for a seat on the board, percentage of the company, or other decision-making positions. With this option, you are often not required to pay back the funding up front, but you lose some control of your SaaS Company.

Qualifications for SaaS Financing:

High-Selling Product

The first step in qualifying for SaaS financing is ensuring that your business offers a highly sought-after product or service that is a market fit. Your business will not do well long term if the market is highly saturated with similar products or if you do not meet a specific pain point for your target audience during product development.

Monthly Recurring Revenue

Monthly Recurring Revenue (MRR) is the predictable revenue that you expect to receive each month. This type of revenue occurs when you run a subscription-based service model. Having a predictable stream of income each month will allow you to qualify for SaaS financing because financers lending to SaaS businesses know you can make repayments. Typically, the higher your MRR, the higher the dollar amount your business can qualify for.

High Gross Margins

Having high gross margins after all costs to run the business have been paid indicates that your company spends money well and makes wise business decisions. High gross margins mean that your company has more revenue to spend on other business areas and indicates that you will pay back the money you owe because you are not operating at a deficit.

We Can Educate You More on SaaS Financing Options

These available SaaS funding programs can accelerate your business growth early on and provide you the funding your company needs to get started. You no longer have to wonder if your family member or business partner’s cash flow will be enough to carry your company in the beginning stages.

However, you and your team may not immediately know whether to choose debt or equity financing for your early-stage SaaS company. Our knowledgeable and experienced team at RevTek Capital would be glad to discuss your product/service and which option would be optimal. We see things in your business that most lenders don’t and have unique financing insights that we’d love to share with you.

If you are ready to ask our business leaders questions about SaaS financing solutions, call our office at (602).730.4558 or fill out our online contact form.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"