What are the cost expenditures to think about while starting a new SaaS?

The biggest one is obvious once you are deep into it, but kind of isn’t as obvious as you might think when you start.

The biggest “cost” issue in SaaS is customers that pay you monthly — which may be a lot of your customers in the early days:

  • You finally close a $1,200 / yr deal!
  • You pay the sales kid say $200 of that in commission + salary (fully burdened).
  • You paid $50 in Adwords to get the lead.
  • So that’s $250+ out the door just to get that “$1,200” customer.
  • And … the customer only pays you $100/month ($1200/12)!

You don’t even break even here for 3 months, and even once you do — it’s only $100/month in revenues!! Man. That’s tough. So much work. For so little money.

And … the customer can cancel anytime. And even that little $100/month evaporates.

And … even if they pay you annually, you can still only recognize 1/12th of the revenue each month. So you still only “booked” $100/month in revenue after all that hard work.

Later, this matters less.

Later, it’s fine every deal is recognized ratably, and even if a lot of customers don’t pay up front.

But it makes it a lot harder to get the flywheel going, and get to the “can afford to pay anyone, really” point than many folks really plan for.

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Published on January 22, 2017

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