SaaS Profitability Best Practices: Montclair Advisors Webinar


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This presentation will provide best practices for SaaS profitability.

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SaaS Profitability Best Practices: Montclair Advisors Webinar

  1. 1. Building a Profitable SaaS Business Presented by Montclair Advisors, LLC Sponsored by OpSource February 9, 2011 Page 1© 2011 Montclair Advisors, LLC All Rights Reserved
  2. 2. Successful SaaS Companies are Profitable Page 2 © 2011 Montclair Advisors, LLC All Rights Reserved
  3. 3. SaaS Business Model Drivers Market factors are changing buyer behaviors • The Great Recession has changed the software buyer’s behavior • Buyers want to purchase using OPEX not CAPEX • Market growth is with SaaS firms, 30%+ CAGR • SaaS company valuations are 3-10X ttm revenues • New technologies like Cloud Computing make it easier to launch SaaS products and services • Aligns well with software consumerism of Facebook and eBay • VC’s only fund SaaS-based software companies Page 3© 2011 Montclair Advisors, LLC All Rights Reserved
  4. 4. Montclair Advisors’ Software Business Continuum Subscription model requires agility and efficiency Software Continuum Software ContinuumBusiness Model Traditional Hybrid Cross Over SaaS On-premise Focus LT both on-premise & SaaS LT move to SaaS Exclusively SaaSStrategic Intent Drivers: Large on-premise Drivers: Existing customer Drivers: Competition, new Drivers: Newer business, customer base, market, or base, new and existing markets, products or competition, products or solution type markets or solution type company value marketsCustomer Selection Enterprise Enterprise and SMB SMB > Enterprise SMB > Enterprise Perpetual License License & Subscription Subscription SubscriptionValue Capture Services ServicesStrategic Control Long term license deals, Customer support, large replacement costs control of dataDeploymentDeployment Time Months or Years Weeks or Months Days or up to Months Minutes > Weeks Complex Customizations Customizations & Configurable Highly ConfigurableCustomizability Configuration Difficult to Integrate Moderately Complex to Packaged Integration Packaged IntegrationIntegration Difficulty IntegrateSource: ©2008-2011, Montclair Advisors, LLC Page 4 © 2011 Montclair Advisors, LLC All Rights Reserved
  5. 5. SaaS Business Model Comparison Significant Differences Across Business Processes Traditional Software Software-as-a-Service Financials Revenues License Subscription COGS 10-15% 30-35% Product Development Methodology Waterfall Agile Releases Annually Quarterly Architecture Single Tenant Multi-Tenant Services Implementation Customization Configuration Fastest Time to Value Months Hours or Minutes Sales Methodology High Touch Low Touch Pricing License Subscription Trials No Yes Marketing Lead Generation Tradeshows, Email Campaigns Email, Social Networking Source: ©2008-2011, Montclair Advisors, LLC Page 5© 2011 Montclair Advisors, LLC All Rights Reserved
  6. 6. Montclair Advisors’ SaaS Business Maturity Phases Sales momentum and operational efficiencies are key to reaching profitability Source: ©2010-2011 OPEXEngine and Montclair Advisors. Chart based on 2010 public and private financial data. Page 6© 2011 Montclair Advisors, LLC All Rights Reserved
  7. 7. SaaS Tips and Tricks Key themes to consider and some ways to avoid the big mistakes Key Considerations Some Best Practice Ideas Customer satisfaction and renewals Know your Customer Retention Rate Revenues and cash flows Understand your actual hosting costs Expense management and COGS Calculate Your CAC Sales structure and compensation Define SaaS-based comp plan Roll-out a reasonable customer SLA Internet marketing and social networking How quickly can you deploy your products Development methodology and releases Hire some SaaS DNA Hosting infrastructure and management Obtain board buy-in before moving Business metrics Continually measure everything Build a break-even financial model Source: ©2008-2011, Montclair Advisors, LLC Page 7© 2011 Montclair Advisors, LLC All Rights Reserved
  8. 8. Organizational Efficiency’s Impact on SaaS Profitability Automation, process improvements lead to lower COGS over time Cost of Goods Sold (COGS) Income (Loss) What’s in your COGS? (% of Revenues) (% of Revenues) Expenses often included 10% 30% Source: ©2008-2011, Montclair Advisors, LLC Page 8© 2011 Montclair Advisors, LLC All Rights Reserved
  9. 9. Successful SaaS Transitions The market shift to SaaS is clearly underway Page 9© 2011 Montclair Advisors, LLC All Rights Reserved
  10. 10. Successful SaaS Transitions Leading SMB Business Applications Provider • Primarily services companies with less than 100 employees • Very successful QuickBooks, Quicken and TurboTax franchises • Slow and steady launch of a number SaaS-based solutions • Rebuilt offerings and launched PaaS (IPP) and marketplace • Hybrid business model but pushing towards SaaS Page 10© 2011 Montclair Advisors, LLC All Rights Reserved
  11. 11. Successful SaaS Transitions Leading Talent Management Systems Provider • Targets large, complex organizations and governmental institutions • Started in 2005-6 and took about 3 years to reach breakeven • Managed transition for existing cash and operating income • Architectural change and re-platforming of suite • Targeted hiring of key talent • Offers hybrid option Page 11© 2011 Montclair Advisors, LLC All Rights Reserved
  12. 12. Deep SaaS and Cloud Industry Expertise Representative clients various sizes and segments SaaS Cloud Global ERP HCM SCM Infrastructure Page 12© 2011 Montclair Advisors, LLC All Rights Reserved
  13. 13. Montclair Advisors provides personalized Software-as-a-Service business advisory services designed to help software companies to develop and optimize their SaaS business models, improve revenues, control costs and deliver world-class software. Visit us at our website, check out our Smart SaaS blog at or follow us on Twitter @Montclairadvrs. Worldwide Inquiries: Contact: Phone: +1.510.336.0019 Kevin Dobbs, Owner and Managing Partner Fax: +1.510.336.0219 Page 13© 2011 Montclair Advisors, LLC All Rights Reserved