Managing your SaaS startup’s burn rate

Here’s the deal with raising growth capital for your startup: it will only last you so long, and you’ll spend it far faster than you ever imagined. Managing your burn rate, or the pace at which you spend your cash, requires a balanced approach to risk. There’s no getting around it; you need to spend money to make money. So, at certain times in your startup lifecycle, you’ll hit the gas pedal and blow through some money to make things happen. On the other side, you should be prepared to slow down (or pull the emergency brake) if you’re moving through your capital too fast.

The thought of finally obtaining the funds to take their business to the next level, and the possibility that it could all slip away (or burn up, if you will) keeps many founders up at night. Founders find themselves fixated on questions like how much runway is left? What’s the zero-cash date? Knowing how to calculate your burn rate, and keep it low, are fundamental to startup success. Read on to see how it’s done.

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Webinar takeaways: the business metrics that drive investors

On Tuesday, we hosted a webinar about important metrics to track when fundraising. Lighter Capital CEO BJ Lackland offered an investor’s perspective on why these are the main metrics a fundraising startup should track, and Grow CEO Rob Nelson took a deep dive into data sources and best practices around analyzing them. Check out the video here.

Below are five interesting takeaways from the webinar.

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Customer success metrics: NPS and CSAT

If there is a single, essential factor for predicting the long-term survival rate of a SaaS company, it's the churn rate. Even companies with truly explosive growth aren't immune from the dangers of a steadily increasing churn rate. The greater the percentage of customers who decide jump ship every month or quarter, the bleaker the outlook becomes.

For SaaS companies seeking investment, a high churn rate can present a serious problem. Why should a VC firm take the risk on a business that can't even keep its own customers around? Is this a startup with a fixable problem, or is it a sinking ship?

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Using cohort analysis to make your SaaS metrics actionable

As a SaaS entrepreneur, you have a lot of data coming at you. The volume and complexity of the metrics you collect can make your head spin. How to make sense of it all? One great answer is using cohorts. This means grouping your customers by their characteristics to break your data into manageable, actionable slices.

Once you see the patterns in how different demographics use—or don’t use—your product, you can:

  • Determine when and how to best communicate
  • Identify flaws in your messaging or promotions
  • Find out who is best served by your product
  • Design incentives to keep customers engaged when they’re most likely to stop using your product

A good place to start is looking at cohorts grouped by time, segment, and size.

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Calculating net and gross MRR churn for your SaaS business

Understanding where your revenue is growing and shrinking is key to scaling your business. Christoph Janz, co-founder and managing partner of Nine Point Capital, writes that “MRR churn sucks the blood out of your business… SaaS companies should work very hard to get MRR churn down as close to zero as possible, or even better achieve negative MRR churn.”

But before you can improve it, you have to measure it. This post will run through everything you need to know you to understand and calculate gross and net MRR churn.

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How SaaS companies can demonstrate revenue potential

Demonstrating your ability to bring in revenue is crucial if you’re a SaaS entrepreneur looking to fundraise. Despite the growth of SaaS startups, many traditional equity and debt investors remain reluctant to fund a company without physical assets.

Whether you’re looking for seed funding or a bank line of credit, you can meet the challenge head on by knowing your key metrics.

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Three shortcuts to avoid when calculating your SaaS metrics

Creating your first financial model and defining the right set of SaaS metrics can be daunting, especially for early stage SaaS companies with limited data. It’s tempting for founders/CEOs to take shortcuts that simplify their metrics, but this can result in misleading conclusions for themselves and their investors. In this post, I’ll share three common mistakes to avoid when calculating your SaaS metrics.

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Proving your startup’s growth potential

Fundraising is one of the toughest tasks you'll take on as a startup founder and entrepreneur. One way to make it easier is to line up the key components you need to tell a good story about your company's growth. Growth metrics are key to a successful pitch and story.

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Accurately calculating gross margin for your SaaS business

Gross Margin is a concept that can be tough to wrap your arms around if you’re running a SaaS business. At its core, gross margin is the percentage of revenue left after the cost of servicing that revenue.

Why should you care about gross margin? Easy. Gross margin is representative of the amount of cash your business is generating to cover all of your operating expenses. Sales and Marketing, your office, your big management salary -- that's all covered by gross margin. Additionally, the higher your margin is, the more money you can reinvest back into your business to accelerate your overall growth trajectory. The more you can make and reinvest, the faster you'll grow.

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New guide: the 8 SaaS metrics that matter to investors

MRR. CAC. CLTV. There are a lot of acronyms and buzzwords about how to measure startup success these days, especially for SaaS companies. The reality is that there are many ways to track the health of your tech business, and there are various points of view on which indicators are the most meaningful and why. We wrote a series of blog posts to break down the basics, and we've combined them into a single guide.

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