Managing cash flow has always been an important part of growing a successful SaaS startup, but changes in the economic environment — higher interest rates and picky VCs — have moved startup cash flow to center-stage. Investors and money lenders both expect startups to have healthy cash flow.
That might sound like a Catch-22 for early-stage SaaS startups that typically burn a lot of cash to gain traction and secure additional funding. It’s not. It simply means that founders can’t chase growth without a close eye on their costs.
You don’t have to be cash flow positive, but you should have a clear path to get there.
When money is flowing into the business faster than it’s going out your startup can weather almost any storm. You’ll not only attract better deals on capital if you need it, but also your business can operate smoothly, cover unexpected expenses, and make investments in future growth.
5 Strategies for Improving Cash Flow
It can take the average SaaS company six years to reach a true cash flow positive status. We have some tips to help you get there sooner.
1. Keep it lean
Build an MVP, get it to market, get feedback, and iterate until you find product-market fit. You’ll accomplish more with fewer resources in your critical early years. You should also look for ways to cut costs such as negotiating price increases with third party solutions providers or taking advantage of special discounts.
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2. Adjust your pricing strategy
Getting revenue in larger chunks less often can significantly improve your cash flow. Consider offering a discount or other incentives to get monthly subscribers into annual or multi-year contracts. Landing a few “whales” or large enterprise customers is also helpful.
3. Make sales and marketing more efficient
The more revenue you can generate from every dollar spent on sales and marketing, the faster you’ll pay back customer acquisition costs. That puts you on a path to positive cash flow and sustainable growth. Focus on high-performing lower-cost marketing channels, minimize friction for prospective buyers, and make sure you're communicating value at every step of the customer journey.
4. Grow existing accounts
New user acquisition costs are estimated at five to seven times more than the cost of keeping existing customers. Renewals are generally a top priority in a growing SaaS business, but if you’ve never increased your prices or offered an upgrade (assuming your product is delivering more value) then you’re leaving money on the table. Buffer users might recall their “Upgrade to Awesome” button in the dashboard, which absolutely begged to be clicked. Don’t be afraid to use mysterious CTA copy and your creative juices to get extra cash flowing into your business.
5. Improve cash flow using revenue-based financing
This non-dilutive debt capital is ideal for SaaS startups with higher gross margins and recurring revenue. Payments are based on your future revenues, so won’t deplete your cash repaying the debt when business is slow. You can also use revenue-based financing to invest in key hires or marketing initiatives that help you grow your SaaS business faster.
A Path to Positive Cash Flow
Ultimately, having positive cash flow in your SaaS business gives you the means to provide excellent service and expand your business — without having to raise startup capital in a pinch.
One of the easiest ways to pave a path to positive cash flow is to simply take care of your customers. By listening to and learning about the needs of your subscribers, you can keep your business growing and reduce your churn rate. Then, watch your revenue increase at scale when you upsell your biggest fans or encourage upgrades.
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