How to Buy a SaaS Company
Buy a SaaS Company
We’ve put together 6 tips to help you out when buying a SaaS Business for sale.
6 Tips to Successfully Buy a SaaS Business:
Options: buy vs. build
Where to buy a SaaS business
Understand the prices model
Check out the source code
Check acquisition channels
Understand the competition
SaaS continues to show its dominance and is expected to generate an astounding $141 billion in 2022. If you're looking to buy a company, buying a SaaS business would be a remarkable idea.
Living in the cloud means that the SaaS model was not affected by the pandemic, making it one of the most attractive business options.
It has proven to be exemplary lucrative with very enticing options in terms of scalability. It also means that SaaS businesses are valued differently compared to most other businesses.
While buying a company is a good idea, you need to do a lot of things before buying a SaaS business. This guide covers how to buy a SaaS company and several steps you should make to ensure a seamless buying process.
Should You Buy a Company or Build One?
Why buy a company when you can just build one?
One of the most significant benefits is that you'll save time. Building a SaaS company involves building software, which takes a specific skill set that most people may not possess. It would take you a considerable amount of time to build your sass products from the ground up.
When you purchase a SaaS company, you'll not only get the software but a few years’ worths of market data as well. It will give you a sufficient baseline to work and allow you to focus on improving and scaling the business.
Consider Where To Buy the SaaS Business
If this is your first time buying a SaaS business, then you may not know where to start. You face two options, which are to buy from a private seller or a broker. You need to conduct a market evaluation.
The main difference you will face between a private seller and a broker is the vetting process.
A broker will vet numerous businesses that are trying to sell. Vetting the account is one of the most important steps you can take when you want to buy a company, so decide whether you want to jump into the numbers or have a broker do it for you.
Having a broker doesn't necessarily mean that you should overlook your due diligence. It means that they will take the weight of the load from you, and all you have to do is verify what they bring to you.
If you choose to vet yourself, you'll find that most businesses offer screenshots of their account to back up the traffic and revenue claims.
This proof should not be enough, though, and they should grant you viewing permission to their analytics accounts. These accounts will show you whether the valuation matches the business performance.
You should also ask to see the profit and loss statement and any other additional expenses you should know about before you buy a company.
Some people purchase SaaS companies with seemingly good revenue figures but later realize that the high expenses involved lower the net profit. You can catch problems that you may be able to fix. For instance, you could eliminate SEM advertising if you're good at organic SEO.
Understand the Pricing Model
Once you identify where the money is coming from and the strengths and weaknesses of the business, you should understand its pricing model. A SaaS business’s pricing model can be the difference between having no subscribers and millions of them.
There are several SaaS pricing models available. The payment option can be Monthly Recurring Revenue or Annual Recurring Revenue.
Monthly Recurring Revenue is usually the preferred method because it requires low payments up-front to new customers, and it's easier to track business performance.
One of the most significant results for you to conduct a thorough review of the market is to look for opportunities. Besides checking the SaaS company’s legitimacy, market opportunities will play a huge role in your business’s future.
Decide whether you would like to change it from a flat fee system to a tiered system instead. Such a move will make it more appealing to your target market and, in turn, speed up your ROI.
Check how many active subscribers the software has, then look at the churn rate and the customer lifetime value. It will give you a better idea of how the company works. Check how many free users are involved and whether you can offer them low-tier payments to generate revenue.
Check Out the Source Code
The source code is arguably the foundation of a business. A robust source code technically means the product will last a long time. If you don't have the technical capacity to assess the source code, it's prudent for you to hire a professional that does.
The source code is usually the owner's property and doesn't belong to the developers who created it. You must ensure the source code is included in the sale and transferred to you after the sale.
Check Acquisition Channels
There are several ways a SaaS company acquires customers, and they include paid advertising, organic search, social, referral, and direct. SEO and paid advertising are the primary sources of traffic, so scrutinize what the current owner is doing and how you can improve it to increase your business opportunities. Check if a domain is included in the sale to use the website to get traffic.
Understand the Competition
Buying a company means buying a share of the market, so get to know the companies you'll be sharing the market with. Check their marketing, pricing, and what they offer their target market. Scrutinize how they differ from what your software offers and look for an angle that offers you marketability.
Ready To Buy a SaaS Company?
There are so many reasons to buy a SaaS company, and this is the process you should follow to get it done. Do your due diligence to verify everything before you make the final decision to buy a company. You should also know when to walk away from a deal that doesn't seem appealing at all.
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