(2022-12-16) Mehta Three Reasons Why A High-Churn SaaS Business Will Probably Never Make Money

Nick Mehta: Three Reasons Why a High Churn SaaS Business Will (Probably) Never Make Money. Profitability in SaaS comes down to three variables:

  • Net Revenue Retention: How much will that client grow or shrink over time?
  • Gross Margin: What’s the gross profit you will make on that customer?
  • Customer Acquisition Cost (CAC): How much Sales and Marketing expense does it take to get a new client?

1. Low Net Retention Means Your “Steady State” Model Isn’t Very Profitable

the biggest issue that makes terminal growth not very profitable is when you have high churn.

2. Churn Means Your CS Costs Get Higher—and Maybe Gross Margins Get Lower

Either way: high churn drags down all indicators of success—EBITDA, Rule of 40, etc., and a successful CS department can be directly tied to churn reduction.

3. Poor Customer Success Increases Customer Acquisition Costs

you are effectively burning through the market like a forest fire. Eventually, you run out of trees

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