Ensuring High-Quality Growth in SaaS - Part I
Oct 14
3 min read
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Synchronizing Sales and Finance for Sustainable Growth
In the highly competitive SaaS landscape, growth remains the dominant objective—by far. However, it may not be as all-encompassing as it was five years ago due to rising interest rates—certainly true for more mature "scale-up" companies. Some experts are differentiating between high-quality growth and low-quality growth. The era of slogans like "make the numbers, I don’t care how" seems to be over. Not only investors—especially private equity—are closely monitoring SaaS gross margins, and anything below 80% is considered concerning or even a show stopper when there is no path to improve.
New cost structures coming up
In the past, ERP systems were designed primarily with manufacturing companies in mind. Their enterprise architecture reflects the business needs of those times, focusing on inventory management, fixed cost structures, and perpetual deal revenue management. However, the business landscape has transformed significantly. Today, software/technology companies, especially those operating on a subscription-based business model, dominate the global market and many others follow and are founded every day. Cloud companies face unique challenges that traditional ERP systems are ill-equipped to handle, particularly when it comes to managing costs and revenues tied to cloud infrastructure and artificial intelligence (AI) services. The landscape has shifted dramatically. These days, cloud infrastructure—often provided by Hyperscalers such as AWS, Azure, and Google Cloud—forms the backbone of SaaS companies' operations. The cost structures associated with Cloud services are far from static; they can be highly variable depending on usage, scaling needs, and services consumed. Additionally, as AI becomes an integral part of modern software, the costs associated with leveraging large language models (LLMs) and other AI capabilities are rising exponentially. These services, often provided by the same Hyperscalers, further complicate cost management.
Beyond infrastructure and AI costs, the SaaS business is also deeply intertwined with third-party Cloud services that support various functions critical to business operations. These include SaaS applications for CRM, data warehousing, security, marketing automation, and code repositories like GitHub. Each of these services brings additional, often unpredictable, costs that need to be carefully managed. For instance, marketing platforms may have costs that scale based on the number of campaigns or contacts, while data warehousing services might vary depending on the amount of data stored or processed. Managing these diverse cost streams is vital to maintaining profitability while scaling operations.
The need for holistic Cloud and AI cost management is paramount for modern businesses. A modern ERP system must not only track these dynamic costs but also optimize them within the realm of finance and controlling. It should integrate advanced analytics and provide real-time insights into cloud usage, scaling patterns, and AI service consumption, allowing businesses to make informed decisions and avoid unexpected cost overruns. For example, cloud usage can fluctuate based on application demand or user behavior, and AI services often come with varying pricing tiers depending on usage levels and the complexity of the tasks being performed. A robust cost management feature should help businesses forecast their cloud and AI expenses, automate the allocation of these costs to different business units, and provide transparency into how these costs affect overall profitability.
However, managing Cloud and AI costs is only part of the equation for success. In today’s competitive environment, driving high-quality growth—growth that is profitable and sustainable—requires aligning sales and finance teams more closely than ever before. High-quality revenue is more than just "making the numbers"; it’s about margins, recurrence, extensibility, and customer retention. To achieve these goals, SaaS companies must prioritize the integration of their Customer Relationship Management (CRM) and Enterprise Resource Planning (ERP) systems. When these two systems are properly aligned, they become a powerful engine for driving sustainable, high-quality growth.
The Four Pillars of High-Quality SaaS Revenue
For a SaaS company, high-quality growth typically rests on at least four key pillars:
Profitability: Deals should generate positive margins.
Recurrence: Revenue must be predictable and recurring.
Extensibility: There must be room for growth through upselling and cross-selling.
Stickiness: Customer retention must be maximized to prevent churn.
Managing these four dimensions requires real-time, accurate data across the organization—from sales and finance to customer success and product teams. Without an out-of-the-box integration between CRM and ERP systems, silos of information can prevent decision-makers from optimizing deals and ensuring long-term profitability.
To be continued in part II
In a forthcoming article, I will explore how an integrated approach can address each of these pillars. Integrated means in particular a tight interoperability between CRM and ERP/Finance. This is opening up the opportunity to provide sales professionals with high quality data from the Cloud and AI cost management module, as well as other finance information that is relevant to ensure high-quality growth at the earliest possible stage. So, stay tuned...