When business is booming, you need to ensure sustainable growth without missing out on investment opportunities. LogicGate’s Kevin Jacobsen tells us how to do this.
LogicGate launched in 2015 with a simple drag-and-drop interface that allows companies to put together their own governance, risk, and compliance (GRC) programmes.
This was a big change from traditional GRC solutions in the market at the time, which typically required custom-built technology that took between 12 and 18 months to implement. Not surprisingly, LogicGate’s software-as-a-service (SaaS) platform was a hit, and in recent years the company’s annual revenues have doubled.
This level of growth brings its own challenges. Kevin Jacobsen, who is both the CFO and the COO, needs to make sure that the company’s growth is sustainable – and that they’re investing in areas that will help maintain this momentum in the years to come.
He recently joined our podcast – The CFO Playbook – and shared with us how he faces these challenges.
Here are three takeaways from our conversation that you can use to steadily move your business forward.
SaaS companies are dependent on their customers returning again and again, so every interaction is crucial in building a healthy relationship between the two.
When it comes to keeping customers happy – and coming back – Kevin says it is all about the quality of service that you offer them:
‘If you’re working in subscription software, the first sale is just the start of the second sale. So, you have to generate enough value for your customers to keep them coming back.’
At LogicGate, that meant building an organisation that was solely focused on serving customers. ‘From the moment a customer signs, our team takes care of everything that a customer needs from that point in time.’
Takeaway: Find out what’s the first impression your business makes on prospects, and what the customer experience is like from start to finish. Investing in this area builds customer loyalty and keeps them coming back year after year.
While top-line revenue growth is an important metric for any growing business, Kevin says it’s equally important for fast-growing SaaS companies to consider retention.
The strongest companies have net revenue retention – revenue generated from customers the previous year, plus upsells, minus churn – in excess of 100%. This metric tells you how much more money customers are spending with your business compared to the previous year. Kevin says:
‘Net revenue retention is a clear lens of customers voting with their wallets for your product, and there’s really no more powerful data point than that.’
By looking at growth and retention on an equal footer, you can identify where to invest money.
The third element you need to consider is efficiency. Customer acquisition cost (CAC) and lifetime value (LTV) are leading indicators of whether you’re spending efficiently. To start with, you should aim for LTV that is three times your CAC. Doing this increases your company’s likelihood to become profitable.
If you want your business to grow sustainably, it’s crucial that you keep your growth, retention, and efficiency metrics well-balanced.
‘As you’re growing, these three numbers – growth, retention, and efficiency – need to be symmetrical. If you’re growing fast, but not retaining customers, that’s a problem. Or if you’re growing fast, but very inefficiently, that’s also a problem’.
Takeaway: Don’t neglect retention and efficiency metrics to focus only on growth. Doing so could put future growth and the sustainability of your business at risk.
Taking the time to get the basics right from the start will make things much easier in the long run. Kevin suggests you start by asking the following questions:
When Kevin took on the CFO role at LogicGate, one of the first things he did was set up accounting tools in the company to get detailed insight on where money was going, and where growth was coming from.
‘By understanding the basics from the start, you’re paying yourself off, because every month and every quarter it’s going to be much simpler for you to get these insights.’
Takeaway: Take the time to fully understand the flow of both your customers and your expenses, and set up tools to give you detailed information.
Going through a high-growth period can be an exhilarating time for any business. Follow Kevin’s advice to make sure that your company is growing sustainably – and can continue to do so for years to come.