| This is otherwise known as a "lifestyle business". It's the north star for most people and should be but it's not easy. If you build a $500K a year SaaS business and have very little overhead, you can probably take $200K of that revenue as income and have a good work-life balance that's very comfortable. I know, I was able to do this without taking VC and bootstrapping 100% on credit cards and my own cash. However, there's an inflection point that happens with this sort of business IF you're not careful -- or it becomes more successful / or becomes a death spiral. If we're speaking of a true SaaS model. It can work. But there's "gotchas". I did well with this and but eventually sold the business for about 3X and went back to work for another company. But for about 7 solid years as we gained customers and got to that $500-700K, it became very hard to keep it a "balance" as with every 10 customers we added, the more of my time was spent at work and not as much at home. As we added customers, my "balance" was diminished, so I had to hire people, which then cut my income considerably. In the end, I realized it was better to sell the business and take the profit I could to pay off my cards and get something out of it before it killed me. I used to tell people who used to say, "wow, must be great having a business like that!" I used to tell them, "Yes, it's amazing 100 hour work week!". It became more of a "job" and less of a "lifestyle" as the customer count increased. This could have been anecdotal to my business and product, but I have to believe that it won't matter as that size annual revenue demands a bit more of a sophisticated product type. Unless you've hit lightning in a bottle and have a very "light work" product that you're selling and have cracked the code of hitting $500K and having to do barely anything, more power to you... But I don't think there's a lot of those out there and a lot to be created. I just find that with most SaaS businesses I've been involved with and built, the product is solving business problems that aren't usually a "set it and forget it" kind of product to meet those requirements and just sit back and collect money... I find that most SaaS businesses in that range of revenue are complicated and warrant a higher degree of overhead. The real challenge is, "little overhead" to be able to create an income and survive. Support, service and development is expensive and requires more than one person. Good support is important to retain your customers to keep that $500K coming in, and that really is the problem because having just 10-20 customers paying you $500K is far riskier than having 1000 customers paying you $500K. Churn is dangerous in SaaS products that are high cost with smaller customer bases. One or two customers leaving could give you a pretty good dent in your revenue, thus causing you to cut income. So the trick is mitigating churn by having a product that's priced at a point that you can gain a larger customer base so that churn isn't going to radically impact your revenue. But both strategies are going to require support and service and that costs quite a bit of money and can gravely cut your income that has to be passed to engineers/developers who can improve and maintain the product. I had to hire really good support people and some engineers because as we grew that revenue, the product became more complicated and support and service was more demanding (I had about 400 customers). I eventually had to cut my income to pass that to people who could take on more because I couldn't do everything. So there is a law of diminishing returns with this sort of business strategy. It can work, but you have to really strategize, have a product strategy that can generate a good sized customer base but requires very little maintenance, development, support and service. But I call this the "holy grail" SaaS business -- they simply don't exist -- or if they do, they are rare birds.
Just be prepared to understand the issues if you do have some success and are lucky enough to grown a SaaS business to $500K+ Just don't be surprised when you feel like you've succeeded but feel like you're failing. |
* $200K of income from $500K of revenue sounds low. There are places which have SaaS-friendly taxation, I'm lucky to live in one (EU, Poland) and 75% net margin for the entire business is easy to achieve. An 8.5% tax on revenue is a really good proposition :-)
* Support is key. I care a lot about support (I do it myself). It can easily get out of hand and become a chore, but that means something is wrong: if you listen to your customers carefully, you should be changing your SaaS so that less support is needed. I'm thinking about this a lot.
* We're talking B2B SaaS here: I also believe it is better to have more customers at lower price points rather than a few big ones. Big ones are difficult to get, and often have bizarre requirements. If you cater to them, you will alienate your other users. But there is a sweet point somewhere: you do not want to go too low, or you'll get customers that have very little money. These not only churn more often, they also often cause support issues. The sweet spot is somewhere in the middle.