The business model of SaaSOptics could, in part, be described as a B2B SaaS firm for B2B SaaS firms. The company, which raised $1.8 million in funding last year, helps SaaS companies manage operations by providing financial management, auditing and reporting, analytics and other back-office services.
Earlier this month, the firm announced that its analytics tool will be available via open API to other software platforms servicing this market.
SaaSOptics knows that SaaS businesses use other software solutions, especially when it comes to financial management. According to SaaSOptics CEO Tim McCormick, many of these companies begin using QuickBooks when they're still in startup phase, then scale to more sophisticated, integrated accounting solutions. Whatever they use, he said, these companies need the ability to manage and forecast their cash, and they do so in a very different way than other businesses.
"With very small businesses, cash is king, and collecting on your contracts in a timely fashion is important to the growth of the business," McCormick told PYMNTS. "It's also important to maintain the relationship with your customer over time, because you have to continue delivering value for your service over the life of the agreement."
Relationships with business customers aren't over once a product has been delivered and paid for, he added.
"In product-only companies, with a single transaction, you don't necessarily have to maintain that tight relationship over time," he said. "It always seems like you're on trial during the term of your agreement, and [customers] vote by renewing your service again."
Those repeat renewals are necessary for SaaS businesses to have the cash they need to continue to operate. But they also change the way in which these software firms predict their future performances. According to McCormick, SaaS companies actually have it easier than product-only ones to do so.
"I've been on both sides of the game, especially in the software business, where we would sell perpetual licenses and those licenses were booked the day the company signed their agreements, and all that revenue was taken upfront," he said. "Quarters became choppy and hard to predict."
One large deal that falls through, he said, could create major discrepancies across quarterly performances. Before SaaS took off as a cloud-based, subscription industry, software companies really struggled to make accurate financial forecasts, he noted.
"With SaaS businesses, you have a base of business you can count on, and if you're properly measuring things like churn and retention rates, you can very accurately predict what your revenue will be from period to period with a lot more accuracy than in the past," McCormick said.
But it wasn't always easy to sell a SaaS company on the analytics tools they needed to make those accurate forecasts, the CEO said. SaaSOptics began in 2009 and, from the get-go, developed an analytics solution for SaaS businesses. But initially, he said, the tool didn't stick.
"Customers would install it and wouldn't particularly stick with it," he explained. "The analytics side of SaaS businesses was really new, and people didn't really understand how to interpret the data. The education part of the market was still going on."
In response, SaaSOptics decided to meld its analytics solution into other parts of its offerings like invoicing and payments. Today, however, the SaaS market has matured, giving rise to sophisticated insights and business intelligence services.
"SaaS businesses are adopting the analytics really, in part, because their investors are demanding that view of their business, rather than traditional P&L statements," he explained. "They need a much more fine-grained view of the health of their businesses from a number of different perspectives."
The company's decision to launch its analytics solution as an open API that can integrate into the kinds of software platforms that SaaS firms adopt as they grow, like NetSuite and Intacct, was a direct response to the greater demand for an analytics solution by the industry overall, McCormick explained, adding that SaaSOptics will introduce integrations of its analytics API into other cloud platforms in the future. Even for the smallest of SaaS companies, McCormick said, sophisticated data analytics is critical.
"Our customers have a very good sense of the importance of analytics," he said.