Astonish Results is a SaaS business. SaaS stands for “software as a service”. A SaaS business “rents” software to customers on a monthly basis and in return receives revenue monthly. As the number of customers goes up so does the revenue. In theory, the cost associated with servicing customers should tail off as economies of scale kick in.
For a SaaS business, it’s extremely important to understand the CAC or “cost to acquire a customer” and the CLTV or “customer lifetime value”. If your CAC is greater than the CLTV, your business model is in trouble and will not last (or scale for that matter).
How is the SaaS model similar to the independent insurance agency (IIA) business model? IIAs have recurring revenue. Policy holders typically renew their policies each year. There is some drop off. After talking to many agency owners, a typical churn rate is about 15%, which means about 85% of their customers renew their policies. This allows an IIA to calculate CLTV. They can also calculate their CAC. The problem is many don’t. Most IIAs have no idea what their CAC is relative to their CLTV which keeps them in the dark regarding the scalability of their business. Does it make sense to pay $200 to acquire a customer? Who knows! Most do not know how much they would be willing to spend to acquire a customer. This makes IIAs reluctant to invest in marketing. Short term thinking rules the day.
In the subsequent posts, I hope to delve in to more details regarding the similarities between SaaS and the IIA business model and draw some solid conclusions. I will also reveal some financial metrics and best practices to shed some light on the subject. My goal is to give IIA the tools necessary to analyze their business and give them confidence to strive for the growth that they’ve always dreamed of.