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Ask HN: Bought a SaaS company, it's going down 2% per month
21 points by samanamp 10 months ago | hide | past | favorite | 38 comments
Hey folks,

For the last 10 years I've been following HN, and saw how people got great answers to some hard questions here. Hope I can get one for what I'm dealing with.

Background: I bought a SaaS company with 2 Shopify Apps, Jan 2023 with my partner. We put all our savings in and got a 6x loan to buy it. Since then we brought the ongoing cost to almost $100/m, and income is about $7k/m now (just enough to pay the loan). Also we both have day jobs. We easily work 12-14 hrs/day every day of the week.

Customers Acquisition: We don’t spend a dime on marketing. Basically we don’t know much and Shopify app ads are just a waste of money with no returns. Our installs are pretty organic/word of mouth. We have about 80 uninstalls and 60 installs per month. Basically loosing 2-4% of our customers per month.

Our tech stack: We have fully re-written the apps to be modern (Shopify was also pushing us by saying they are going to delist us).

Question: We are now lost. What we should do to at least stop losing customers. Any ideas, books, sites, articles welcomed :)




I have experience in SAAS acquisitions . I am hoping to give you constructive feedback to also help others. Of course take it with a grain of salt:

1. First, 6X of what ? Revenue ? Profits ? I see a tendency these days that every seller thinks their small SAAS/app is worth 6x of revenue or even profits when most small businesses should not be priced more than 2.5x-4X of Profits (not revenue) max. Even software companies especially these small ones. Anyone who thinks otherwise is delusional. Exceptions are if it is growing ultra fast like 100% year by year. Most that are sold don't. So you most likely overpaid in the first place.

People, a small business software app is not worth 6X usually as it is most likely not growing fast enough and even if, there are many factors to consider. THe higher multiples touted are usually for VC backed (which are overvalued anyway in my opinion). Don't get fooled into thinking that.

2. 2% churn. Did you vet the business before buying it ? What was the average churn for past 18-24 months before you bought the business ? Did you not ask the seller ? Perhaps that is standard in this industry. May be not.

2. "Basically we don’t know much and Shopify app ads are just a waste of money with no returns."

Big red flag. You bought something that you don't understand. Never ever do that just because it sounds like "Free Cashflow". Buying a business of any size is no joke. It is not passive income. It requires constant work. If you didn't understand how this can make money without ads, you made a big mistake again. A tech business is not software development. It is a business. You need to know how to sell, market and support the customers. You are realizing that now anyway.

3."We have fully re-written the apps to be modern"

Not at all important especially when you just buy something. The goal is to understand how to keep it going, reduce/minimize churn and only then you can think of enhancements. I don't know the Shopify Apps ecosystem so can't comment on why they pushed but in general, this is a bad idea early on.

I am sorry to say but you have bought something that you have no understanding of. I don't know if I could honestly tell you a way to figure out how to reduce the churn or do better. You may want to find a Shopify expert who knows how to market those apps and see if they can help. But at this point, you are bleeding cash because your revenue barely covers the loan itself. Start learning how to acquire customers in general for a business specifically for shopify apps. Start talking to the existing customers on what you can do to keep them happy.


Every word you said is true and we learned it the very hard way.

> Buying a business of any size is no joke. In the last 8 months I developed more grey hair compared to last 10 years. Running a business has so many aspects to it.

About rewriting the app, we didn't have much choice. Was written 2016 and barely updated since in a language that was hard to learn/expensive to hire developers for.

At this point, we are up to trying ideas. Let me know if you have any book, blog or any general recommendations.


I understand and sympathize. Here is my suggestions on what you could do next:

1. Whoever churns, ask them manually on WHY. Offer them a discount if price is the issue. If it's functionality, then start capturing that information. You goal would be to reduce churn of existing customers so you are not bleeding cash.

2. In Parallel, you need to market the app. I don't know much about Shopify's app ecosystem but there must have a way to get listed on their directory or no ? Perhaps find someone who runs a different shopify app (not a competitor) and approach them for guidance. People like to help usually.

If you want general marketing ideas, I am happy to help. Reach out directly.


Appreciated. Approaching other app owners is a great advice, going to put it into action.


Just out of box: I created https://sleepwit.com/ with a thought of making it as saas after accruing some audience. But how to build audience? Website started seeing some 2-3 site visit per day organically. But Newsletter subscription and comments have not seen any activity. Any suggestions is much appreciated. Thank You.


NB: HN frowns strongly on both single-issue accounts and excessive self-promotion (some is OK, but it shouldn't be the main thrust of your account).

Looks as if you may already have been banned, or are well on the way there, through well-deserved flags.

<https://news.ycombinator.com/newsguidelines.html>


Hard to tell without specifics, but my guess is that a 2% churn rate is about normal. You have to focus on acquisition to make up for the 2% loss. And yes, that takes a lot of ongoing effort.


Appreciated if you have any suggestions on books, articles, blogs or ideas we can try.


Believe it or not, I got shingles when I purchased my first SaaS. The seller ran the promotion to get customers, used churn recovery process to rerun failed cards to jack up the valuation, I was getting disputes every month costing $15 + refund and the churn was 9%-12%. I did take a loan as well but I had cash to back it up.

Luckly, the business had a good word of mouth referrals. I focused on good customer service with almost instant response time and constantly building new features based on customer's feedback. I was able to sustain it. I did rewrite the code but not until it passed $10K MRR and hired a developer overseas. Later I sold a portion of the equity to a friend and recovered my initial investment. I still own majority of the business.

Lately, I've seen some marketplace valuing businesses based on revenue.... I always, always calculate based on NET and see how long it will take to recoup your initial investment. I purchased my first SaaS at 3.25x on net. For me after factoring growth and churn, if I get my initial investment back in 3-5 years, I'll consider buying it. The world of technology is changing rapidly. Anything more than 5 years ROI is too long.


I think I've read your comment more than 10 times. The fact that you've gone through it, came out healthy gives me hope; gives us hope :)


Without any more context, it’s pretty hard to tell why they are leaving.

There are several reasons why this is happening, but I would start by talking to your customers and seeing what they have to say.

First, I would send an email to all the customers that leave, asking them nicely why they left and what you could do better. (I would also consider including an optional text field that allows users to provide their reasons for leaving at the time of departure.)

Then, I would use a tool that will ease the process of gathering feedback and prioritizing it, which is the problem that I solve in my SaaS. (You can check it out here: https://votesnag.com)

This will help you understand what features are missing and what you should build first to make sure your customers don’t leave.

Listening to your customers is really, really important and will help you not just keep your MRR the way it is, but even increase it.

Let me know if you have any questions.


Going to checkout votesnag, can be really helpful.


Dumb question, but is there anyway you can contact uninstalling customers to find out why? Could the plugin pop up a comments form asking why people are uninstalling that gets to you and your colleague?

I think customer feedback would be a good starting point.


Since your comment, I've started contacting them one by one with a personalized email. I think it takes some time to found out what exactly to write to get them to respond; yet to get any response.


This is my suggestion as well. Send surveys and/or personal emails to folks who uninstall and try to find a pattern - it could be a simple tweak or feature add that people want.


Can you walk me through how you are computing churn to get the 2%-4% figure, especially given the 60 installs and 80 uninstalls?

Is 2% a typo? I doubt it is given that you've written it multiple times, but as far as I can tell, 2% churn is really good, hence my nudge to walk us through how you compute it.

There's too little information in your post to be able to make a useful recommendation.

Let's suppose it is 2%. In my opinion, your best bet isn't trying to reduce that 2% which is, as I said, pretty good, but to examine your other levers.

Your costs are about $100/month. You haven't talked about transaction fees and all the percentages for processing, but let's forget that for a moment. You could go out and grow revenue. Of course, some of these levers to increase your sales may increase your costs and you'll have to keep track of costs costs as a percentage of sales.

Leads, prospects, conversion, "customer acquisition cost", average revenue per user, and cash flow.

What's your sales process like? How are people learning about your apps? When are they learning about your apps? What's the point of market entry? What are your channels? What percentage of those who learn about your apps end up buying them and can you increase that percentage? How much does the app cost? Is there an annual plan with a form of discount (to get a year's worth now)? How much does turning a lead into a buying customer cost and how does that figure compare to the amount that customer brings in?

Maybe if you look at most of your customers they'll tend to be in a certain geographic location, speak a certain language (and maybe you can expand to other geographic locations), or selling a specific set of goods (maybe awareness of your app is shared with word of mouth among people who sell car parts).

As I said, there are many levers, including looking at your channels, and few information to be able to tell.


As I know, in US for large corporations, considered normal customers lost rate ~5% per year, and it is impossible to totally stop.

If you don't consider to invest into new product(s), you should invest into retention and into classic ads. And sure, carefully check your sales funnel, and spend enough to get info,why uninstalling.

You should not believe, if somebody claim 0% customers lost rate. Admitting, it is possible, but in most cases will cost more than get new clients on good working sales funnel.

All these are classic marketing subjects, don't even think about any "hot new technologies".

And sorry, books will not help you soon, because you need about year to train your brain, to think marketing way.

Best you could do now, hire good marketing consultant to tune retention and good sales guy to tune sales funnel, and sure, you will need to invest some money to their assistants, because this rate is large enough to make sales dept. This is not scale of one person.


1) Figure out HOW to talk to customers. Before they uninstall, drop them to free and ask for a quick phone call. You need to do this not a V.A. or an email flow. Don’t talk about your app, let them tell you about their pains. Try not to fall down the next rabbit hole of pivoting on their responses :)

2) Churn isn’t an identified problem yet. It’s just a metric you worry about.

3) Your company needs to deliver extra value every few days during onboarding. Onboarding is too short currently. Create value - trust me, your app does something they need. Bespoke report? Most Shopify apps are woefully poor in marketing and execution. There’s so much customer demand for helpful apps - the merchants are mostly dumb about Shopify because they’re worried about their own set of problems.

4) I’ve helped a few apps get better just because my customer’s (merchant’s) need the functionality and the app was just unbaked or misdirected. Devs are usually surprised at insights.

5) Your competition is weak. You got this!


Wise ideas. working on them.

I think the first one is the most important one.

Thanks for the kind word on item 5. Gives us hope :)


This may be a reflection of Spotify’s churn in your category/region. Given the explosion in Spotify merchants during the pandemic, you may be lucky it is only 2%.


Huh. Back in my day we called Spotify merchants "musicians" -- I suppose I should keep up with the times.


If you have 80 uninstalls and 60 installs now, how was it doing before the acquisition? The previous owners must have grown this with installs > uninstalls, can you see how they did it - e.g. by running ads, word of mouth, seo, directory listings etc.? And do ask your customers why they are leaving and fix that if possible. Good luck!


It sounds like retention is your problem, less so acquisition. Have you talked with customers to understand why they are leaving your product?


They are not responsive. But we are going to find a way to contact them.


>Basically we don’t know much

Could you give a bit more background info on the motivation and history behind your decision to purchase this product?


Sure. Both of us work in Tech industry. We know our jobs are not going to be there forever. So we started looking at different side hustles and line of business. Started affiliate marketing but got nowhere (it was very hard for us to write articles).

SaaS company matched our background as tech worker (little we know just a small portion of running a company is tech).


The good news is there's a lot you can do to turn this around, but it largely depends on what kind of apps you're offering. 2% piles it up MoM but it could be way worse.

What's the price point for your app and what categories do they fall into on the app store?


Two categories: - Preorders (mature product) - Upsells (still needs work)

Both 10-20$ price point based on customer's Shopify plan (e.g. basic or plus).

Appreciated if you can share any ideas, books, articles, blogs.


> We don’t spend a dime on marketing.

> Basically loosing 2-4% of our customers per month.

So your answer could be in your question. 2-4% might be normal for Shopify Apps, I don't know. You probably need to be actively marketing and talking to customers.


Get in touch with ex-customers and seek answers on why they're leaving. And fix these issues as you better understand them.


Having a day job do you ever have a chance to talk to the customers? If you do they will surely tell you why they’re leaving…


Maybe our industry is a bit different, but generally hard to get feedback here.


Let this post to be a less to everyone on HN who sneers at marketers as people who don’t do “real work.”


Haha, good point. I don't believe marketers don't do "real work". Like any other profession, very hard to find some that are good in what they do.


is it possible to reach out to your customers?


They are usually not responsive. But I should definitely find a way to talk to them.


You don't really give us enough context to help you. What is your pricing, what does the software do, who are your target customers, why are they quitting, how do they find you? Do you have a trial, what's your typical trial to conversion %.

But first question is what was your plan when purchasing the company? SaaS companies typically have overvalued discounted future cash flows compared to other sources because they are much easier to make better. If you reduce churn by 50% or increase prices by 50% you can have substantial impacts on the business.

Second question is what did you buy?

When purchasing an app you are typically buying customers, brand, employees, and software. It sounds you rewrote the software, so that means you bought customers, brand, and employees. Why did you pay what you did for those items? This will give you some ideas about what to leverage to improve your situation.

What are you and your partners skill sets? Development, marketing, operations, customer support etc...

Have you asked people who churned why they are churning?

Typical plans are things like - reduce churn (app is losing customers due to x, if we fix x this company is worth far more)

- increase price (increases prices, this app is under price compared to competitors due to pricing error, or it is underpriced b/c it lacks feature x or y that competitors have, if we add that we can increase prices)

- increase # of users (app is poorly positioned, or is marketing badly or not marketing, we think we can acquire customers for x and make money, there is a market previous owners didn't go after)

- reduce expenses (app is currently using onshore customer support, if we move that offshore we can reduce expenses by 40%, or we are paying someone $100/hr to support this ancient software, if we rewrite it we can find contractors for $50/hr) (and of course others like bundling, adding features to upsell)

Your options are the following.

1. Do nothing, sometimes you screw up in really expensive ways and the way to make the most of this investment (especially if you have limited experience in ways to help the business) is to just collect checks, pick the low hanging fruit, and write it off as very expensive lesson. Given current churns, margins, expenses and say a 25% discount rate how much are the current cash flows worth.

2. Sell it. Selling it might be worth more than the future cash flows because the buyer has skills or sees something you don't.

3. Build the business. You have the options of reducing churn, raise prices, bring in new users, or reduce expenses. Given your description it sounds like the expenses are minimal so I'd focus on what of the first 3. This is going to be a lot of work, and if you're working 70hrs a week you probably don't have time for it, so you might have to make some hard choices about what you value. Money, security, career, family, health. Something is going to have to be sacrificed to get this done, if it was easy the previous owner would have done it. Make this choice intentially.

To reduce churn, talk to your churners, ask them why they are churning, fix it.

Look at prices, view competitors see what they're charging. If they're charging more you should charge more. Talk to your users, see if there is a service or feature they're missing and wish they had.

Ask people who are thinking about purchasing your product why they are or are not purchasing. Look into how people have grown shopify apps before, try an email campaign, if the LTV is right try cold calling, are there influencers you could reach out to, try SEO.

No matter what you do it's going to be a rough time, building something is hard, and I wish you the best of luck.


Hey,

Thanks for taking the time and sharing your thoughts.

I do not have answer to most of the questions: like what is the trial conversion % or why customers are leaving.

I love the section you laid our options, that's all true. We've already chose option 3. Or it's better to say we are going to fight until the last customer. If we learn how to keep it alive, we have learned a skill that's not taught any where else. If not, as you mentioned in option 1, it's going to be a very expensive mistake.

Thanks for the advice :) going to draw action items from it and apply. First one is going to be reducing churn.




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