Bought a SaaS company, it's going down 2% per month

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.

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.

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.

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!

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.

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%.

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

>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?

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?

> 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.

is it possible to reach out to your customers?

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

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.