We're incredibly excited to announce that Ratio has secured $411M to fuel the transformation of B2B financing.
Think your cash burn is under control? Investors may not agree. In today’s market, efficiency is the new growth and SaaS CEOs who can’t prove it are being left behind. In fact, in a survey, 82% of investors highlighted efficiency as their top priority. Burn multiple has become the SaaS industry’s ultimate test of operational discipline. It’s not just about growing your ARR anymore—it’s about how much growth you deliver for every dollar spent.
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What’s draining the cash flow from your SaaS business? It’s not just poor sales or runaway expenses—it’s the subscription model itself. Monthly plans keep your customers happy, but they leave you waiting far too long to collect the full value of a deal. Annual plans bring in cash faster, but only if you’re willing to slash prices with steep discounts—and even then, budget-conscious buyers might still walk away.
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In my years working with B2B companies, I’ve seen the push to offer flexible payment terms (like monthly options for SaaS or 60-90-day cycles for enterprise contracts) to close deals faster. While it seems like a win-win—clients appreciate the flexibility, and sales teams close more contracts—without proper management, it can quietly drain resources and disrupt operations.
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The economic downturn has hit businesses very hard. And economists say there's the threat of a global recession on the horizon. To survive, many companies are being forced to keep a tight lid on their budgets and limit upfront cash payments for tools. So, SaaS vendors are considering adopting financial solutions that help accommodate their customers' financial difficulties. This is important, especially for small and medium SaaS companies that lack the advantages—a competitive moat and massive marketing and sales teams—big companies have that enable them to insist on annual and multiyear subscriptions.
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Venture capital funding has dropped 53% year-over-year, and banks have tightened lending policies, increasing interest rates amid financial downturns and bank failures. On top of this, customers are favoring subscription payments over upfront bulk payments, limiting company cash flow. However, companies need to raise funds to spur growth. This article will explore the pros and cons of funding options and how to optimize capital structure.
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In Q2 2023, venture funding took a sharp dive, dropping 18% quarter over quarter and 49% year over year. This downturn has made alternative financing options like revenue-based financing (RBF) and true sale-based financing (TBF) more appealing than ever. These options offer quick approvals and access to capital, providing a viable alternative to traditional venture funding.
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Price serves as the critical deciding factor for consumers in 80% of markets, making it an essential element to consider in your SaaS business model. High prices may discourage prospects, while low prices could raise doubts about your product's quality. Sadly, these pricing perceptions often shift focus away from the robust return on investment that a well-executed SaaS solution can provide. For SaaS vendors, striking the right pricing balance is critical: overprice and lose potential deals, or underprice and risk sustainability. One study reveals that pricing can swing profitability by 12.7%, making it more impactful than other growth strategies.
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The average customer acquisition cost (CAC) for B2B software-as-a-service (SaaS) companies is $239, but it can be as high as $1,450. So, companies prioritize customer retention to lower the CAC and maintain a healthy customer lifetime value (CLV) to CAC1 ratio. Downselling becomes a go-to strategy in this pursuit. It helps you retain churn-prone customers—especially when they're churning due to the high cost or underutilization of the ongoing subscription plan. However, downselling isn’t a smart strategy when it comes to revenue.
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Many tech enterprises favor annual billing for SaaS, drawn by its cash flow benefits. However, upfront payments can deter budget-conscious buyers. And the immediate alternative—annual agreements with monthly payments—pose risks like non-payments and cancellations. In response, SaaS enterprises often resort to discounting. While it does enable the SaaS sales teams to close more deals, it also chips away at long-term revenue and profit margins.
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Discounting to overcome pricing objections and stretching payment terms to close deals—classic sales tactics, right? Every salesperson has relied on these at some point to hit targets. But here’s the problem: while these strategies might get deals across the finish line, they often come at a hidden cost to your business. Margins shrink, cash flow suffers, and you’re left dealing with collections headaches, the risk of client defaults, and the fallout from weak underwriting decisions.
