Why has capital efficiency become a priority for SaaS?

Over the past five years, the SaaS industry has undergone significant transformations. Influenced by prominent economic and geopolitical changes, the financing dynamics have shifted dramatically.

SaaS players must now adapt to a new paradigm, where optimising cash flow and operational efficiency takes precedence over growth at any cost.

What are investors’ expectations in this new environment? How can operational efficiency be managed in a rapidly evolving market? These questions were explored by Sébastien Leroy (Partner at Serena), Jean-Louis Benard (CEO of Sociabble), and Arnaud de la Taille (CEO of AssoConnect) during a webinar on capital efficiency.

Operational efficiency in SaaS: definition and key considerations

What is operational efficiency?

A few years ago, growth was the primary indicator to evaluate a SaaS company’s potential. Investors encouraged entrepreneurs to quickly establish themselves as market leaders, often at the expense of profitability.

Today, the rules of the game have changed. Investors now prioritise sustainable business models that can grow while controlling the resources they consume. In other words, the focus has shifted from unchecked growth to deliberate, measured expansion.

“Growth must make economic and market sense. We’re returning to pursuing a healthy business model,” says Sébastien Leroy.

Why such a shift for SaaS businesses?

This turning point emerged between 2021 and 2022. The pandemic and geopolitical crises reshaped the expectations of investors, customers, and founders alike.

Today, companies are no longer looking to multiply their SaaS tools. They focus on optimising their existing portfolios, turning the market into a zero-sum game:

“The growth of one company means the churn of another,” explains Arnaud de la Taille.

This new paradigm has direct implications:

• Customer acquisition costs are rising, making each new client more expensive to secure.
• Customer Lifetime Value (CLV) is declining, as businesses hesitate to commit to long-term cycles.
• Pressure on cash flow intensifies, forcing SaaS companies to rethink their strategic priorities.

Sébastien Leroy summarises this reality:

“Capital efficiency has become the new norm. It’s a structural and lasting transformation. The old SaaS valuation models are obsolete.”

Investors' perspective

In this context, investors seek entrepreneurs capable of maintaining a long-term vision while mastering their business models.

The key metric? ARR (Annual Recurring Revenue) per employee, which measures the efficiency of human resources. This simple-to-calculate figure provides immediate insight into a SaaS company’s operational profitability.

“In a SaaS company, 80 to 90% of expenses are allocated to salaries. This metric is, therefore a major strategic indicator for evaluating the company’s health,” says Sébastien Leroy.

To dive deeper into this topic, explore Operational efficiency in SaaS: best practices and key metrics.

Understanding efficiency challenges

The three key dimensions of efficiency

The operational efficiency of a SaaS company is based on three pillars:

1. Cash in: Optimising cash flow and improving client payment terms.

SaaS companies can maximize cash in by encouraging clients to opt for annual subscriptions with upfront payment, for example, by offering significant discounts compared to monthly subscriptions.

Another approach is adopting a revenue management solution to better balance inflows and outflows, optimising Working Capital Requirements (WCR).

2. Expense allocation: Rationalising costs to maximise the impact of investments.

A practical approach involves analysing budget items in detail to identify those offering the highest Return on Investment (ROI). For example, prioritising highly targeted advertising campaigns for strategic customer segments can generate more qualified leads at a lower cost.

3. Operational optimisation: Striking a balance between growth and profitability.

For instance, streamlining internal processes through automated workflows or simplifying the user experience to reduce customer support costs can significantly impact.

A closer look at cash in: levers to improve efficiency

As Jean-Louis Benard highlights, operational efficiency is about generating maximum results with minimal cash outlay. This applies equally to bootstrap SaaS companies and those that have raised funds.

Here are some concrete levers to maximise cash in:

1. Enforce strict payment deadlines: Rigorous receivables management helps prevent cash flow tensions.
2. Encourage annual subscriptions: Offering attractive rates for year-long commitments enhances financial stability.
3. Promote upfront payments: By encouraging clients to pay several months in advance, SaaS companies gain immediate liquidity to finance growth.

While straightforward to implement, these practices require impeccable financial discipline and the ability to convince clients of the added value of long-term commitments.

Operational efficiency is more than just a financial indicator; it reflects a SaaS company’s ability to grow responsibly, adapt to a demanding market, and meet investors’ expectations.

In an environment where capital is scarcer, the SaaS companies that stand out are those capable of combining growth with economic sustainability. Far from being a constraint, this quest for efficiency can become a strategic lever, paving the way for more enduring models.

‍The key? A clear vision, well-chosen metrics, and flawless execution. This new paradigm doesn’t mark a step backward but instead signals the emergence of a more mature era for the SaaS market.