Arman Eshraghi, CEO and Founder of Qrvey, hosts a podcast, “SaaS Scaled.” Our latest episode featured Vipul Shah, Co-Founder (CEO & CFO) at SaaSWorks, which delivers a single source of customer, revenue, and usage data truth to CFOs and finance teams. You can watch or listen to the podcast here and we’ve covered some highlights of their discussion below.

Startup founders & investors focus on total revenue, but what should they focus on?

“Quality of revenue. it’s not a term that’s used often. Quality of revenue is really focusing on saying, not every customer is made equal. Not every dollar is made equal. What’s the right thing for your business? What’s the right thing for your customer?

“When you solve for quality of revenue, you’re saying, let me find the highest-fit customers, which first and foremost is best for the customer. That means your product, your platform, your solution, whatever it is you’re providing from a SaaS standpoint, is just a great fit with that customer. People talk a lot about product/market fit, and that’s part of quality of revenue. 

“Now, on the flip side, internally for your team and growing the business, the more high-fit customers you have, the better, because you’ll figure out product/market fit sooner. The feedback loop from customers that are really meant to use your solution is different than the feedback loop that comes from customers that are not a great fit.”

Does focusing on quality of revenue limit market size, negatively impacting growth? 

“If you can, my strong preference is to focus on quality of revenue and quantity of revenue. They’re not mutually exclusive in terms of how you think about it. Similarly, focusing on high-fit customers today doesn’t mean you’re serving only that customer base tomorrow.

“I think you can define your TAM (Total Addressable Market) and what you’re targeting today, and you can do that separately. There’s a lot of pressure to grow fast. I think if you can grow smart and fast, that’s what’s worked out better for me over the years and even in businesses I’ve invested in. What I found is that for a company that has really nailed it with a given set of customers, they can then scale into adjacent areas. Whether it’s going up in revenue size in different verticals or different industries, expanding the TAM from a solid foundation is much easier than having a massive TAM.”

If you determine one segment fits best, should you eliminate the less successful segments you’re already selling to?

“If you’re lucky enough to identify that segment C is your best segment, and your balance sheet and cash flow supports shutting off segments A and B, do it sooner rather than later. Let’s say if you can’t, maybe you apply the 80-20 rule.“It is a really hard decision in one way and it’s a really easy decision in another way. You wouldn’t deliberately climb a mountain with a bag of rocks in your backpack. And that’s what you’re doing when you hang on to segments A and B. Now, there’s this sunk cost fallacy and I’m empathetic, I’ve lived it. It’s hard to just say, Wow, there’s revenue coming in, they’re paying us, this is working, but in the end, you’re doing every one a disservice by holding onto something that you know is not a great segment. You cannot do it soon enough. Think about this as the culture of your revenue and the quality of your revenue. Don’t let the bad culture seep into the quality of your revenue.”

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