With the continuously developing nature of the SaaS industry, companies need to stay agile to keep up. A what if analysis is an excellent way to do that.
A what if analysis is like a sandbox to safely "play" with different outcomes and plan your business strategies based on the results. It aims to predict the possible outcomes based on different conditions or circumstances, both positive and negative. The main goal of a what if analysis is to gain valuable insights that can help inform important business decisions.
It’s all about questions like:
"What if we altered our pricing?"
"What if our new customer acquisition rate fell by 50%?"
Since the SaaS landscape is inherently volatile, answering these questions with a degree of certainty becomes crucial. Understanding and using what if analysis is vital for SaaS companies looking to thrive in a competitive market.
So, let's explore this topic to learn more about the power behind the what if analysis. And while we're at it, we'll show you how you can use it to build more resiliency in your business and help you create a more effective, data-driven strategy.
Advantages of using a what if analysis
SaaS businesses can attest to the constant waves of change—from evolving technologies and shifting customer preferences to the continuous influx of competition. In such an environment, a what if analysis becomes a necessity. Here's why:
Navigating the unyielding dynamics of SaaS
Static modeling and best guesses aren't enough in the industry with a multi-tenant nature, subscription-based models and a relentless drive for innovation.
But such an environment is exactly where a what if analysis shines. SaaS companies can use it to recognize shifts in the market and adapt more quickly.
For example, running a what if analysis on a question like, “What if a new technology disrupts our primary service offering?” allows you to anticipate and prepare for a shift before it even occurs.
Revealing potential risks and challenges
Using a what if analysis tool lets you simulate potential issues so you can be better prepared to overcome them should they arise.
Imagine a SaaS company specializing in data analytics. By asking, "What if a global privacy regulation restricts data collection methods?" you can foresee a possible decrease in user base or increase in expenses. As a result, the company can change its strategy in time to avoid significant losses.
Unlocking new opportunities
You can also use this technique to simulate different growth strategies and see how they turn out.
For example you can run a what if analysis for a SaaS company considering a shift from B2C to B2B models.
By analyzing "What if we targeted larger corporate clients instead of individual users?” you can predict increases in revenue and even the specific changes you might need to make.
How to perform a what if analysis for your SaaS business
Step 1: Define your objectives and variables
Do you want to look into potential market expansions or test new pricing models? Establish your objectives, then identify the variables that affect them. Common examples of such variables include user growth rate, churn rate, and new feature adoption.
Step 2: Gather relevant data and information
For accurate predictions, you need a solid base of data to build on. You’ll need to aggregate all the relevant data that provides insight into the variables that can impact the objective you’re interested in.
The more data you have to work with, the more reliable your result will be, so you’ll always want to prioritize thoroughness and relevancy when choosing what data to bring into the analysis.
Step 3: Choose a what if analysis technique
There are two types of what if analysis:
- Sensitivity Analysis: This method tweaks one key variable at a time to determine the effect.
- Scenario Analysis: This is a more comprehensive technique that modifies multiple inputs simultaneously and lets you visualize the combined repercussions.
The technique you’ll choose depends on your goals. If you wish to look at the impact a single variable can make, a sensitivity analysis will suit your needs better.
On the other hand, if your goal is to map out a broader landscape with interrelated variables, a scenario analysis will help you do that. For best results, combine both.
Step 4: Create different assumptions
Although it's tempting to only envision positive outcomes, looking into potential challenges is crucial too. Consider different what if scenario examples like: "What if our user growth stagnates?" so you can be prepared for every possibility.
Step 5: Examine the impact of each what if analysis on your SaaS company
Once your assumptions are in place, using a tool like Drivetrain can help you easily simulate their impact. Evaluate how each analysis influences your KPIs, revenues or user metrics.
Executing a what if analysis isn't about predicting the future with absolute certainty. It's about making informed decisions amidst the myriad of choices in the SaaS environment.
Putting your results into action
Just gathering information isn't enough. You need to act on your results to truly make a difference in your business. Here are a few ways you can leverage the insights you get from a what if analysis.
Decision-making based on data-driven insights
Fighting for your place in the SaaS industry means making a lot of tough decisions. So why guess when you can do a what if analysis and make a clear, strategic decision?
Adjusting pricing and packaging strategies
Considering raising your prices but are afraid of losing customers? What if analysis can help you predict how different pricing structures impact your profit and customer satisfaction.
Evaluating and optimizing customer acquisition and retention strategies
With what if analysis, you can model marketing campaigns and customer service changes to see their effect. Therefore, you’ll have a clearer picture of how to allocate your resources. Plus, you’ll discover which strategy fits best with your target audience.
Identifying potential cost savings or revenue growth opportunities
You can use a what if analysis to uncover the weak spots in your operations. At the same time, it can point you in the direction of untapped revenue streams.
Best practices for conducting a what if analysis
1. Regularly update and adjust your what if analysis model
This makes sure your predictions and outcomes stay relevant. A dynamic approach like this allows for a flexible strategy that can pivot according to the industry's demands.
2. Collaborate with key stakeholders in your company
Involving key stakeholders from different departments ensures a holistic perspective. In other words, by pooling collective wisdom, you can refine the accuracy of your analysis and foster a cohesive strategic vision across your organization.
3. Opt for purpose-built what if analysis tools over traditional methods
You can use Excel to become familiar with the what if analysis concept. It can be quite useful as a sort of "beginner's guide". However, a platform like Drivetrain will significantly streamline its execution, allowing you to easily run advanced business models with as many scenarios as you want with as many values as you want.
Using a what if analysis in your business is an act of shifting from "best guesses" to data-driven decisions, an approach from which every SaaS company can benefit.
Embracing what if analysis prepares you for uncertainties and helps you chart a course toward sustained success. Using Drivetrain can help you do that faster.
Want to learn more about how to make your SaaS company stronger with Drivetrain? Contact us to book your demo today!