For the last four days, we have been talking about using your web analytics data, dashboard and various metrics to improve the performance of your content. Today was supposed to be the last part of the content performance series, but - change of plans. I thought I would take a break from talking about content performance and take a day to talk about growth in general - from the perspective of a SaaS founder.
As founders, we are always looking for marketing levers to grow our businesses - better, faster, easier. But to do that, we need to have a better understanding of the marketing or growth levers that have the potential to drive that growth. We need to understand how these different levers impact our business growth, and how they help us take our business to the next level.
Why is this discussion important today?
With everyone and their grandma having a SaaS product today, it shouldn’t come as a surprise that more and more entrepreneurs are joining the SaaS bandwagon. Some of them even understand how the SaaS growth model is unique and different from the traditional ones we have been typically used and exposed to. Some are even appreciative of the fact that since SaaS is still a growing and evolving industry, no matter how much flexibility it offers to entrepreneurs and customers alike, standardization is something that is yet to occur. Almost every SaaS founder is still in learning, experimenting and tweaking stage of their business.
The infancy of the industry can even be illustrated by the fact that it is yet to become a part of mainstream education. None of the established colleges and universities offer it as a part of their course offerings. In contrast, look at the years that followed the meteoric rise of companies like Facebook, Twitter, Youtube, Zynga. Not only were product management programs being offered by every single university, there was an increasing interest amongst students to benefit from these programs to jumpstart or boost their careers. Since the foundations of SaaS are yet to set in, we haven’t seen a similar trend for the subject, and the only courses you will find online would be on platforms like Udemy, Coursera etc.
Anyway. despite the infancy of the SaaS industry, based on our experience in driving growth for multiple SaaS businesses, and studying the growth strategies of countless more, we have developed a fair understanding of the SaaS growth framework. We can now, with a fair level of certainty, tell you what works and why, and what doesn’t and why not.
Let’s get started then.
The two main growth levers of any SaaS business
If you look at any of the numerous suggested ways to grow a SaaS business, you would find that they can all be classified into one of these two categories/objectives:
- Scaling your product
- Increasing your ARPU
Every single SaaS growth hack, methodology and technique is related to one of these, with varying degrees of direct overlap and correlation. So, let us look at them, and some of the methodologies that help you achieve these objectives.
#1. Scaling your product
Seems quite obvious and not much of a no brainer, doesn’t it? After all, to increase the size of your business, you have to scale your product and reach more customers every day, week, and month. But how do you scale is as important as how much you are scaling.
Different businesses look at achieving scale differently. Well funded B2C businesses, for example, typically want to acquire more and more customers irrespective of the cost. They want to increase their customer base, and they want it increased as of yesterday. That’s why you see astronomically high CAC for some of the most popular terms you may have wanted to target your ads on. On the other hand, bootstrapped businesses are more conservative in the cost at which they will acquire their customers. Unfortunately, acquiring customers for cheap doesn’t necessarily equate to acquiring valuable customers. And if you are not acquiring valuable (ergo quality) customers, you would either end up paying more and more to acquire new ones (the traditional route taken by well funded companies looking to grow faster than ever no matter the cost), or you would end up stunting your growth (happens with a significant percentage of bootstrapped businesses).
Ways to scale your business can be further classified in two categories.
A. Quantitative scale
- Acquire more customers
This seems so obvious. If you want to grow your business, you need to get more customers to it. When an entrepreneur starts a business, he starts with zero customers. So his first focus is on getting that first customer, then the first ten, first hundred, first thousand and so on. The more customers your business has, the more you’ll grow. And the sooner you get more and more customers, the steeper your growth trajectory will get.
To grow right though, you need to focus on getting the right customers, and not just anyone who will sign up for your product. You need to make sure that you are targeting the right segment and sub-segment of your target audience, who are most likely to use and get value out of your product.
This is why landing pages, audience targeting and analysis of your analytics data, traffic sources and goal conversions becomes so critical. The better you get at analysing all this data, the more information you will have about what your right audience looks like. And with that information, you would be able to execute targeted marketing campaigns that are not just bringing in more and more customers to you, but that also make sure these customers are the ones who will stay with your business for months and years to come.
- Diversify your product offerings
Have you ever used a product where the original product you subscribed for somewhat of a core offering by the business, and today you are, in addition to using the core product, using additional add-ons?
Many businesses do it this way. This makes sure that while you are hooking in your customers with a simpler, easier to comprehend product that they would get immediate value from, you are also letting a potential pipeline open for additional future revenue. The more customers use your product and gain value from it, the more likely they are to opt in for add-ons increasing the size of their monthly subscriptions.
Diversifying product offering has another form - similar in thesis, but different in execution. Take the example of a business like Trello - a project management system that can be used by pretty much anyone. It might make more sense to start the business focusing on one core group - say SaaS product managers. This helps you channel your energies in a very targeted direction. It also makes sure your marketing communication is to point, more crisp and is able to highlight the immeasurable value your product can have for this specific userbase. And when you have gotten a firm footing, you diversify and start going after other audience segments - replicating all your winning strategies and learnings from the first outreach.
In both these scenarios, the underlying principle is the same. Grow your primary first, and as you starts gaining more and more firm footing, it gets easier to sell ancillary products or go after ancillary target markets to generate further and faster growth.
B. Qualitative scale
- Lower CAC
I can acquire a single customer for $50 today and not think twice about it. It is just fifty dollars and I would start getting actual customer interaction data to help streamline product roadmap and even my marketing communication. But, if six months down the line I am acquiring a hundred customers every month at $50, I would be concerned. If I am acquiring a few thousand customers every month at $50, I would be seriously concerned about the future of the company.
CAC, or Customer Acquisition Cost, is not absolute, and there are a lot of factors influencing what my right CAC should be, or what CAC levels I can be comfortable with. But, no matter what your current CAC levels are, you are always looking to take it down a notch. A lesser CAC means a healthier business model.
These is a fairly common wrong approach when it comes to reducing CAC. Many entrepreneurs believe that as you grow your business, more and more of your customers through come from direct traffic, organic (search) traffic, social or even referrals and/or word of mouth. Which is true. What isn’t true is the next implied inference that since you are getting more customers through free channels, you should reduce acquiring customers through paid channels resulting in your CAC loweing down.
That is the wrong way to look at reducing CAC. Yes, the overall blended CAC for your business would be lower than what it used to be, but your CAC for the paid channels would still be the same, if not higher, which means you would be bleeding cash and not even realise it (since you would be looking at a blended CAC that’s going down month-on-month).
When we talk about reducing CAC, we are talking about doing so via better targeting, better conversions and optimised ad delivery and performance. If you are spending $1 on acquiring a customer via Facebook, you should look at reducing this figure down to $0.90 or $0.75. What you shouldn’t do is trick yourself in thinking your CAC is $0.75 now because the organic traffic is offsetting the cost of a Facebook customer.
The second reason why this approach is wrong is because it slows down your growth.
As you grow, and if you are growing right, you do not reduce your marketing spend. On the contrary. You end up increasing it. Over and over again. Because you want to grow faster. What you should be focused on are two things:
- Getting more and more relevant customers off of every single channel month-on-month or quarter-on-quarter, whichever way you are measuring performance.
- Acquiring more customers for every dollar spent on these individual channels.
That’s the right way to grow, measure, analyse and optimise.
- More organic and social acquisition
We briefly touched upon it in the last point, so I’ll keep it short here.
Organic and social are acquisition channels that have an amazing snowball effect. It may start slow (and it most probably will), but as long as you are consistently putting in efforts on these fronts, in the long run, these will be the most promising and valuable growth channels for you.
And then there is the added benefit of adding social proof when you are engaging with, and acquiring customers via social channels. Nothing sells your product better than the words of an actual customers, especially if those words highlight how they are actually getting value out of the product in their work life.
- Product adoption funnel
Different users behave differently, have different expectations from the product, different experiences and as a result have varying likelihood of sticking around with the product, suggesting the product to their friends and network, upgrading to a higher tier, purchasing add-ons etc. To know which of your customers are most likely to do any of these things, it helps if you can identify and visualize a product adoption funnel.
This will help you identify the most significant aspects of your product and how users should interact with them to gain and retain the most value.
It will also help you evaluate how you can guide users through the product’s adoption and at what stages are they most likely to take certain actions. You can then set up marketing automation rules and triggers to have those users take the desired actions - some of which we mentioned at the very beginning of this section.
#2. Increasing your ARPU
There are two ways to grow a business. Get more customers with each of them paying the same amount of money, or retain the same number of customers but have them spend more and more with you - which means you are generating more revenue per user.
The best businesses do both. They increase their overall customer base, and at the same time increase their ARPU (Average Revenue Per User). So, how do you increase your ARPU?
- Retain more and more customers for a longer period of time
SaaS businesses tend to typically work on a subscription model, which means that the longer you are able to retain a customer, the more revenue they would generate for your business.
Retention is one of most crucial growth levers in a SaaS business. So much so that a mere 5% in customer retention can boost your overall profits by up to 95%.
As your customer spends more and more time on your product, the more he sees the value he is getting out of it, the more likely he is to stick around even longer. And then, there is the fact that as your customer uses the product longer, he would need less and less assistance from you - which means lesser time invested in attending to support requests or training and developing the customer, while the revenue from the customer remains the same. More profits. Ka-ching!
And lastly, always remember, a long-time customer is the most ardent and best brand advocate and champion.
- Have your customers buy more products and services from you
We talked about diversifying product offering by including add-ons earlier. This is aligned to that.
The more you can explore and leverage other sources of revenue from your existing base, the more you would be having them add to your revenue growth.
This could be by having long term customers upgrade to a higher, better plan, selling them a different product feature altogether (something like what Bareanalytics does), or selling them small incremental product/plan add-ons (for example, charging them based on a per-seat basis, API usage etc.)
Understanding your customer usage pattern and behavioral experience is critical here.
That’s it. Those are the only two directions you need to look towards to attain growth for your SaaS business. With a little bit of forethought, coupled with a well crafted plan and strategy, and finally executing on those strategies, you can easen the process and have it deliver better results for you.
The basic premise is quite simple - generate more value from each customer, and acquire and retain more such customers. There is something you should keep an eye out on though. Every single action you take costs your business - in terms of time, money, bandwidth, and sweat. So, to achieve growth best, always be looking at your ROI for different actions - on different parameters.
What is your current growth plan shaped like? Would you like to bounce some ideas off of someone? I can be a good listener. ;-) Let me know.
That’s it for today, see you tomorrow.
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