Insights from The Art of Growth in the Year of Efficiency

Chargebee’s Chief Marketing Officer, Guy Marion, recently hosted an insight-packed webinar with fellow industry leader, Sam Jacobs, Founder and CEO of Pavilion, the world’s largest executive community for go-to-market operating professionals at startups and scale-ups worldwide. The webinar shared data and insights from Chargebee’s 2024 State of Subscriptions and Revenue Growth report. 

This post summarizes the webinar and highlights some of the key themes of Marion and Jacob’s conversation. To get all the insights, you can listen to the full recording. 

Revenue in the era of efficient growth

Marion kicked off the conversation with a standout stat from the 2024 State of Subscriptions and Revenue Growth: 96% of subscription leaders anticipate revenue growth in 2024, a significant increase from the previous year. This shift indicates a departure from the “growth at all costs” mindset, with companies now prioritizing sustainable or efficient growth.

Marion highlighted the adoption of success metrics, such as the LTV: CAC ratio and the rule of 40, to measure growth sustainability. He also emphasized the trend towards companies targeting over 100% net recurring revenue, signifying a focus on long-term viability.

Marion said, “We’re seeing the rule of 40 again, which means your recurring revenue growth rate, year on year plus your EBITDA, your profitable margin, those two numbers should add to 40% or more. More and more companies are focusing on the rule of 40 and net recurring revenue. So the existing revenue that subscription businesses have, we’re seeing companies targeting over a hundred percent, 105% as being the norms. Now, these are metrics that have always been important in the subscription space but seem to be taking more of a precedent from what we’ve seen coupled with slightly lower growth rates.”

Jacobs underscored the shift towards profitable efficient growth. He noted that this trend is likely to persist amid rising interest rates and inflation, emphasizing the importance of diverse capital options beyond venture capital.

Jacobs said, “The other thing that they’ll figure out is that there’s a lot of flavors of capital besides just pure venture capital and there’s a lot of investors that are willing to accept 50%, 30%, 20% growth rates with healthy cash margins, to your point about the rule of 40, Guy, without necessarily needing the company to IPO all the time.”

Importance of customer retention for efficient growth

The discussion then delved into the critical role of customer retention in achieving efficient growth. Marion highlighted that 86% of surveyed companies believe customer retention is as or more important than acquisition. Despite the typical emphasis on acquisition, companies are increasingly investing in retaining customers and optimizing their business for lifetime value.

Marion explained, “I think the key difference we’ve seen this year is companies are really investing, shoring up their customers, focusing on the right ICPs, their ideal customer profiles. So who are the customers that are most likely to stick around the longest based on the way or the channel they’re acquired from, and then optimize that efficient growth by retention? And that retention is only enabled by delivering recurring impact, which all of it sounds fairly straightforward, right?

Recurring impact drives recurring revenue, and yet historically we’ve all been focused much more on the pre-sale funnel, meaning understanding exactly our conversion rates from the moment that a lead becomes a lead to the moment that a buyer becomes an opportunity all the way through to the closed sale.”

Jacobs emphasized the need for architecting an intentional post-sale funnel, leveraging algorithmic health scores and automated interventions to ensure customer renewal. Both speakers stressed the shift towards quality over quantity in customer acquisition, reflecting a strategic move towards customer-centricity.

Jacobs added, “ I think the reality is public company comps imply that the multiple is about six. And so that has a big impact on how we are all managing our businesses and certainly the types of capital that we’re going to use to run our businesses or to the point of some of the slides later if we’re going to be focusing on funding our businesses through customers and not through outside investors.”

Funding efficient growth

The conversation also explored how companies are approaching funding in a changing tide.

Marion shared, “The number one takeaway was that companies will continue to grow this year through efficient revenue growth, which we interpret as being primarily focusing on acquiring customers more effectively as well as secondly, expanding their revenue stream. So either introducing new products and services to their existing install base, expanding the value of their existing customers, or expanding revenue streams into new markets.” 

Pricing strategies for growth

Marion and Jacobs also discussed emerging trends in pricing models, AI technology, and community building. Marion and Jacobs discussed the importance of aligning pricing strategies with customer preferences and leveraging AI to enhance customer experiences. They emphasized the value of building communities around products or services, highlighting the need for communities to have a distinct purpose beyond promoting the brand. Overall, the dialogue underscored the importance of aligning business strategies with customer-centric approaches to drive sustainable growth and enhance brand loyalty.

Conclusion

To gain deeper insights into growth strategies and emerging trends in the subscription-based business landscape, we encourage you to listen to the full version of the webinar on demand.

Unlock valuable insights that can empower your business to thrive in the year of efficiency.