Self-service SaaS:
A Beginner's Guide to Maximizing Growth

You've built a fine SaaS product, that solves a prominent pain-point. You've discovered a large addressable market, that fits your product like a glove. It’s taken a few months of toil, but you’ve definitely hit Product-Market Fit.

Your product is DIY. You’ve figured the formula to simplify your customers’ workflows without having to entirely depend on the sales team. Prospects signup, check your product out, and whip out their credit cards without a human having to force it out of them.

You've picked the Self-Service SaaS model as the way to go. One decision that impacts every product, marketing and scaling problem on your horizon.

Which brings us to today with the Ultimate Question for you to hit that next point of scale: Revenue.

Or rather, how do you unlock the path to efficient hockey-stick revenue growth?

How do you convert more visitors into paying customers? How do you hold on to them long enough to recover your acquisition cost? How do you identify and move the right levers at every stage of the customer's journey to fuel revenue growth? And how do you leverage all this through your product?

That’s what this comprehensive guide should help you answer. The next few pages will arm you with questions, ideas and best-practices to help steer your revenue growth at every stage of your self-service workflow. Each section also includes stories from successful SaaS businesses across Acquisition, Activation, Retention, Monetization, Metrics, and Measurement.

Each section includes links to help you dive deeper into the topic.

Whether this is the first reading in your quest to tame the self-serve model, or the hundredth piece you’re reading on this subject, we hope to leave you with at least a few immediate take-aways and food for thought as you engineer the revenue growth engine for your self-service SaaS businesses.

Brushing up on the Basics:
Why Self-service Saas Is AWESOME

A wide top-of-funnel: By having a free trial/freemium, you are opening your funnel up to people out there who want to kick the tires and try your product, without having to get into a long-term negotiation with a salesperson.

Fast sales cycles: With a free trial/freemium plan, a great onboarding flow, and a highly sticky product, customers can experience immediate value and upgrade in no time.

Non-linear scale: Unlike its sales-driven counterpart, self-service growth does not have a linear curve. It challenges the very assumption that sales productivity is the key to growth. In fact, the added cost of earning every additional dollar is close to zero.

High revenue per employee (RPE): SaaS was always built to scale well, but with a self-service approach, you’re able to do more with far fewer people on your team. Fewer support requests, less hand-holding, and automatic upgrades mean higher profit margins per customer.

Everyone is responsible for growth: At a self-service driven company, everyone is responsible for revenue. While product managers, engineers, and founders have a direct influence on the product, oftentimes sales (eg: increasing PQL conversions) or even marketing (for eg: tackling virality or pricing experiments) plays a pivotal role in shaping it.

Old Way Self-service as the New Way
Spend heavily on traditional marketing activities and sales activities. Product/market drives a majority of your pipeline.
Sales team explains how the product could serve as a solution. User experiences the product to see immediate value.
Follow-up through each stage of the sales cycle. Engineer Aha moments through your users’ journey in your product.
Sales converts the user into paying customer. User converts automatically with a much faster sales cycle.

Self-service SaaS Revenue Growth Framework

Almost all product-led SaaS businesses follow a Self-serve revenue growth framework. But the self-service SaaS model doesn’t stop at just being product-led. A truly delightful customer experience, limitless customer acquisition possibilities, failproof churn management — all focus on streamlining and strengthening the entire self-service channel for revenue growth.

The self-service revenue growth framework cuts across these 5 essential stages:

Fundamental self-service SaaS workflow

Self-service SaaS workflow

Unbounded Acquisition in a Self-service SaaS World

Get the product right, and it will sell itself — or your customers will help you sell it.

The cost of acquiring new customers has increased by over 50%.

Acquisition channels are saturating. The customer trust in businesses is eroding. And users no longer want to fill out lead forms or submit a request for accessing a free trial.

By the time your sales team interacts with them, a prospect would have already formed an opinion about your product and its available alternatives.

"If you build it, they will come" simply doesn't work anymore. Your acquisition strategy should ensure that your product shows up in front of the right people at the right time, and make it as easy and quick as possible for them to realize the value it offers.

1. Grow Organically through Word of Mouth

You most likely won’t hear about the best SaaS products through a cold call. It will be through word of mouth.

- Blake Bartlett, OpenView Venture Partners

Word-of-mouth is, undoubtedly, the most powerful marketing medium at your disposal. And the best (and most challenging) part about it - you can’t buy it off a store. You need to earn your word-of-mouth recommendations.

Not for every business, but if your product consistently exceeds customer expectations, and gets them excited with every use, this could be an effective acquisition enabler. If your product makes customers so delirious with joy that they can’t stop talking about it to everyone they meet, it’s high time you designed a strategy to capture that word-of-mouth already.

Example

Freedom is a website blocker that allows over 450,000 users to enjoy a distraction-free experience. With a solution for a pain-point affecting the productivity of millions of people every day, Freedom had a head-start on word-of-mouth marketing.

Fred Stutzman wrote the first version of Freedom back in 2008 when he wanted to keep himself away from distracting sites. He shared the tool with a few people, and it just took off from there. People naturally wanted to rave about the app that kept them focused on what matters without getting sucked into the Internet black hole. Within a year, with zero marketing, Fred earned over half a million users, just through word of mouth.

2. Capture Virality from within your Product

Virality is how a new product, an app, or a tool is able to catch on rapidly and spread like a software-driven epidemic. It hits critical mass, and takes off to the point where thousands of users are infected by it.

Ingredients to identify and cultivate virality within your product::
  • A problem or pain point exists for a large number of people.
  • Designed to realize “aha!” moments early in their journey.
  • Channels for users to advocate for your product and invite others.

An essential part of engineering a viral experience lies in crafting channels that encourage and capture users to continue spreading the idea of your product. A truly viral product turns every user experience into a self-propagating marketing and sales machine.

Example

As one of the easiest calendar scheduling applications available today, Calendly is is amongst the elite list of B2B SaaS products that enjoy inherent virality. Each time someone schedules a meeting via Calendly, they tacitly promote the product to the invitee, and kick-start a viral loop. The invitee experiences Calendly’s Aha! Moment first hand, and, most often, start using the product to schedule their own meetings.

Calendly’s greatest customer acquisition strategy comes from its users and they value they experience.

3. Optimize Your Content Strategy

“Make something people want”

- Paul Graham, Y Combinator

The best part of being in a growing self-serve market is that your users already have intent. They’re already on their journey to discovering their pain points, and are looking for ways to solve them. All you need to do is just show up and offer a solution.

If you already have a massive amount of inbound interest in your product, category, or the pain points you are solving for, a well-laid content strategy will ensure you win your prospects’ mindshare.

Example

Inbound marketing is the essence of Hubspot.

Hubspot today is a common name in marketing automation and CRM that continues to invest on their self-serve, freemium approach. Hubspot didn’t just take the inbound route - it was pretty much instrumental in establishing ‘inbound marketing’ as a strategy.

"People wanted to do more of the research themselves. And if you go to, Google Trends and look at, even just type in "how-to," it’s pretty interesting just to see the trend for people searching how-to, as more and more people self-educate. I think that’s why inbound marketing works so well for Hubspot", says Hubspot VP of Marketing, Kieren Flanagan.

Ingredients to build a solid content marketing strategy:
  • Capture inbound interest surrounding your product, market or the pain-point you solve for.
  • Increase awareness and build a differentiation in an established, commoditized market.
  • Drive exposure to a large, growing addressable market.
  • Build trust by educating prospects, instead of selling to them.

4. Drive Prospects to Try the Product with a Free Trial or Freemium

The goal of every self-service SaaS business should be to get the product in the hands of the user as quickly and seamlessly as possible. Getting users to try your product early via a freemium edition or free trial gives them the chance to truly experience your product, free from marketing, sales, or any other distractions.

Quick Refresher:
  • Freemium is a customer acquisition model that provides access to a part of the product to prospects free of charge, without a time limit.
  • A free trial is a customer acquisition model that provides a partial or complete product to prospects free of charge, for a limited time. Typically, a free trial runs for 14 or 30 days.

There are pros and cons to both approaches.

Freemium Free Trial
Pros
Opens your product to a huge volume of users with the expectation that a few realize enough value to move to a paid plan. Helps gather sticky or serious evaluators while weeding out “servicing cost” from low Size of Wallet users.
Really good disruptor to capture a competitive market The time limit on free trials creates a sense of urgency, thus encouraging users to try your product as soon as possible
Offers product usage data and helps in customer targets, messaging, etc Offers first-hand product experience
Cons
Need to strike a balance between the cost to serve free customers and paying customers Capturing credit card info and other relevant details could add friction and cause users to disengage
Limits users in some way - stripped-back features or allowed amount of usage Guiding the free trial prospect to the A-ha moment without the trial ends can be a challenge
Considering a freemium model:

Here are four crisp points to help you evaluate if the freemium model will work for you:

  • The number of potential users in your market: The more, the better – remember, only around 5% of the free users will eventually end up paying you
  • The specific market advantage required to win: What do you want the freemium model to win for your business? Is it a competitive advantage? Is it free distribution? Is it getting more referrals? And how realistic is this goal?
  • The max complexity of your product and how it works: How simple and straightforward is your product? Does your offering set itself apart from the din around? Is it lucrative enough for your customers to ascend the pricing tiers?
  • The specific cost each additional user can have: Is the marginal cost of serving an additional customer negligible? Can you ramp up your operations without shooting up your cost? Do you have the capacity to handle the exponential escalation in scale?

So if I was going into a new market, and I was thinking about freemium, I would think about what is the most value I could give away that would allow users to see some amount of value with the freemium product, that would make it shareable to their colleagues.

Like it’s value enough that I would tell another person at work about it or I would tell someone in my network about it. But it’s not so valuable that I have no reason to upgrade.

Like it’s value enough that I would tell another person at work about it or I would tell someone in my network about it. But it’s not so valuable that I have no reason to upgrade.

Kieren Flanagan, VP of Marketing, Hubspot

Your value metrics help you in demonstrating value to your free users and enabling their growth with your product. It is the one core feature of your product, the main value you offer that incentivizes your freemium users to upgrade :

  • For Wistia, their core value is video hosting, so the number of videos hosted is their value metric
  • For Appcues, their core value is helping your users, so the number of users is their value metric
  • For Amplitude, their core value is tracking analytics, so the number of events tracked is their value metric
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Considering a free trial model:

The goal of a free trial is to deliver as much value as possible to users during their trial period. Important questions to consider before deciding whether a free trial strategy is right for your organization:

  • How long does it take for prospects to realize initial value on average?
  • How long should the trial last?
  • What features to limit or remove from the free trial process?
  • How do we nurture a free-trial user? How to guide him to the A-ha moment to realize value soon?
Example

Here’s how Riddle ditched freemium for a free trial, and boosted their new sales by 34%

Riddle is a Germany-based quiz making platform that allows publishers to create quizzes, personality tests, and other interactive formats to engage their audience. Riddle’s freemium plan worked beautifully as an acquisition channel, bringing in thousands of subscribers. The problem, however, was with converting them into paying customers.

Riddle’s free-to-paid conversion was suffering.

We also realized pretty soon that offering a free plan with hopes of converting users to a paid subscription is not a good idea. The users on the free plan ended up being responsible for a large portion of our expenses but never had any intention to ever upgrade.

Boris Pfiefer, Founder, Riddle.

They solved the problem in two ways.

  • Deserting the freemium strategy to nudge customers to upgrade to a paying plan after a limited 2-weeks trial
  • Combining that with allowing users to check out without sharing their card details

Read the full story here

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A free trial or a freemium is a promise of value that you’re letting people realize by themselves. Either of the editions should make it incredibly easy for people to use your product and realize value soon. And that ultimately should yield more conversions, a higher number of loyal customers, and higher lifetime value.

Free Trial vs Freemium?

Seamless Activation for Your Self-service SaaS

Your job does not stop with just acquiring users into the funnel. To prevent your product from turning into a leaky bucket, your app experience should drive users to get “activated” and “retained”.

Activation is the art and science of turning acquired users into active customers. It is that point, the A-ha moment, at which a customer first realizes real value from the product.

You may sit users through hours and hours of product onboarding or training videos to get started (and earn a college degree while they’re at it). Or your product could guide them to discover the key functions they need to achieve what they want to do.

Once you’ve activated a user, you can focus on engaging with them deeper and integrating your product into their day-to-day lives. If you are at this point, you may already be looking into product usage metrics at drawing predictions of when a user is likely to upgrade, expand their purchase, or renew their subscription.

Example
A SaaS darling, Slack is a popular workplace chat app. Slack stays away from traditional email onboarding and instead focuses on in-app notifications, which educate users right when they need guidance.
Reading list on Onboarding:

1. Value-oriented user onboarding

Identifying your product’s key action or value can help in crafting the best onboarding strategy. Key action is a function or feature that offers users their desired value. À la, the Aha moment. Users who experience such key actions are more likely to convert to customers.

Product Key Action
Asana Creating a new project with tasks assigned to a team member
Zoom.us Signing up, organizing, and holding the first video conference
Expensify Creating the first expense report that is approved for payments

How to identify those leading in-product actions around which you could build your onboarding:

  • Consider the actions that are most impactful for user activation. You need not go down the funnel to find your key actions. Appcues recommends - The steps you want to drive users toward onboarding aren’t necessarily your main conversion metrics. You’re looking for "day one" actions that are low-effort, high-value.
  • Dive into both qualitative and quantitative data to identify the user actions and validate if they are helping users achieve their goals.
  • The average number of steps to reach the key action could be anywhere between 3 - 7. Once you have a list of steps, ensure your product is supportive of your onboarding journey.
  • Be prepared to constantly test, analyze and build your onboarding flow.
Giveaway
Wondering how to structure your onboarding experiments’ hypothesis? Try the free Hypothesis Builder.

Watch out for the value gap: A Value Gap is the point where a user’s product engagement declines, or they fail to interact with a critical feature or complete the key action.

The figure above illustrates a value gap that an activated user can experience as a result of not engaging with a product’s most valued features.

Here’s how your self-service SaaS product could help close the value gap:

  • Create an engagement loop using the product Insightful in-product usage data combined with customer engagement behaviors can help your SaaS business automate timely responses, that engage prospects and customers with the product in more meaningful ways.
  • Create a loyalty loop using the product The idea of your product continuously delivering substantial value and experiences to your customers favors: easy adoption of new features, increase in usage, and more renewals.

2. Drive Sales through Product Qualified Leads

A Product Qualified Lead (PQL) is a lead who has reached pre-defined triggers and experienced meaningful value using your product and is more likely to become a customer than other leads.

PQLs are more likely to become a customer than other leads. Unlike a Marketing Qualified Lead (MQL) which bases buying intent on arbitrary factors like email opens, whitepaper downloads, and webpage visits, PQLs are tied to realizing meaningful value.

Assume a typical B2B SaaS business with a heavily inbound acquisition model. Sure, they might have a sales function marking their marketing leads as “SQLs” (Sales Qualified Leads). But they also have a larger proportion of prospects who sign up for a free trial. By designing specific points that capture a prospect’s intent to make a purchase, the business is able to drive sales conversations through the product experience. Voila! Product Qualified Leads.

Product Qualified Leads

In the figure above, whenever prospects realize initial value and reach the PQL status, there is a high chance that they will convert into paying customers or qualify for up-sell/cross-sell opportunities.

6 reasons why you should be thinking about PQLs:
  • They have used your features and engaged with your product. Higher product engagement = higher likeliness to convert.
  • They have hit their first value in your product.
  • You already have insights into how much attention to offer to the PQLs. This, in turn, helps your sales team to act on the best leads instead of getting stuck in tables of data.
  • They help track product engagement at an account level i.e at a team level (as opposed to individual customer level).
  • They help validate or revisit your ideal target persona.
  • They provide Product and Engineering teams a detailed framework for prioritizing feature development. Each feature can be benchmarked to determine the impact to PQL which is ultimately funnel optimization.
Example

Here’s how Hubspot categorized their PQLs into different buckets to find the best opportunities to grow revenue.

  • Hand-raise PQLs: Show free users call to actions (CTAs) within the product for paid-only features, or the opportunity to get assistance with a particular task. Those users who interact with the CTA to reach out and learn more about HubSpot’s paid products are marked as PQLs.
  • Usage PQLs trigger a call to action based on free product usage, for example using all of your free call minutes or email templates would trigger an option to upgrade or talk with sales.
  • Upgrade PQLs trigger users to upgrade for access to gated features.
More on Product Qualified Leads:

Stronger Customer Retention in a Self-service SaaS World

It costs 5 times more to attract a new customer than to keep an existing one.

A recent study by Invesp found that 44% of SaaS companies are focused on customer acquisition, as opposed to just 18% that are focused on customer retention.

One true fan is worth perhaps 10,000 times as much as a stranger. And yet if you're in search of strangers, odds are you're going to mistreat a true fan in order to seduce yet another stranger who probably won't reward you much.

Seth Godin

For a SaaS business that thrives on recurring revenue, retention is equally, if not more, important than acquisition. It doesn’t matter how many active customers your acquisition strategy acquires, if none of them stick around after signing up.

A product-led approach can make your retention strategies more proactive. For instance, a range of product usage insights could throw light on the reasons why someone might leave your product, the signs that a customer is getting ready to leave, and the existing value gaps.

Example

Buffer Improves Retention through Trigger Based Emails [if Buffer Queue = Empty]

For Buffer, the social media scheduling & management software, a healthy count of scheduled tweets indicates that customers are getting value from the service. A dormant account, on the other hand, is seen as the first step on the road to cancellation.

To increase retention and provide additional value, Buffer started emailing customers when they had no future posts scheduled. They not only made their customers aware that their Buffer queue was empty, but provided other popular applications they integrated with to make the sharing process more seamless.

Buffer's retention strategy: Trigger-based emails like the one below to encourage customers (with empty streams) to schedule more tweets and keep their social channels active:

1. Churn Management

Churn is a pain for any subscription business. And there are two main categories of SaaS churn, each of which require a different kind of treatment:

Customer Churn (or Logo Churn) occurs when a customer does not renew, leading to a cancellation. Even with a great product, amazing support, and top-notch training, some customers are just going to leave. And when that happens, a considerable proportion of the energy, time, and money invested in onboarding goes down the drain. Since Customer Churn impacts your growth metrics like Total Active Users it can have a crushing effect on your morale. But it might not be all that bad if you’re losing your lower tier customers to acquire the ones that actually grow your bottomline.

Revenue churn is the absolute nemesis of growth. It is the actual revenue you lose due to churning customers.

Customer Churn Rate
Revenue Churn Rate

There’s no magic spell to reduce churn, you simply have to ensure that your customers continue to realize value from your PRODUCT.

Quick tips to analyse churn:

When dealing with churn, it’s important to know the answer these 3 questions:

  • Has the churn been recurring?

    If a number of customers have been consistently churning out over a period of time, it’s a major red flag and needs to be fixed immediately.

    One-time spike in churn can be attributed to process problems like revenue recovery rules, payment failures, etc.

  • Is the churn voluntary or involuntary?

    Involuntary churn is when customers churn due to payment failures, card expiry or change, gateway errors, etc.

    Voluntary churn is when a customer leaves due to product or process problems like lack of proper support or major pricing/design changes.

  • Is it early-stage or late-stage churn?

    Early-stage is when the churn happens within the first few months of activation.

    Late-stage is when it happens after a year of activation.

    You can also use Chargebee’s subscription revenue metrics analysis tool, RevenueMD to find out the right churn metrics to track.

Reading list on Churn:

2. Product Engagement Drives Stickiness

Here's Sequoia’s framework to Stickiness, Retention and Growth

Engagement Drives Stickiness Drives Retention Drives Growth

If a product truly adds value for you, you will engage with it more deeply. If it makes you happy, you visit it more frequently and become an active user. In other words, engagement drives stickiness, which drives retention — and that, in turn, drives growth.

As a recurring business, you need to focus on building a sticky product that people love coming back to. This way, customers who are realizing recurring value from your product are not just less likely to churn out; they are more likely to fight to keep your service active in the face of budget cuts, competitor offers, etc.

Bonus tip: Even a frictionless checkout experience could result in an uptick of user stickiness:

  • Spoil the user with a variety of payment options from debits to wallets.
  • Short is the new black. Forms that ask only what’s relevant.
  • Mobile friendly forms for those hurried, less tolerant users.
Example

Integrations help get your product in front of your users so they have more reason to use it.

Increased productivity contributes to a stickier user experience that discourages customer churn. For example, Zapier found that Typeform users who integrated with Zapier to push Typeform data to their other services showed about 40% less churn than users who used Typeform on its own.

3. Take the Road to Negative Churn: If You Want to Grow Fast

A negative revenue churn means that you're generating more revenue from existing customers than the revenue that is lost each month from churned customers.

Negative churn is an incredibly powerful growth mechanism. Customer accounts are like high-yield savings accounts where money keeps coming in every month, without much effort.

The main modes of achieving negative churn are:
  • Expansion revenue: If your company charges on a per user/per seat basis, then expansion revenue is the name of the game. You want to focus energy on driving adoption within an organization either bottom-up or top-down to drive revenue growth.
  • Upsell Revenue: Layering in additional features or adjacent products that increase the value of the core product and get customers to drive the incremental benefit. Also, a customer success manager can use her deep understanding of a client’s business to identify gaps and suggest higher value service offerings that can meet the need.
Example
If you are using a help desk tool like Help Scout, the more team members you can key into your support pipeline, the faster you can respond to customers and the more teammates you can keep on the same page.

That value-add is borne out by Help Scout's remarkable ability to drive expansion revenue from their per-seat pricing scheme. Over the course of 23 billing cycles, the average Help Scout user grows to be paying 143% of the average revenue per customer:

Reading list:

Monetization Experiments for a Self-service SaaS

“Building a plane while its flying is the best description of my experience.”

- Read the job description of a growth revenue leader at a popular SaaS company.

While acquiring, activating, and retaining users represent one side of operating a successful SaaS business, monetizing through growth experiments represents the other.

Just as your customers should be experiencing the value of your product, you should be extracting equal value from them. Successful self-service SaaS businesses set up scalable monetization models that make it easy to land and expand in their customer base.

Different products have different goals and different amounts of resources (time, people, and money) to meet them. Hence, planning for growth is figuring out what your product strengths are, so you can leverage them when the time is right.

Different SaaS Growth Levers You Should Adjust for Monetization

Growth levers are powerful tools that you can ‘leverage’ for growth. The key to successful implementation is to pick the right lever for your growth system (picking the wrong one can lead to deadly results).

Lever 1: Pricing

The key to pricing is to always keep testing.

Pricing has always been a tricky affair. Price too high, you lose customers. Price too low, you lose value. Finding the sweet spot has been one of the oft discussed topics in the realm of SaaS. And every pricing expert will recommend that you need to keep testing and iterating.

Getting to the product-market fit is a continuous process. You’ll always end up identifying a new persona, a niche market, or a different vertical you’re catering to.

And you’ll almost always end up finding yourself evaluating your current pricing.

Self-service SaaS companies land paying customers by being strategic about the product packaging i.e limiting the right set of features to the paid plans and thereby converting free users into paying customers.

Example

GetAccept, An AI-based eSignature and deal management platform, adopted a hybrid approach when it came to sales — an outbound sales-driven model as well as a self-service sign-up model. As they scaled, their customer acquisition strategy pursued different use-cases and required a platform that allowed for pricing experiments, including support for tiered as well as dynamic pricing for enterprise sales. And for mid-cycle expansions, this needed to be done on a pro-rata basis.

Iterating on pricing and custom pricing, among other experiments contributed to GetAccept’s revenue growing 4X at the time — businesses should take a leaf out of GetAccept’s growth book and use it to improve their pricing strategies.

Lever 2: Trial patterns

Free trial has become the de-facto for SaaS businesses, typically under the SMB segment. Free trial is largely recommended as a must, if your product is competitively priced. You’d want your prospect to try before they buy, of course.

Free trials also come with their share of options, and like pricing, it is pertinent to experiment with trial patterns. Some of those experiments should be around:

  • Trial lengths — businesses with annual plans have discovered that longer trials convert better than shorter ones
  • Ability to extend trials
  • Providing upgrades to a paid plan mid-trial
  • Accepting users to sign up for trial without card details
  • Allowing for paid trials

The more important thing to take care of here is to take contextinto account. Is your product designed to demonstrate value in the limited trial period? How long will it take for a customer to realize it? What kind of communications or nudges should you employ during trial?

To learn is to grow.

The more you test, the more you learn.

The growth strategies and channels that worked yesterday would likely not work so well today, and might yield even worse returns tomorrow. Every growth experiment, no matter the results, yields an opportunity to learn about your business and users, and grow further.

If the results are impressive, you’ve found something with meaningful impact – optimize it for all its worth. And if you’ve found something that doesn’t move the needle at all, there’s value in that too. It signals that something was wrong with your intuition (about your product or user), or you’ve missed something along the way.

Metrics to Track and Measure

Most people use analytics the way a drunk uses a lamp post, for support rather than illumination.

David Ogilvy

You can’t manage what you can’t measure. A self-service strategy relying greatly on the product, changes how companies track the effectiveness of customers moving through different lifecycle stages: from signup to PQL, from PQL to customer, and from customer to active customer.

Measuring the conversion rate from one state to the next helps companies understand what part of the lifecycle can be improved. For a self-service SaaS, there are seven states in the customer lifecycle:

  • Visitor
  • Signup/Trial
  • PQL
  • Customer
  • Active Customer
  • Renewed/Retained
  • Churned

Now let’s take a closer look at some of the most important SaaS metrics for measuring self-service growth.

1. Virality

Product virality occurs when a product’s rate of adoption increases exponentially with each additional user. Viral growth is measured using the viral coefficient—or the k factor — which is calculated as:

In order for virality to exist, k must be greater than 1.

C(0) = the number of customers at the beginning of the time period you're measuring

i = the number of invitations each customer shares

c = the percent conversion rate of each invitation

k = the number of new customers each existing customer can convert (i * c)

The product virality formula is calculated by multiplying the number of customers at the beginning of a time period by the viral k coefficient (which measures the conversion rate of new customers invited by existing customers to start using a product).

2. Time to Value

Time to value (TTV) is the amount of time it takes new users to reach their first aha moment or activation event.

Goal: The goal is to reduce TTV as much as possible—the closer it is to zero, the better.

3. Product Qualified Leads

Product-qualified leads (PQLs) are typically activated users—folks who have completed a key action within your product, had their aha moment, and have seen the value that your product can offer first-hand.

PQLs provide insights into customer intent and predict how likely a user is to progress to the next stage of the customer lifecycle.

4. Average Revenue Per User (ARPU)

Average revenue per user (ARPU) is the amount of money, on average, that you can expect to make from an individual user. It is a good indicator of the overall health of your business.

How to calculate

5. Customer Lifetime Value

Customer lifetime value (CLV or LTV) is a prediction of how much revenue your business will receive from a single customer over the duration of your relationship.

The simple CLV formula:

Understanding CLV can help your business answer these critical questions:
  • How much can we comfortably spend on marketing and sales for customer acquisition?
  • How much should we spend on customer service to retain an existing customer?
  • Who are our most valuable customers and how can we better target this demographic for future sales?

6. Net Revenue Churn

Net Revenue Churn is the percentage of revenue you have lost from existing customers in a period by total revenue at the beginning of a period.

Understanding Net Revenue Churn:
  • A strongly negative net revenue churn means that a company’s revenue would increase even if there were no new sales.
  • If net revenue churn is near zero, then churn erases the growth from upsells, so all growth must come from new customers.
  • If it’s positive, the company’s sales team is working hard to fill a leaky bucket.

7. Expansion Revenue

Expansion revenue—also called expansion MRR—measures the revenue generated from existing customers through upsells, add-ons, cross-sells, etc.

ProfitWell recommends that at least 30% of your revenue should be expansion revenue—but really, the higher the better.

Customers leave. Churn is inevitable. Even if you can get it down >1%, it's still going to hurt your growth. Acquisition can't fight it. The only thing that can is expansion.

Patrick Campbell, Co-founder and CEO, Profitwell
When it comes to metrics for measuring PLG, there are plenty of other numbers to look at. But it all comes down to:
  • What does it cost you to acquire a dollar in gross profit?
  • What happens to that dollar over time?

The most important thing when it comes to measuring PLG metrics is that you keep it simple and then make sure every department is aligned around the one or two metrics that really matter.

If you’re drowning in spreadsheets but aren’t iterating on your product, you’re probably doing it wrong. The above mentioned metrics can help for starters.

Chargebee Makes Your Self-service Workflow Smoother

Not all self-service workflows begin clean and tidy from day-zero. Most SaaS businesses start off with a system that “just cuts it” through the early days. But with volume, the conversion leaks and inefficiencies start to get in the way of growth.

Chargebee is designed to drive the subscription management engine of high volume self-service SaaS on auto-pilot. Right from delivering a frictionless experience in through every moment in your customer’s buying journey, to minimizing churn, maximizing recovery, and automating finance - Chargebee has you covered.

Example
Want a real-world example of how friction killed conversion rates? Look no further than Calendly.

Calendly identified different friction points that acted as conversion killers during its growth phase:

Friction 1: In the trial-to-customer conversion - Whenever a trial period was over, there was no automated process in place to collect credit card information and activate the subscription.

Friction 2: Switching to a different plan - A customer was in the annual plan and wanted to cancel two months into the plan. Charges were not prorated automatically and a human being had to calculate how much time was left, the credit due, etc.

Friction 3: Adding more users - Customers who wanted to add 10 more users to the plan had to contact Customer Success and wait.

And that's just scratching the surface. In our next resource we will help you understand how Chargebee can:

  • Boost your self-service business's growth
  • Remove the obstacles (read: uncover growth opportunities) lurking in your business
  • Drive operational efficiencies into every stage of your customer lifecycle