The SaaS market has been on a bull run for the last decade now. While we see an irrefutable acceleration to cloud adoption across industries, SaaS makes the largest segment and is set to grow to $117.7 billion in 2021.
In a market growing at such speed, there is as much competition as there are opportunities. So, as they set out with their eyes on attaining that hockey-stick growth for their SaaS, one question that CEOs are always faced with is, ‘How fast can or should my SaaS grow?’
The answer: faster.
A quick look at the SaaS IPOs during 2018-20 shows that the most successful IPOs such as Crowdstrike, Workday, Zoom, and Zoominfo had growth rates of 76% and above. (i.e., the top quartile in the graph below.)
That’s just one example of why hypergrowth is a differentiator. In today’s SaaS world, growth is a point of parity. Growing at average or slightly above the fold growth rates just won’t cut. As per the SaaS growth benchmarking research by SaaS Capital, a SaaS business with $10 Million in ARR should have a growth rate of 55% or more to be in the top 25% of its peers in the same revenue range.
Instead of taking strategic decisions based solely on the last year’s growth rate, you should also be looking at benchmarking your growth rates with the competitors in your revenue bracket.
How fast your SaaS should grow also depends on the stage of growth. In the early stages, it is relatively easier to realize 2x growth YoY. But as you scale up, replicating the growth in the same time period becomes more and more difficult.
So how can your SaaS stay on the hypergrowth track and do so with a graceful combination of agility and sophistication?
We have identified five growth strategies that have helped our customers sustain high growth rates:
Experiment & Iterate Pricing On the Go
Explore New Markets Globally
Expand Revenue and Curb Churn
Drive Operational Rigour with Subscription Analytics
Pivot Business Models
Growth comes from more revenue, and pricing is a big lever that can highly impact your revenues. SaaS pricing is complicated, and scaling SaaS businesses often have customers from different industries and stages of growth. The best way to nail pricing as you scale is to experiment with your pricing strategy.
As per a survey of 96 SaaS businesses with $5+ Million ARR, businesses that continually adjusted their prices could exhibit robust unit economics. By optimizing your prices regularly, your growth trajectory can shoot up within months.
So what is holding SaaS companies back?
There are several pricing models in SaaS. Unfortunately, switching from one to another can be time-consuming, and the finance/billing systems have to bear the brunt.
Pricing experiments can backfire. Ensuring a quick rollback is crucial. Sudden pricing changes can also drive your existing customers away.
Pricing changes can affect the already complicated billing cycles, with prorations, discounts, and trial management.
As a result, pricing changes end up becoming quarter-long projects shuttling back and forth in boardroom discussions. All while your competitors are leveraging agility to grow rapidly.
On the other hand, we have seen our customers overcome these challenges and iterate their pricing within days on their journey to hypergrowth.
To get on the hypergrowth track using pricing experimentation, SaaS companies need to be able to:
Iterate on price points, create new price tiers, or switch to a different pricing model
Roll out pricing changes in hours instead of weeks without changing code
Insulate your existing customers from billing shocks with grandfathering
Compare the performance of your pricing plans before and after revising price points
Superfoods company is one of the top-selling online effervescent tablet companies in the world. In their growth journey, scaling up meant two things: rapidly growing their subscriber base and the ability to iterate pricing & packaging on the go.
“Our philosophy as a company is not to spend months deciding the right price before launching a new product,'' says Paul Kapsner, Director of Finance at Superfoods.
With the limitations posed by their previous billing tool, they could not experiment with pricing, add-ons & discounts. Today, the team at Superfoods uses Chargebee as a highly sophisticated laboratory. They run various experiments with pricing and plans to increase their subscriber base, such as discount campaigns, rolling out new pricing points, and A/B tests.
This has helped Superfoods understand the combination of pricing, promotions, and plan lengths that contribute to the highest LTV for their customers.
On a scale of 1 to 10, Paul rates the difficulty of ‘making witty pricing changes’ a 2 or 3. Paul adds, “We go with what we think makes sense initially and then use the Chargebee platform to A/B test and decide on the optimal price. Chargebee enables us to roll out a new pricing experiment in 30 minutes. We're also allowed to make mistakes and find the right pricing point that suits our customer segments."
Superfoods Company has achieved 4x growth in revenue in 12 months, and pricing iterations have played a significant role in fast-tracking that growth.
For a rapidly growing SaaS, it is important to identify new avenues of revenue expansion.
The global SaaS market size is set to hit $145 Million in worth by 2025. For a SaaS business well on its way to an IPO, 30% of the global revenue is derived from Europe. Expanding to Europe and beyond presents a mammoth growth opportunity, one that is very difficult to replicate with operations solely in the US.
Moreover, SaaS businesses have an inherent advantage since they are built on cloud platforms and can be accessed all over the world. While there’s no doubting the growth opportunities presented by global expansion, it’s no easy feat. SaaS businesses that are looking to expand globally should prepare themselves to:
Support multiple currencies
Accept international payments via global payment gateways
Comply with legal, regulatory, and tax requirements
Whether you want to take your existing offering global or launch new products for global markets, you should be able to do so without worrying about compliance, taxes, and localization.
Expanding rapidly without breaking your existing workflows gives you a huge competitive advantage on the road to hypergrowth.
Slidebean is a US-based presentation design software. With every passing day, as they were scaling, they realized that they’re losing money due to the limitations of the current revenue tech stack.
Slidebean struggled with suboptimal subscription workflow, with a ton of time and resources wasted in building individual integrations to support global payments.
“In some European countries, our users preferred PayPal. We were leaving money on the table simply because we were not offering these payment methods”
- Jose Enrique, Co-founder and CTO of Slidebean.
Today Slidebean can accept payments from customers in over 30 countries regardless of their payment preferences. They no longer spend time building individual codes for security and compliance requirements like PCI-DSS and EU-GDPR because Chargebee has automated it all out of the box.
“It didn’t make sense to reinvest time to add more gateways. So, having Chargebee sit at the heart of all gateways made life easier for us.” - Jose Enrique, Co-founder and CTO of Slidebean.
The impact? Slidebean was able to add nearly 10% of new revenue without changing a single line of code. This was revenue left on the table when they were restricted to credit cards.
New revenue doesn’t always mean new customers. An often untapped goldmine for SaaS revenue growth is the existing customer base. According to Profitwell, 30%a of your revenue should come from expansion revenue.
Why? The answer is simple: it’s less expensive to generate revenue from your existing customers than acquire new customers. The pacific crest survey quantified this with their research, which shows companies growing faster get a large chunk of their Annual Contract Value from upsells.
Expansion MRR is not only great for revenue but also for retaining customers. Speaking of retention, another key to ensuring you stay on the hypergrowth track is to keep your retention rates high and curb your churn. Seemingly minuscule changes in subscription workflows have a big impact on lowering your churn rates and maximizing revenue in the long run.
To be able to capture growth via expansion revenue and churn reduction, SaaS businesses need to:
Monetize free trials
Engage customers segments in targeted campaigns to upgrade to a higher tier
Give customers the flexibility to access premium features
Allow customers to upgrade using self-serve, without sales intervention
Retain customers with better alternatives to cancellations, such as pausing subscriptions
Plug revenue leaks with efficient dunning management
Executing these tactics with agility opens up untapped revenue streams and will get you on the track of rapid growth.
Whiteboard is a mortgage-CRM system that helps loan officers systemize the mortgage processes.
As they scaled up, Whiteboard realized that they were losing a sizable chunk of their revenue and resources to payment failures, deactivations, and cancelations.
Once they streamlined their revenue recovery with Chargebee, standardizing and automating the dunning process became a breeze, resulting in churn reduction by 100%.
If the pandemic has taught us anything, it is the importance of staying agile. The truths of the last quarter may need calibration in the next. Looking at the right leading indicators and long-term revenue trends is crucial to making decisions quickly.
But drowning in data can cause ‘analysis paralysis’ and makes it really difficult to surface those key actionable insights that you’d want your eyes on at any time.
That’s why having a 360° view of your subscription metrics will enable you to drive data-backed decisions that keep your SaaS aligned with growth. Subscription analytics can power your growth by:
Keeping track of the health of your business
Identifying revenue optimizing opportunities
Forecasting and preventing churn
Tracking customer behavior patterns and their impact on revenue
Finding out trial performance and optimizing conversions
Optimizing pricing strategy
A robust subscription analytics platform can be a single source of truth to see your revenue from multiple lenses like product, sales, marketing, and finance.
Looking at expansion MRR metrics in isolation won’t give you the complete picture to track revenue growth. Expansion MRR metrics need to be looked at in conjunction with the MRR churn.
Investors will be interested in knowing how much revenue you’re bringing in and losing to churn every month - it’s an indicator of your growth efficiency.
Deep insight into your MRR and churn metrics can help you course-correct your business to get on the growth track proactively. That’s exactly what Screencloud did. Screencloud is a digital signage software that lets businesses securely share content on any screen at any location. Despite significant growth in MRR, their growth efficiency had hit a roadblock. They needed to identify what led to high churn and do so proactively.
With RevenueStory’s real-time and accurate subscription analytics, ScreenCloud was able to dig deeper into the churn numbers and accounts contributing to it. It gave them an insight into how they could anticipate this churn from annual subscriptions ahead of time.
RevenueStory is built on top of Chargebee’s billing architecture and gives you an insight into how your subscriptions, product catalog, and revenue impact each other to drive your growth.
Pivoting business models can help growing businesses survive unforeseen market turbulence, switch to more profitable business models, and pave the way into new markets.
Businesses take on various approaches to pivoting business models:
Adapting: improve the current business model to match the needs of the market
Expansion: exploring business models that open up new market/market segments
Reactive: shifting gears as the existing business model is unable to respond to a crisis
Proactive: explore business models that prepare your business for the future
Whatever the approach may be, this kind of pivoting is often associated with startups because they are nimble and possess the agility to make big changes relatively quickly. But as your SaaS scales, staying agile enough to pivot business models and do so quickly is a competitive advantage, one that you can leverage to grow rapidly.
That said, pivoting business models isn’t easy. Businesses often hesitate to go this route because of an unscalable technology stack. For example, if your SaaS currently employs a sales-driven workflow, what if you could also scale confidently by setting your entire subscription workflow on autopilot with a self-serve capability without affecting your revenue workflows?
To be able to pivot changes like these successfully, you need to invest and leverage in technology that enables this adaptive and agile sophistication. Backed by a robust tech stack, you can open up new customer segments, move up or downmarket without affecting your time to value.
A Cloud Guru
A Cloud Guru an Australia-based leading online cloud training platform.
ACG was selling courses in bundles at flat rates priced between $29 to $99. They soon found that the flat-rate pricing model was unscalable, and that’s when they decided to move to the subscription business model, which would help them scale faster and sustain themselves in the longer run.
And in less than a month, they pivoted to subscriptions with Chargebee.
“Even if a customer didn't talk to a salesperson, they could go online, buy a subscription, and get started. We had automated a big part of the process. So there was an easy transition between the Chargebee platform and A Cloud Guru, to handle subscription management and easily onboard users.”
- George K., Former product manager, A Cloud Guru
With the flexibility of the subscription model, ACG offered flexible pricing models, managed renewals with ease, and automated their subscription billing end-to-end. Today, A Cloud Guru has crossed the $100 million revenue milestone just five years after launching.
These five growth strategies are key to cracking hypergrowth for your SaaS. But at the same time, it is also important to think about how you sustain that growth. Growth at high rates shouldn’t have to come at the expense of agility. Adapting to internal and external changes quickly is vital, and that’s why it’s important to walk that thin line between sophistication and agility with grace.
With Chargebee as your growth partner, your SaaS can attain that coveted hockey-stick growth and more while still staying nimble, agile, and adaptable.
Read more on how Chargebee can power your hypergrowth here.