Unhacking SaaS Growth
And Rethinking Recurring Billing's Role In It — A guide to making sense of growth, discovering growth levers,
and rethinking how recurring billing might be more than a mere utility

Billing For Growth

SaaS growth is an uphill battle, and like our proverbial knight, you need to make plans for victory.

Part of planning for growth is figuring out what your strengths are, so you can leverage them when the time is right. This guide presents a contextual approach to growth that will help you think about what your strengths are in relation to the five pillars of the customer lifecycle — acquisition, activation, revenue, retention, and referral. It makes a case for why this is better than isolating a growth metric or strategy or hack to pursue — each can lead to wins, but growth will stick only if you can turn sporadic wins into consistent ones.

Part of it is also figuring out if the weapons you are using will continue to work for you in the battles that lie ahead. To this end, this guide is a dive into the billing system — a powerful weapon in your arsenal — and how you can use it to accentuate your strengths and accelerate your growth.

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Accounting for context when thinking about growth

The conceptual tension of ‘SaaS growth’

“I have yet to see any problem, however complicated, which, when looked at in the right way, did not become still more complicated.”
— Poul Anderson

Poul Anderson’s sentiments are especially applicable today, talking about what might be the universal, top-of-the-mind problem of entrepreneurs everywhere — growth.

SaaS Growth is hard to think about, in my opinion, because there is tension within the concept.

The tension with definitions

It’s true that growth can be defined (you’re growing if you have more renewing customers than canceling ones and you’re growing if your collective customer LTV is three times your collective CAC).

But it’s also true that these kinds of definitions leave much to be desired: they’re isolated, lagging indicators that can point towards general health but they’re far from holistic pictures of how well the strategies you’re implementing are working together, and what you ought to do to leverage them better.

The tension with properties

It’s true that growth, across the board, is associated with the same properties. Scalability, repeatability, and predictability are the forces that divide companies that crack under the pressure of scale and companies that are robust enough to push through the growing pains, into sustainability.

But it’s also true that the properties do not indicate what’s causing them to work and how. Scalability might be driving growth but what’s going right enough to cause it? Where? Sometimes it’s even hard for founders to pinpoint why a product is blowing up.

The tension with blueprints

It’s true that when a company is growing, you can tell. When Shopify jumps from making 205 million to 389 million in 365 days, you can tell they’re driving growth and break down what they might have done differently over the last year. When Slack’s trial to paid conversion rate hits 30%, you can tell they’re doing the same, and break their strategies down for implementable nuggets of gold.

But growth hacks and growth strategies are embedded in context as well. You can look at a company like Shopify or Slack, tell that they’re growing, figure out the blueprint they used to do it, and still be in square one because your context is different and you have to figure growth out for yourself.

 

Context seems to be the recurring cause of tension in the concept of growth, and rightly so. Companies have different goals and different amounts of resources (time, people, and money) to meet them.

Growth advice that doesn’t account for this kind of context might be good enough for a win here and there but not much more.

‘Levers’ account for context

Brian Balfour, talking about the difference between gaining traction and pushing scale in SaaS, highlights what he calls ‘growth levers’ or strengths that can be leveraged for growth.

Growth levers have got more going for them than isolated strategies, properties or definitions:

  • A ‘lever’, by definition, is specific. A lever is a machine that help play with force — it can turn a small effort into the kind of force that can move something massive. This specificity is extremely useful when thinking about SaaS strengths and how to use them for big impact.
  • They acknowledge context. The only way that you can apply a growth lever you read about is to make it your own, factoring your own goals and resources into the picture.
  • Growth levers can only be derived from what’s working. If a revenue or a retention metric is doing well, and you can identify why, you’ve identified an advantage that you can exploit.
 

Growth levers can be what sets you apart from your competition. Whether that is building a product for a certain kind of customer (Stripe started out building for developers, Snapchat built for teens), chasing a niche in the market only you can see, or something you’re doing — your support or your in-app notifications — that are differentiating you from people who offer the same service.

Growth levers can be a market or pricing strategy. Anything from what market you’re chasing (RedHat grew by going after a huge market with a big idea rather than a niche), how you exploit your acquisition channels, how you’re piggybacking on word-of-mouth (NastyGal leveraged eBay to reach their audience) and how you’re monetizing your product.

They can even be the unique way you’re solving a problem. Take Spotify and Apple, for example. Both were really competing against piracy in the music industry. Apple solved for it with a pay-cents-per-track model, but ultimately, it was Spotify leveraging their powerful freemium listen-as-much-as-you-want model that beat Apple Music out in terms of paid subscriber numbers.

Growth levers are specific, acknowledge context, and play on your strengths, which definitely make them practical tools that you can work with. But they’re not the whole picture.

Brian illustrates this point beautifully with a growth curve in his slideshare, Building A Growth Machine:

Growth levers aren’t silver bullets.

The only way to leverage them is to think about the systems that they are embedded in.

Growth levers don’t exist in a vacuum

You think that because you understand “one” that you must therefore understand “two” because one and one make two. But you forget that you must also understand “and.”
— Rumi

Donella Meadows, in her book Thinking in Systems, describes a system as “a set of things ― people, cells, molecules, or whatever — interconnected in such a way that they produce their own pattern of behavior over time.”

There are examples of systems all around us, and they’re so easy to see because of the tangible elements that compose them and the patterns they produce. The digestive system is made up of teeth and tissue, acid and bacteria, muscle and movement, interconnected to digest food in a pattern of nutrition. The university system is made up of deans and professors, freshmen and textbooks, parties and student debt, interconnected to produce learning in a pattern of progress.

Looking at Brian’s growth curve, it’s easy to think of SaaS growth in the same way — a set of things (your product, people, their mindsets, functions, and tools) interconnected in a way that produces patterns of growth behavior over time.

‘Patterns that arise from the way elements are connected’ is the link between a growth lever and actual growth.

Here’s how.

Patterns make it easy to distinguish strengths (growth levers) > When you can identify strengths, you can create even stronger patterns around them so your wins are more and more consistent (than sporadic) over time > Growth.

To summarize:
  • If you see a growth lever that’s working for someone else and want to try to it out, look at the patterns that exist in your growth system. How might the lever fit into them? What new patterns will emerge? The only way to fit a growth lever into your business is to experiment with it.
  • Patterns help identify new growth levers. Looking at the patterns you have at the moment, consciously experimenting with them, creating new ones and experimenting with those, and keeping an eye on the numbers to see what’s working.

Systems are made of subsystems

Thomas Starr and Timothy Allen tell the story of two watchmakers, Hora and Tempus in their book, Hierarchy Perspectives.

Both Hora and Tempus were fine craftsmen who developed watches that were composed of a thousand distinct parts.

Both their shops were filled with customers for a while but over time Hora got more and more customers and Tempus got less and less.

Tempus put his watches together in such a way that if he was distracted halfway through building one — to answer the door, for example — all the pieces fell apart, and he had to start from scratch. The more customers he got, the fewer watches he finished.

Hora did things a little differently. Though his watches were composed of the same number of pieces, he built in tens. He would build a group of ten elements that he would then organize into a larger subsystem, ten subsystems made the whole watch. Whenever he was interrupted, Hora didn’t have to start from scratch and lost only a small part of his work.

Subsystems can help organize patterns and build more concentrated ones that are less susceptible to disruption.

In SaaS, the question of building subsystems is closely tied to the question of how you’re going to measure their effectiveness. The answer lies, as it does with most things in SaaS, with metrics. And metrics begin and end with the customer lifecycle — acquisition, activation, retention, revenue, and referral (from Dave McClure). Let them be our subsystems.

An acquisition pattern might look like this: Visit homepage (first touch point) > pricing page (second touch point) > sign up for trial > promise of free plan > sign-up.

A retention pattern might look like this: failed payment > dunning communication of what went wrong > recovery of payment or customer success communication > more app engagement.

The options, permutations, and combinations are endless across AARRR (acquisition, activation, retention, revenue, and referral). And experimenting with them is the only way to find out whether a growth lever is working or not.

From growth lever to growth: a story of patterns

Take a growth lever that accelerated growth for Spotify, SurveyMonkey, and Prezi: the freemium model. It didn’t for Baremetrics, Ning, and Bidsketch.

The answers to why aren’t lurking within the freemium model itself but in the different systems, subsystems and connections that it was operating within.

The freemium model didn’t take off for Baremetrics because they couldn’t experiment with patterns in their activation subsystem — they couldn’t get new users to convert to a paid plan and it was putting pressure on their resources.

It didn’t work for Ning because they couldn’t experiment with patterns in their revenue/monetization subsystem — their best features were free, and they attracted a ton of users who weren’t willing to commit to a paid plan. Things started working for them only when they pivoted from B2C to B2B and restructured pricing (with their three dollar ‘mini’ plan offering only 1GB of storage so users were pushed towards their twenty dollar and fifty dollar plans).

It didn’t work for Bidsketch because they couldn’t experiment with patterns in their retention subsystem for paying users — there was too much value in the free plan and more users kept switching back to freemium. The minute Ruben Gamez abandoned the model, his revenue went up.

Building better subsystems with your recurring billing system

If experimenting with patterns within your AARRR (acquisition, activation, retention, revenue, and referral) can lead to optimizing growth levers, a tool that can help you build patterns is more than just valuable; it can be the facilitator of experiments, the usher of growth.

We believe an effective recurring billing function, whether you’ve built your own or are buying one off the cloud, can affect four of the five subsystems in your system of growth because of the reach that it has.

The reach of a billing system

The billing process is simple. All it involves is collecting a payment and recording it (for your customers and for your business, in case either needs the record for tax or for a refund).

If you think a billing system transfers this process to an online playing field, you wouldn’t be wrong. That’s not to say you wouldn’t be entirely right either.

Granted, recurring billing doesn’t move the product by itself, collect payments by itself, or support customers by itself, but it can bolster the elements around it. For better or worse, your billing system has a foot in your:

  • Product and pricing
  • Customer care
  • Accounting and finance management and
  • Analytics and reporting
Product and pricing

Imagine Mark’s subscription renews on the first of every month. But he wants an upgrade to a higher paying plan immediately, the fifteenth. When do you charge him? And how?

It’s impossible to figure out what your options are without considering what your billing system can and can’t support. Does it support changing the renewal date of an existing subscription? Does it support prorating the upgrade, if you want to continue billing Mark on the first? Did you build your product with volume or tiered pricing in mind?

Billing questions are subscription questions in disguise. Subscription questions are product and customer experience questions in disguise.

Customer care

If you’ve ever had the words ‘technical difficulty’ ruin your experience of something, you know how important this question is to the online business.

Hopefully, your billing system kicks in to do some immediate customer care. Inform (with an in-app notification) why the payment might have failed, retry the card in case of a technical difficulty, and modify the subscription in case all efforts at recovery lead to nothing.

Accounting and Reporting
In our work building Profitwell, we’ve found that convoluted billing systems deserve most of the blame for our collective metrics illiteracy
— Patrick Campbell, CEO, ProfitWell

Changes to subscriptions affect billing cycles, which in turn, affect the formulae you are using to calculate metrics, potential bugs in your reporting code, and the kind of metrics that it makes sense to track at the time.

The connections between billing and accounting are similarly intricate. Between figuring out how much revenue you can recognize each month balanced against your CAC, reconciling payments made from your website with gateway and bank statements, and figuring out what tax you are liable to in every geography you have a presence in, clean books aren’t possible without consistent, timely, and accurate information from your billing system.

If your billing system isn’t accelerating
your growth, it’s impeding it

Growing is creating predictable patterns in your acquisition, activation, retention, revenue, and referral (the customer lifecycle) so that you can identify which patterns are working better than others, and double down on the patterns that are working.

Tools and operations that enable experimenting with these patterns are key to growth. Whether it’s marketing automation software or recurring billing software, if a tool can influence more than one aspect of your customer lifecycle, it’s worth investing in buying one or devoting all possible resources to its efficient operation.

This section lays out how a billing system impacts your customer lifecycle and how it might enable growth levers that accelerate your growth.

I would go so far as to argue that without these features your billing system is standing in the way of your identifying which growth levers are working for you, and so impeding your growth.

Acquisition

[An external billing system] has easily contributed to a third of our conversions. They've truly helped us open up to the global market, and drastically reduced our development cycles.
— Fred Stutzman, Freedom

The patterns that you build in the initial touchpoints that your customers have with your company can greatly affect how many of them give your product a shot. A billing system can help you experiment with activation by allowing for

  • Coupon management, so you can experiment with patterns around promotions, retarget customers who visited your pricing page and left, and discounts on your pricing or checkout page.
  • Additional payment options, so you can experiment with customer segments and geographies. Alipay and UnionPay are incredibly popular in Asian markets, while most of Europe prefers direct debit over using a credit card like customers from the US and Canada.
  • Experiments around your checkout pages, so you can optimize them for better conversion. From security seals, to the essential details you need to collect, and the right redirect after checkout is over. Here are a few checkout page tactics that you can try on for size.
  • Experiments with patterns around trial — from how long your trials are (businesses with annual plans have discovered that longer trials convert better than shorter ones, B2B business have shorter trial rates than their B2C counterparts) to whether you can accommodate a customer who asks for an extension or provide a paid add-on service mid-trial. This could make or break the freemium model (if you’re trying that growth lever out).

Activation and Retention

If your activation patterns are working, there’s no doubt that they’ll contribute to your retention. A huge part of retention, however, is playing with the patterns that allow you to build better relationships with your customers.

Your billing system, tasked with sending out transaction communication, and ushering a customer through the checkout experience, can initiate beginnings. The median click-through rate for transactional emails is an astounding 4.3%, that’s three times higher than the median for non-transactional emails (1.6%). It makes sense to leverage them, or at least experiment with the pattern.

Your billing system can also enable experiments with patterns around

  • A self-management customer portal that allows your customers to manage their subscriptions by themselves, increasing the amount of control they have over changes and translating to a better customer experience.
  • Multiple currencies and multiple languages. If you’re selling in different countries, communicating with your customers in their own languages will help you experiment with localization as a growth lever to build powerful word of mouth.
  • Customizable invoices and bank statements go a long way as well. Customizing bank statements so your customers can associate their payments to you with your logo or your headline help build your brand in their minds. Invoices that are crystal clear about tax and subscription changes build trust.
  • Most importantly, the subscription flexibility that your billing system affords will help you experiment with customer requests — whether it’s for an additional payment method, an add-on service in the middle of a subscription term, or the ability to pause and resume a subscription at will.

Revenue and Monetization

Finally, and most importantly (as Price Intelligently’s chart suggests), your billing system can help you experiment with your revenue and pricing patterns. Not to mention the revenue that you recover with your billing system will have huge impacts on your involuntary churn. Every attempt at recovering a payment that has slipped through the cracks results in another happy customer that didn’t have to go out of their way to pay you.

  • Pre-dunning emails help you catch failed payments before they happen. They’re also useful if you want to experiment with building relationships or upselling.
  • Grandfathering plans allows you to experiment with pricing models so your existing customers aren’t affected by the changes.
  • Dunning, or trying an alternative payment method after it fails, is a revenue recovery tactic that drives revenue and retention, a must for companies looking to experiment with patterns around their failed payments.
  • Backup gateways sidestep issues that you might have with your payment gateway so that ‘technical difficulties’ are never the cause of your failed payments. You can also use them to experiment with different geographies and currencies, like using a particular gateway for a particular currency so that your accounting is smoother and the numbers are easier to categorize in your accounting system.
  • Advance invoices allow you to collect money from your customers upfront, allowing you to experiment with cash flow and revenue needs that will accelerate other functions within your business that are working well.
  • Fraud filters enable experiments with prepaid cards (you can blacklist them if you see that they’re failing more than credit or debit cards), they allow you to experiment with payment limits, accepting customers from certain geographies, and catching non-payments and chargebacks before they happen.

The relationship between optimizing
subsystems and growth levers

Too often, when people think of growth, they say ‘I could dial up leads’ and ‘I can hire sales people’. They don’t think of all the other things that go into operationally supporting those leads, converting that revenue, and carrying that revenue successfully forward.
— Suneet Bhatt, Chief Growth Officer, Help Scout

Touching upon four of the five stages in a customer lifecycle, your billing system lays the foundation for your growth: allowing you to experiment with patterns that could generate growth levers, and ensuring the interconnectedness of the functions in your business so that it doesn’t get in the way when you're cranking them up.

Growth levers don’t exist in a vacuum. They’re only as useful as the patterns you’ve built around them.

Conclusion
— Systems can surprise us

The world is nonlinear. Trying to make it linear for our mathematical or administrative convenience is not usually a good idea even when feasible, and it is rarely feasible.
— Donella Meadows, Thinking in Systems

Thinking about growth as a system can be extremely beneficial to your business. It offers a framework for how to build patterns (within each pillar of your customer lifecycle), how to identify growth levers, and how to make sure that all the tools you are using (especially your billing system) are helping you get the most out of them (with better patterns).

Systems are not a perfect model, though.

There’s no such thing as the perfect system.

There are limits to organization, boundaries to connection, zany randomness that you may never see coming, nonlinear customer patterns that you will not be able to account for, and threats to team efficiency that can topple something that’s working.

Yet, systems can surprise us.

Baked into the way they are modelled is the idea of a feedback loop. There might be limits to how resilient the elements in your growth system can be to a disruptive event like a member of your team leaving, or sudden, massive change in the market, but if they are communicating — if one part of your system is responding to what happens in another — there is hope for recovery.

As is the idea of evolution. As long as the interconnections exist, the way the elements in a system are connected can change and evolve. Patterns that result can change and evolve, growth levers can evolve too. Nothing is set in stone. The upshot of thinking in systems is that the interconnections will force you to see evolution across elements rather than in silos.

Finally, systems help put time in perspective. There’s no way to start out with growth levers to leverage. And that’s okay. SaaS growth takes time (considerably less than a regular business, admittedly, but time nonetheless). Systems take time to get off the ground, and experimentation to get in the air. Seeing all the elements and connections together will put that time in perspective so you don’t expect the world too soon.

As Suneet Bhatt reiterates again and again, the perfect growth curve does not exist.

Systems might not be a perfect model. But what model is?

Try it out now