What Hockey-Stick Growth Looks Like: Analysis of 600+ SaaS Businesses

  • Written By:
    Jared Schneider
  • Published On:
    July 7th, 2020
  • Read Time:
    5 Mins
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After processing over 400M in sales and being in a unique position to look under the hood of 600+ SaaS businesses (who use PayKickstart), here’s what I learned separates those with hockey stick growth/scalability and those that just pitter along…

First – I want to apologize as this is a bit of a RANT, but it’s been something that has been bothering me when I see uber talented Entrepreneurs and killer products that never make it mainstream.

So here we go…

#1. Focusing on Keeping the Customers They Have, Not Generating New Customers

It’s 6-7x more expensive to attract new customers, than maintaining an existing customer.

However, many feel that throwing advertising dollars against the wall to see what sticks, is a better use of company dollars.

The companies that I see creating hyper growth, are the ones who first focus on their existing customers – then worry about finding new customers.

Does it really make sense to continue to acquiring costly new customers when churn is 10-20% or your lifetime value is extremely low?

You end up in a vicious cycle of trying to replenish cancelled customers with new customers – never really moving the needing in your direction.

This leads me to my next point…

#2. Addressing Churn

Imagine if you could cut your churn down from 5% to 2%. While it may not seem like a lot, it can have a major impact on your bottom line.

Say you have 5,000 customers, each paying you $250/month. Assuming you didn’t generate any new customers…

At a 5% monthly churn rate, you would be left with 2,844 customers and $711,000 MRR after 1 year.

At a 2% monthly churn rate, you would be left with 4,004 customers and $1,001,000 MRR after 1 year.

That’s a difference of 1,160 customers and $290,000 in MRR.

See where I’m going with this?

Think of how much easier it would be to scale a business, knowing that your churning at 2.5x LESS.

Your CaC-to-breakeven just significantly improved!

As ad costs continue to rise (specifically paid ads), think it would be helpful to have that extra margin to play with?

So how do you address churn?

Let’s look at the two different types of churn – Voluntary and Involuntary.

Voluntary is when a customer actively reaches out to want to cancel their subscription.

Involuntary is when a subscription cancels, usually because of a failed payment(s).

For voluntary churn, we’ve seen SaaS companies that have a “Cancellation Saver” sequence in place, can save upwords of 30% of customers potentially looking to cancel.

When a customer is asking to cancel, take them through a rebuttal sequence to try and overcome any objections they have.

Here is an example of one we use that is super helpful:

They select the reason why they want to cancel, which allows the vendor to provide a relevant rebuttal (depending on if its cost, missing functionality, using another product, etc…). Also, providing quick support options like submitting a ticket or live chat can start a dialogue and allow your customer success team to address their immediate concerns.

For involuntary churn, utilizing a dunning sequence can save 30-40% of delinquent payments.

  • Email and In-App Notifications
  • Using Smart Retries
  • Having a Customer Billing Portal that Allows for Easy Payment Updates
  • Reaching Out to “At-Risk” Customers (ie: Card About to Expire)

Having these things in place to combat churn is a game-changer!

#3. Maximizing Expansion Revenue (APRU/LTV)

So now that you have addressed churn, the next step is to maximize how much each customer is spending with you.

Look at companies like Intercom, Slack, Jira – while on the surface their plans seem extremely affordable, they bake in various upsell/upgrade opportunities all over their UIs.

Patrick Campbell from ProfitWell, did a benchmark study that showed how the companies in the top 10% for growth, had around 20-30% of their overall revenue coming from expansion revenue. This could be in the form of plan upgrades, usage fees/billing, add-ons and more.

Again, it’s not only easier to maintain an existing customer, it’s also easier to get those customers to spend more with you.

So many businesses I’ve seen have literally no upsell/upgrade path or opportunity for expansion revenue.

Have a feature that only a certain segment of your users actually uses? It could be a great candidate as an add-on feature.

Have a feature that a large portion of your users love and provides a lot of value? Try moving it to the next plan up to entice them to want to upgrade.

#4. Value Alignment & Pricing

We’ve seen so many SaaS companies stunt their ability to grow, simply because they are using the wrong value metric to create their pricing/plans.

Typically, what happens is the SaaS company assumes that customers are gaining the most value out of a certain feature-set, when actually it is something completely different.

For example, if you’re running an email automation tool, the value lies in the customer list size. Generally, the bigger the list, the more revenue they are most likely generating from that list – which in turn places more value on your solution as their list size grows.

Which is why you’ll notice a common theme amongst email automation tools, where you pay more depending on how many subscribers are on your list.

Makes sense, right?

But you would be amazed at how many SaaS companies have their value metric or metrics (yes, some have more than one) wrong, which makes it hard to maximize ARPU and LTV.

#5. Improving the Checkout Experience for Conversions

How many checkout pages have you gone to and the page completely turns you off?

You had your credit card in hand, ready to sign-up – but then something about their checkout process rubbed you the wrong way and you bounce!

Happens more than you may realize.

Checkout pages with key elements, like…

  • Summary of the Product Features/Benefits
  • Having Multiple Payment Options (Credit Card, PayPal, ACH, Apple/Google Pay)
  • Order Summary
  • Testimonials
  • Money Back Guarantee/Free Trial

If you want to get really ninja, having advanced functionality like…

One-Click Upsells – where the customer enters their payment details ONCE, then they can purchase any upsells/downsells/cross-sells with one-click, without having to enter their payment details again and again.

Auto-Address Complete – where the customer starts typing their address and a list of suggestions display for them to select and auto-fill the rest of the fields.

Using the NumPad for Mobile Customers – our data shows that about 50% of customers purchase using a mobile device. Is your checkout experience optimize for that? Something like this…

Once you’ve addressed the 5 points above (there are more, but to address the lowest hanging fruit first), that’s when you can put your foot on the TRAFFIC and LEAD gas.

Put you and your business it the best possible position to maximize EVERY visitor, EVERY lead, EVERY customer.

Of course, we ALL want more customers – it’s a lot sexier and more exciting to create new ad/marketing campaigns to acquire NEW customers, but until you put your business in a place that is delivering the right value, maximizing ARPU/LTV and churning less customers – focus on the things above.

So, this is the end of my rant.

If this was common sense, then I apologize for making you read all this. Yet, for whatever reason, I see so many SaaS companies making these mistakes, that I thought I would try to summarize the biggest ways to move the needle.

Once again, I’m just asking that y’all don’t sell yourself short. Even if you don’t think you’re getting any results, it might just be slightly beyond the horizon. You’ll get there soon if you execute consistently, and execute well.

If anyone has any thoughts, or just wants to connect with me here, send me a friend request. Always down to chat and grow my network.

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Jared Schneider

Jared Schneider is CEO of PayKickstart and a serial entrepreneur. He is passionate about helping thousands of entrepreneurs and businesses grow through advice, automating payments and providing affiliate tools.

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