This is the first in my series of posts on how any SaaS company that has a proven product-market fit, can go about increasing its revenues.
I was part of the product and growth team at BrowserStack for 2 years and have seen the company almost double the revenues each year while I was there. BrowserStack is a classic example of a SaaS startup that has followed the 3–3–2–2–2 model of growth. While my experience at BrowserStack was in the mid-to-late stage of the growth cycle, my experience at WebEngage is in the early-to-mid stage of the growth cycle.
Through these experiences, I have spent a lot of time studying growth models of SaaS startups and how they go about increasing their revenues. Most of my learnings are based on the initiatives I undertook at BrowserStack and WebEngage, the initiatives that the founders had taken before I joined the company and the projects that the other teams undertook in order to increase growth.
Growth models are best understood through funnels. Any growth analysis begins with identifying the main bottlenecks in the funnel and fixing them. Therefore, let us begin our growth series by looking at what a typical growth funnel looks like for a SaaS company.
The growth funnel comprises three steps:
- Step 1 (Acquisition): This involves making more users aware of your product mostly through your marketing initiatives. The objective here is to get users to visit your website or download your app.
- Step 2 (Conversion): This involves converting your visitors to sign-ups and sign-ups to paying customers.
- Step 3 (Retention & Expansion): This involves growing through your existing paying customers by reducing churn, expanding the size of every deal through up-sell and cross-sell and also expanding to other teams in the same company.
In this post, I’ll only briefly cover each of these steps. In my future posts, I will get into the details of each of these steps with practical examples of the projects we undertook at BrowserStack and WebEngage to fix the bottlenecks we faced.
Step 1: Acquisition
As the title suggests, acquisition is about how you can make more people aware of your product so that they visit your website or download your app. Keep in mind that your efforts should be focused only on acquiring the personas relevant to your business. If your target market is only developers in the US, acquiring other personas would be a suboptimal use of your time and money and would not move the growth needle.
Assuming you have figured out the personas you want to target, there are many different things you can do to make your target personas aware of your product. I’ve listed a few of these below:
- Referrals: Get existing customers to refer your product to their contacts. Products like BrowserStack have grown purely through referrals because users were so happy with the product. Even a freemium business that has a great product can help build traction. One of the reasons Mailchimp and Dropbox are so popular is that people see immense value in their free product so much so that they go and tell their friends about it, which then builds the viral referral loop.
- Content Marketing: This covers your blog posts, case studies, white papers etc. Content takes time to build but it can help you quickly acquire relevant users who most likely have a genuine need for your product. The idea is to have content from your website feature on the first page of the search results when a customers searches on Google for keywords relevant to your product.
- Integrations: If you have a product that can be integrated with another popular product, it might help you acquire users who are already using the said popular product.
- Conferences: This applies mostly to startups where the annual contract value (ACV) is in the range of a few tens of thousands of $.
- PR: This includes your coverage in TechCrunch, Product Hunt among others. I would also include your speaking engagements here.
- SEO: This includes on-site optimization such as building landing pages with relevant keywords etc., as well as some of the off-site efforts such as link building by getting referral traffic from popular publications.
- Digital Marketing: If you have the money, you could perhaps invest it in SEM ads or display ads. I don’t have any prior experience with this, but many other successful SaaS companies do this to successfully drive acquisition.
- Business Development / Partnerships: These could be partnerships with any company that is relevant to your business. As an example, HubSpot has built partnerships with agencies who then sell HubSpot to their customers. They have been so successful with this initiative that 40% of HubSpot’s revenues come from the business it does through agencies.
Step 2: Conversion
Conversions vary based on the type of lead you acquire. It can vary based on the acquisition channels (Facebook, LinkedIn, Google Organic Search, Google Paid Search etc.), location (US, Western Europe, South-East Asia etc.), time of the year etc. For the purpose of this post, I’ll only talk about conversion as a whole.
Conversion can be defined in many ways. I consider conversion to cover primarily two things:
- Conversion from website visitor to sign-up (or from app install to sign-up)
- Conversion from sign-up to a paying customer
Conversion from website visitor to sign up generally happens through your marketing website (i.e everything a customer sees on your website before he/she logs in or signs up). On the other hand, conversion from sign-up to a paying customer happens on the basis of your product as well as the marketing website. Let’s briefly cover some of the things you can do to increase conversion.
Conversion From Website Visitor to Sign-up
Following are some ways in which you can increase this type of conversion:
- Landing Pages: Different customers have different needs. Ideally, you should have many different landing pages that address the needs of the different personas your product caters to.
- Logos: Putting a bunch of customers logos on your website adds to the social proof and provides the external validation that people look for before they decide to try out the product by signing up.
- Testimonials: In addition to customer logos, actual testimonials from real people can add substantially towards the social proof and validation. On the BrowserStack website, you will see testimonials from John Resig and Chris Coyier. Any front-end developer (the target market of BrowserStack) who comes across these testimonials would consider signing up incase he/she was unconvinced about the product.
- Content: This includes blog posts, case studies, white papers etc. on your website. All these contribute towards building the value proposition, branding and creating a certain perception of your product among the customers that will make them try out your product.
- Chat: It always helps to have a responsive support team that can answer questions from visitors in real-time. Tools such as Intercom, Drift, Olark etc. can help establish this engagement channel with visitors.
- Branding & Overall User Experience: Although I have included this as a separate category — it also encompasses some of the above points. You need to create the right impression with the customers to get them to sign up — the design of the website has to be great, the illustrations need to be intuitive, the language or the copy needs to be such that the customers can easily relate to it etc.
Conversion From Sign-up to Paying Customer
Following are some ways in which you can increase this type of conversion:
- Product On-boarding: Customers should be able to see value in your product quickly. The sooner the customers get to the Aha moment with your product, the sooner they will purchase a subscription.
- Pricing: You need to build pricing plans that target different personas. If one of your main personas is freelancers, then you need to have a plan on your pricing page that caters to freelancers.
- Important Features: If you compare the behavior of users who signed up but never purchased a subscription to those who signed up and purchased a subscription in a certain time period, you will see clear differences in how these two cohorts behave. You will be able to identify precisely what your customers need to try out in your product before they purchase a subscription and you can then build your product experience accordingly. For eg. at BrowserStack, one of the things we discovered was that users who tried out website testing on our mobile browsers after signing up were more likely to convert into paying users than those users who tried out website testing only on desktop browsers. Therefore, we then started figuring out how we could get more customers to try out website testing on mobile browsers in order to increase conversion.
- Drip Mails: This includes the automated drip emails you would send to your customers to help them on-board and convince them of the value that your product provides.
- Freemium Limits: If you have a freemium product, it would help to have a natural expansion strategy built into the product such that users will want to upgrade once they hit the usage limits of the free plan. The sooner this happens, the better for your business. For eg. Dropbox’s freemium plan is limited to 2GB which are you likely to hit fairly quickly after you start your trial.
- Sales Strategy: If you are in a market where the average contract value (ACV) is in the range of a few tens of thousands of $, then you probably require dedicated effort from your sales team in order to convert the leads into paying customers. Therefore, in this case, the increase in conversion will happen through optimizing your sales strategy and processes.
Please keep in mind that the process of conversion is never linear. There will probably be many touch-points before your visitors convert. Therefore, your strategy to increase conversion will be a mix of the items covered above.
Step 3: Retention & Expansion
In my experience, it’s easier to get existing customers to keep using your product and purchase more than it is to acquire new customers. In this step, I will cover how you can go about increasing revenues from your existing customers.
There are primarily three ways in which retention and expansion happens:
- Reduce Churn: Any business has churn. If you have enterprise clients, your annual churn is probably in the lower single digits. On the other hand if you have startups or freelancers as your main clients, your annual churn could be as high as 40–50%. It is important to find out why your customers cancel their subscription and then work on strategies to mitigate the cancellation. You could perhaps even build a predictive model that can predict churn before it actually happens so that you can then take steps to prevent the churn from happening.
- Cross-sell and Up-sell: You could either cross-sell other products to the same customer eg. Atlassian’s strategy of having multiple products which they can then sell to a customer already using one of its products, or you could up-sell the same product on a higher plan to the same customer. Up-sells will happen if you see that your customers are constantly hitting their plan limits or might hit their plan limits soon.
- Land & Expand: If one team in a large enterprise is already using your product, it becomes easy to expand to the other teams in the same company.
Where Do You Start?
If you are in the early stages of building your business, the one metric you need to take a serious look at is your churn rate. Even if your conversion or acquisition is not that great, what can certainly be detrimental to the future of your business is the churn rate. If you’re in the early stages and many of your customers are canceling their subscriptions, you probably haven’t achieved the product-market fit and you should not be worried about growth at this stage.
If you’ve achieved the product-market fit, in order to grow you need to figure out the main bottlenecks in your growth funnel. Once you’ve figured out these bottlenecks, you need to prioritize them and build strategies to remove each of these bottlenecks.
You can read Part 2 of the SaaS Growth Series here.