Every business needs a sustainable, long-term, and profitable plan for growth.
If your SaaS business is stagnating, then achieving 3-5X growth in today’s market is not only desirable but also essential.
SaaS companies must attain a high-growth trajectory to survive and thrive, as founders typically build in a competitive environment with hundreds of thousands of competitors. SaasHub alone lists over 176,000 software alternatives.
Below, we’ll explore the current market and show you how to combat the barriers to SaaS growth with a 7-step path to sustainable revenue.
Why Is 3-5x SaaS Growth Essential?
Beyond the personal and professional motivation for generating sustainable growth, entrepreneurs should consider the macro and micro-economic factors impacting their businesses.
We are moving into a period of prolonged economic uncertainty and a worldwide GDP slowdown.
According to the International Monetary Fund (IMF) World Economic Outlook, global growth has slowed dramatically — from 6.1% in 2021 to 3.6% in 2022. Projected growth for 2023 is 2.7%.
The IMF says that “global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades.”
This slowdown results from an economic storm, including the long-term impact of the pandemic, rampant inflation, global supply chain difficulties, a reduction in central bank monetary easing, higher interest rates, and contractions in the Chinese economy.
In the US, the government, the Federal Reserve, and Wall Street are preparing for a small recession.
All of these factors weaken the initial post-pandemic recovery and further destabilize the economic fault lines which the pandemic uncovered and amplified.
Despite a certain amount of resilience in the technology sector, startups (even with VC funding) aren’t immune to turbulence in the wider economy.
If your clients’ customers have less money to spend, even enterprise companies may reduce their budget for SaaS vendors or other software providers.
For SaaS founders, aiming for 3-5X revenue growth isn’t a “nice to have” anymore; it’s imperative.
Let’s look at 7 ways to boost your SaaS revenue.
How To Grow SaaS Revenue: 7 Steps To Achieve 3-5X Growth
1. Optimize your subscription pricing
It may surprise you to learn that SaaS startups spend just 6 hours figuring out their pricing structure, yet a 1% price increase can boost profits by 11%.
Startups and SaaS companies will increase their customer lifetime value (CLTV) and generate more profit simply by optimizing their pricing.
This requires an accurate understanding of what your customers are willing to pay so that you can effectively align prices to the value your product offers.
“But, how do we charge more for the same product or service?”
The most effective way to do this is with value-based pricing.
First, we need to understand the value generated by your software and its return on investment (ROI).
Here’s a quick example:
Let’s say you’re currently charging your small and medium business (SMB) customers $100 per month for your product.
After reviewing feedback and speaking with your customers, you discover that your software saves them 100 hours a month on tasks they previously completed manually. Using this data, you can work out the time/cost saving to arrive at a clear ROI.
If your customers save 100 hours per month at $50.00 per hour, that represents a $5,000 ROI every month. It’s clear that by adopting a value-based pricing model, you could charge more without building new features or providing additional services.
Demonstrating a proven ROI to your prospects is justification for increasing your prices to $500 a month — 10% of the $5,000 ROI value your customers gain by using your software.
Now, your annual recurring revenue from a single customer is $6,000, instead of $1,200. It’s a massive uptick, but one that new customers should accept given your explicit explanation of the benefits they receive.
2. Reduce your Customer Acquisition Costs (CAC)
Getting a handle on (and driving down) customer acquisition costs (CAC) is an effective way to increase profits.
Here are three ways you can do this:
- Review every growth-generating budget line item for ROI. Are you getting a big enough bang for your buck from sales and marketing? Check the number of leads that your sales and marketing activities generate — across inbound, outbound, account management, SEO, PPC, and other channels. Which functions could be optimized, and where could you save time or money?
- Review bottom-of-the-funnel conversion rates. Are enough sales leads converting into customers? If not, assess your options to increase conversion rates. Your actions could include strengthening your CTA copy or adding testimonials, for example.
- Review churn rates. Why are customers leaving? Is this due to a product deficiency, your onboarding process, or customer service issues? Take steps to address the problem, reducing churn and increasing CLTV.
Reducing CACs, while increasing CLTV, is a valuable exercise for the following reasons:
- It costs 5X more to acquire a new customer than it costs to retain an existing one, according to research.
- If SaaS companies increase customer retention by 5%, that equates to a 25% – 95% increase in revenues.
3. Achieve a CLTV/CAC ratio of 3+
The most successful SaaS companies have a CLTV/CAC ratio of 3+, which means they make $3 from every $1 spent to acquire a customer.
According to Price Intelligently, this is the optimal ratio for SaaS companies to achieve sustainable, profitable growth.
Your options to achieve this 3+ ratio include:
- Reduce customer acquisition costs (CAC): through cost savings, and increased ROI from sales, marketing, and advertising.
- Increase the CLTV through optimized pricing, improving onboarding and customer service, and refined Key Performance Indicators (KPIs) and targets for marketing, sales, and customer success teams. Implementing a combination of these actions will reduce churn rates.
We’re not suggesting that implementing any of the above processes is easy. It takes time. As a founder, you need to control these tasks directly or appoint one of your leadership team to assume responsibility for this project.
Ideally, don’t do this if you’re already in crisis mode and your cash flow is precarious. Do this while you have the resources to implement a series of process and training-related activities. If necessary, bring external consultants and providers on board to accelerate your progress.
4. Increase your sales-qualified leads (SQLs)
One of the key metrics of SaaS growth is the number of Sales-Qualified Leads (SQLs) entering the pipeline and the percentage of these that convert to customers (the conversion rate).
SaaS companies achieve this in several ways. Ideally, you want a mix of outbound sales and inbound marketing to drive SQLs into the pipeline.
However — and this is crucial — you need the right leads coming into the pipeline; warm, qualified, or pre-qualified (if they’ve come through inbound channels) sales leads.
Potential customers should have a clear and compelling need for your product. They have the budget and want to go ahead quickly. Sales leads must have a problem to address, and you should position your SaaS product as the solution.
5. Generate more leads through outbound sales
Outbound sales is an incredibly powerful growth machine for Business to Business (B2B) SaaS companies.
There are several ways to generate additional leads through outbound sales. How you go about this depends on your stage of growth, your monthly and annual recurring revenues (MRR and ARR), and the amount of funding you’ve raised.
Founders could hire an in-house outbound team of business development executives (BDEs), overseen by a Sales Manager or Head of Sales, who sets stringent sales targets and KPIs.
Or you may consider hiring a Fractional VP of Sales, or an outsourced sales provider. This approach often proves a more cost-effective solution for boosting your sales function to peak efficiency.
6. Generate more leads through focused marketing tactics
Founders need to increase the volume of sales-qualified leads (SQL) coming into the pipeline through a concentrated mix of outbound marketing tactics such as content, SEO, PPC, PR, and social media.
A cornerstone of marketing-driven growth is knowing as much as possible about your customers’ wants and needs.
To achieve this, you may need to rethink your marketing approach. Recruiting an experienced Head of Marketing, or working with a consultant who has a proven background in SaaS growth, may provide you with the strategies to revamp your marketing growth engine.
As part of this exercise, you need to refine the following areas:
- Brand values: Branding, and raising brand awareness through PR and other activities.
- Sales offer: Do you have a compelling offer? Is it clear why customers should use your product, the problem it solves, and the amount of ROI they could expect?
- Market position: Are you focusing on the right customers and markets? Do they need your product? If your market position, offer, or product-market fit isn’t clear, you might need to redirect your marketing toward a different target audience.
- Tone of Voice (ToV): Does your web copy and overall ToV achieve what you need? Does it present your offer in the most effective way?
- Marketing/content strategy (SEO): Search engine optimized content is a powerful way to generate leads from inbound marketing. Aim to use this more effectively and support it with social media, email, and advertising. Make content the cornerstone of your inbound marketing efforts.
- PR, guest blogging, and thought-leadership content: These methods are useful pillars of an inbound marketing mix. If you have the budget, invest in these activities.
7. Work with channel partners
The final step in creating a perfectly-calibrated growth engine is to establish a channel partner network.
Start by seeking out companies that offer complementary (not competing) products and services in the industry vertical you serve.
Next, create a compelling offer for them. Your offer could include choices such as cross-selling their products and services or paying a commission on warm, inbound referrals that convert.
Remember to support their efforts by providing easy-to-use sales and marketing collateral.
If you get this right, a single channel partner has the potential to send dozens of leads your way every month. Assuming it takes a similar amount of effort to recruit each channel partner, try allocating a sales agent to this project. The ROI generated from their efforts will make a significant difference to your bottom line.
Finally, ensure that your channel partners are looked after and incentivized to keep sending sales leads your way. It’s best practice to return the favor whenever possible.
Before wrapping this up, let’s take a quick look at a SaaS company that dramatically increased its sales and revenue in a short time frame.
A SaaS Company That Grew 3-5x in 18 Months
Kinsta, a WordPress hosting SaaS company, is a great example of how to achieve sizable growth in a short period. This business went from zero to 7 figures in 18 months, with no outside investment.
In 2022, Kinsta has over 23,800 customers and is on track to maintain its impressive growth rate.
Here’s a summary of the most important steps they took to achieve 7 figures in revenue in 18 months:
- “Build a brand from day one”
- Give away a lot of value — like free content — and show off your expertise
- Know your numbers and focus on profitability (learn the importance of cash)
- Invest heavily in content marketing and SEO
- Adapt and move fast
- Launch an affiliate program
Most startups that achieve 7 figures in revenue in their early stages keep growing. Buffer, the social media scheduling, and customer service SaaS company, achieved a similar result within around three years.
Buffer has been in business for more than ten years and is currently generating over $22 million (based on 2020 figures). They operate as a fully remote team of 90+ and spent $3.3MM buying out their VC investors in 2018. Despite many ups and downs, Buffer has kept growing and is sustainably profitable.
Summary: Key Takeaways
Economists, the media, governments, and the IMF have warned us of a global economic slowdown. Whether you are bootstrapping or have raised investment for your SaaS company, this potential event is a concern that every founder should factor into their growth plans and projections.
In this article, we’ve covered 7 ways that SaaS founders can safeguard their business growth and ensure that their company is financially sustainable.
Following these 7-steps will lead to increased revenue and profits for your SaaS company:
- Optimize your pricing
- Reduce your CAC
- Achieve a CLTV/CAC ratio of 3+
- Increase the number of Sales Qualified Leads
- Generate more leads through outbound sales
- Generate more leads through marketing
- Work with channel partners