The SaaS Metrics that Drive Growth and Keep You From PlateauingLars Lofgren

@larslofgren

1. World-class churn

2. Revenue expansion from old cohorts

3. Accelerating acquisition at the right time

3 Fundamental Growth Levers for SaaS

SaaS businesses plateau when all 3 levers aren’t

working together.

You’ll also plateau if you build your levers in the

wrong order.

Conquering Churn

• 2% or less = doing great

• 2-3% = almost there, focus on churn-reducing tactics

• 3-5% = no P/M fit yet, focus solely on product/onboarding

• 5-10% = business on fire, needs massive change

• 10% and above = get into a new business

Monthly Churn Benchmarks

Only one solution to churn: get to P/M fit by fixing

onboarding andproduct value.

• Remove self-service cancellation

• Fix product onboarding

• Push annual plans

• Force longer contracts

• Prioritize support for large accounts

• Downsell campaigns

• Reaching out to inactive accounts

• Qualify leads more

• Onboarding programs with 30/60/90 goals

Popular churn reduction ideas

Bad Marginal Major Wins

Remove self-service cancellation Push annual plans Fix product onboarding

Force longer contracts Prioritize support Improve product

value

Contact inactive accounts Downsell campaigns

Qualifying leads

30/60/90 onboarding programs

Don’t get distracted with marginal tactics, reaching P/M fit is your only hope.

Can’t just rely on churn for measuring P/M fit, it’s a

lagging indicator.

• Very disappointed

• Somewhat disappointed

• Not disappointed (it isn’t really that useful)

The P/M fit question from Sean Ellis:

How would you feel if you could no long user [product]?

40% of respondents should say “Very disappointed”

51% 72%

Strong word-of-mouth growth is another sign of

P/M fit.

Cohort Expansion

As customers grow, so should you.

Expansion revenue depends on the quality of

your pricing metric.

Salesforce user metric is a cash machine

But seats won’t work if customers get majority of your value from a single

account.

GoToWebinar uses two pricing metrics

• Attendees = makes sense, easy upgrades

• Organizers = limits are annoying, resist upgrading

Match your pricing metric as closely to your product

value as you can.

Upsell campaigns do help but nothing compares to a

great pricing metric.

Expansion engine + low churn = negative churn.

What is negative churn?

Revenue from each cohort expands faster than the revenue lost from churn.

Let’s recap:

• We’ve focused heavily on P/M fit to get super low churn.

• We’ve found the pricing metric that easily convinces customers to pay more.

• Low churn + expansion revenue means we’re stable or growing without any acquisition.

• Now our lead gen is 100% upside.

Saving Acquisition

for Last

You should already have good organic growth by

now from P/M fit.

Marketing is just fuel for the fire, not the spark.

10% MOM qualified lead growth

Qualified lead (MQL) = passed from Marketing to

SDR team.

Lots of lead gen paths:

• Inbound and content funnel

• Cold calling and outbound

• Industry events

• Partnerships

• Paid marketing

• PR

• Affiliates

• Viral loops

What happens if we pursue acquisition too early?

The alligator sales funnel

Qualified leads growing at 10% MOM, new logos constant at 100/month

0

1,250

2,500

3,750

5,000

Jan Mar May Jul Sept Nov Jan Mar May July Sept Nov

Qualified leads New logos

The alligator funnel is nasty. Marketing and sales will

blame each other.

Usually a product problem. This is why we focus on

churn first.

Marketing can dodge a bad product, sales can’t

If churn is solid and you still have an alligator funnel,

check lead quality.

If churn and leads both look good, revamp sales

1. Make sure you have P/M fit and low churn

2. Get cohort expansion in place with a great pricing metric

3. Build your lead gen machine at the right time

Your growth levers, step-by-step

• SaaStr.com by Jason Lemkin

• forentrepreneurs.com by David Skok

• christophjanz.blogspot.com - The Angel VC

• Predictable Revenue by Aaron Ross

• tomtunguz.com by Tom Tunguz

• blog.asmartbear.com by Jason Cohen

Required reading on SaaS metrics.

Questions?Lars Lofgren@larslofgren

bit.ly/saas-levers