Break Through ANY SaaS Revenue Plateau In 4 Simple Steps

0:00in this video I talked through the four ways to break through any SAS Revenue plateau and if you stick around till the end I'll give you a special bonus tip that most Founders aren't aware of I'm Rob Walling a startup founder with multiple exits author of three books on building startups and an investor and more than a hundred companies so plateauing in SAS meaning your growth stalling it's the worst this whole video is going to be examining really the four ways that you can troubleshoot it before we dive in to how to troubleshoot it I want to show you how to calculate where your next Plateau will be and it's to take

0:32the new monthly recurring Revenue that you're adding each month so new mrr per month and divide that by your churn for example if you're adding 500 of mrr per month to your SAS product and you have five percent churn that's 500 divided by 0.05 and that means you are going to Plateau at ten thousand dollars of mrr unless you lower your churn or increase the amount of new mrr you're adding each month you will Plateau at 10 000 mrr if we use similar numbers and we say you're adding 500 mrr but you drop your churn to two percent overall then you're going to Plateau at 25k MRI it's further along

1:10it still may not be where you want to go but this is how to think about plateaus there's also an alternative formula to this where you look at number of new customers you're adding per month and you use the average revenue per account to calculate calculate it but realistically this simplified new mrr formula I think is a nice way to get some idea of when your next Plateau will come so with that in mind let's look at the four ways that you can break through any SAS Plateau the first one is probably what everyone thinks about when I say breaking through a plateau and it's to drive more traffic you widen the

1:40top of your funnel sometimes these are just new traffic channels that you're adding so right now if you have X thousand new visitors coming to you each month from Google and those are converting at a certain rate maybe you add a second traffic channel you start Google AdWords you start pay-per-click ads through Facebook you start answering questions on quora or stack exchange you start doing cold Outreach on LinkedIn or via email there's all the marketing approaches it's the 21 B2B SAS marketing approaches that I talk about on this channel and that are going to be in my next book these are just channels that you can add

2:14other times it's optimizing a channel it's taking a channel here you take that same X thousand Google visitors per month are there another five ten a hundred thousand people searching for things related to your product can you just double down on SEO and increase it there still other times you may have tapped out your Market where you almost need to Pivot the product and add additional verticals so if today you're focused on a certain type of construction company say Electric Christians maybe do you need to start marketing to HVAC contractors and general contractors and plumbers and you know these other things because sometimes and this isn't super common

2:51but I do know some software Founders who have a product where they own 80 of their market and so how do they break past the plateau because adding another few percent of that market it just doesn't move their needle and so they have either had to sell additional products to their existing customers which is a really clever way to do it or you add another Niche and another way to think about that is what we saw Reuben Gomez do with his first SAS app bid sketch which originally was proposal software made for designers and he quickly plateaued in the design space there just weren't that many designers

3:24sending proposals and he owned a huge chunk of that market and so he didn't even add a new vertical he just expanded it to say it's amazing proposal software for everyone it's a horizontal play and he did what's called a land and expand he landed in the design space he got credibility in Cloud out there he built his brand name he maybe you know stairsteps his way up if you think about it because he built himself some confidence he got the revenue he got the skill set and then he expanded to the more broad playing field of anyone who is sending a sales proposal could now

3:55use bit sketch the second way to break through a SAS Plateau is to improve your funnel it's to make your metrics of your sales or your marketing funnel better and there are rules of thumb for funnels you've heard me talk a little bit about him in this Channel and on my podcast startups for the rest of us but there are rules of thumb both for sales and marketing of if I send this many cold emails I expect this many replies and I hope to get this many demos which lead to this many sales similarly if I'm running a low touch funnel and I'm asking for credit card up front and my

4:25pricing is say fifty dollars a month I would expect my website visitor to trial percent to be in the let's say 0.5 to one and a half percent and if my pricing was even lower entry level was 10 to 30 dollars I'd want to be pushing for one to two percent of my biz visitors to enter a credit card and try the software and then with a credit card up front and on file I'd be looking to have a trial to paid conversion rate of 40 to 60 percent so these are loose rules of thumb that I've used over the years and this is how you can tell if your funnel

4:55needs Improvement is are you inside or outside of these rules of thumb have I seen SAS apps with a 70 or 80 percent trial to paid conversion rate I have that's outside my rule of thumb because that is an exception but it's kind of the general cluster the bell curve if you will usually Falls from what I've seen between 40 and 60 percent in a low touch funnel with an entry level price point below that hundred dollar Mark and we've talked about how to improve funnels on this channel before and I'm sure we will again the third way to break through a SAS funnel and probably

5:24the most common it's the most common that people should do but I'd say a lot of people avoid this and this is to lower your churn because churn is the death of SAS churn is the percentage of people or the percentage of mrr that cancels each month the hard part about reducing churn is there are so many ways that you can attack it when I talk about reducing churn I don't mean having a tactic of making them call you on the phone to cancel or let's go to annual only because that of course will reduce turn because they can't cancel every month the problem there is you're

5:57masking a deeper problem with your product at a certain point you can do these tactics to optimize churn but really up front I would want that not to be masked and I would want to be figuring out what is the deep root cause of why people are churning to talk more about churn we have to break it into two phases there's the early phase where you have weaker product Market fit meaning you've built something that people maybe kind of want and are kind of willing to pay for but you don't have that stronger product Market fit and once you get to the later stage it's just a different

6:25approach to think about how to reduce churn so in the early stages oftentimes you just haven't built something people want and you have to iterate you have to listen to feedback you have to talk to your customers you have to figure out if you're in the wrong Niche if you have to expand that Niche is it a product issue is it a marketing issue there's so much that's difficult and complex about this time way more than I can fit in this video but early stage usually when I see high churn it's that you haven't yet built something people want other times it's because you've built a one-time use

6:53product so you might build a research tool say for Etsy sellers to find a product that might be popular on Etsy if they make it and oftentimes people are selling really one two or three products but they're not selling hundreds and so they're gonna sign up for your tool they're gonna use it and they're gonna churn after they find a product that then start going making and marketing right it's just one example but there's also like a PDF conversion you know maybe one time I need to convert some weird file format to a PDF and so I go searching for this tool and sure if you

7:25make me pay nine bucks a month I'm gonna do it but I'm gonna sign up I'm gonna convert it and then I'm going to cancel and these are just a couple quick examples of one-time use products but that's certainly a lesser case than than what I talked about before which is not building something people want but it's definitely something to think about if people are buying and then churning within the first one two or three months is this really a product that people are going to use on an ongoing is this really a product that Peter let's say you're doing 10K a month 50k a month

7:49100K a month or more you have some semblets of product Market fit you're starting to get stronger product Market fit with a group you've built something people want and are willing to pay for the questions you have to ask here are have you tapped out your Market like the example I gave earlier do you own 80 of the market and do you need to either go more horizontal add in other niches other verticals or do you need to add more product lines to your base product second question to ask is you've been doing well you've been growing are there new competitors in the space that are

8:20starting to eat your lunch our competitors coming in and either under pricing you or you know maybe getting in the way of your traffic channels siphoning off your organic traffic look around to see if competitors aren't starting to poach your customers because that of course can lead to churn if they can go to built with or data knives and get a list of customers who use your tool and they can email them and they have an offer that people can't refuse you have to be aware of this and it can absolutely lead to in Greece churn and this is where it requires product work and Innovation you have to figure out

8:53what the problem is to figure out how to counteract it another thing that could be an issue is if you're serving low price customers you're serving consumers you're serving uh people who want to be entrepreneurs like aspiring Founders you're serving prosumers like photographers they tend to churn in higher volume and so with a low price point sometimes you just can't get below a certain level of churn that is pretty high and so you have to think about can we widen the funnel like I talked about earlier or do we need to start adding on higher priced tiers whether you go up Market altogether or just have these Pro

9:27tiers that bring in bigger customers you often hear me talk about a dual funnel and there's a reason that a dual funnel is so helpful is because you have these low price customers on one end and maybe they're churns you know higher with them it will be inevitably and then you can bring in larger Enterprises that are doing 500 to 5 000 a month and that allows you to keep expanding even once you top out on your low price customers the last thing to think about with churn is maybe you've built a vitamin instead of an aspirin and this this is tough because you can get a vitamin product

9:56which is something that's a nice to have but it's not a desperate pain point right it doesn't solve a pain Point like aspirin does when you have a head and the challenge is you can get a vitamin up to certainly to 10 to 50 to 100 000 a month and then you might just not find any more people who really need this and so similar to the above you have to start thinking through do we change the product do we change our marketing how do we get around this there's a companion video to this one all about churn and reducing it it's called what is churn and how to reduce it in your

10:22startup you can check it out in this channel fourth and final way to break through plateaus is to raise your prices I've said it before I will continue to say it in SAS pricing is your biggest lever and most Founders underprice the products at least when they start out I did a 45 minute talk on this topic with almost everything I know about how to price SAS products how to think about your value metric and your feature gating how to raise prices when to raise prices it's called the fundamentals of SAS pricing and you can see it linked in the upper left or you can head to it

10:54after this video is done next I'm going to give you a special bonus tip that most Founders aren't aware of but first if you've enjoyed this content you've found it valuable I'd really appreciate a like and a subscribe and please comment below if you have questions comments or additional thoughts the bonus tip that most Founders don't think of or don't encounter is sometimes you just accidentally break something and sometimes the action you need to take is to fix that thing that broke so for example you might have a major marketing setback like you're all in on Google organic search and Google gives you a penalty so suddenly you lose half your

11:25traffic or three quarters of your traffic and fixing your churn or widening your funnel is unlikely to help you at that point really you need to get to work on fixing what you broke speaking of braking I've seen Founders I've done this myself actually accidentally make a marketing change and just break your funnel you mess up your pricing page so no one can sign up you forget to ask for credit card you forget to Bill at the end of a trial you change your home page headline thinking it can't do any wrong and suddenly you're getting half the conversions keeping a marketing change log is my advice here

11:54so you know what you changed on what date and you can track it back but sometimes you do just need to go back and fix that thing that you broke I hope you enjoyed these four ways to break through any SAS Revenue Plateau I'll see you in the next video [Music]