# Secret Way To Make An Extra $10k+ in MRR (SaaS Cheat Code)

Channel: Rob Walling
Video: https://www.youtube.com/watch?v=cW-R9ZHDI60
Duration: 10 min
Language: English
Words: 2007
Transcript page: https://viewrankai.com/tools/youtube-transcript/cW-R9ZHDI60

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[0:00] in this video I'm going to talk about a little-known way to make thousands more from your SAS business I'm Rob Walling I've started multiple seven figure companies I've invested in more than 120 startups and I've written three books on entrepreneurship so I'm going to tell it to you straight in SAS we have it so good seriously recurring revenue is the cheat code for every other business and in SAS that's the Baseline we basically get it for free we have subscriptions built into our business model there are so many books written on the topic of how to get recurring revenue from other types of companies whether it's lawn

[0:32] care or one-time use e-commerce going to subscription all that stuff there's so many books so many business models have this one-time revenue and it gives you a less stable business your exit multiples are low but in SAS we get that for free since we get recurring Revenue with SAS we want more and that is drum roll please expansion Revenue expansion revenue is one of my four SAS cheat codes and it's absolutely magical if you can build it into your SAS company and expansion Revenue isn't in your business by default and not every SAS company can easily build it into their pricing but when you can it's an incredible power up

[1:07] a cheat code if you will for your business so what is expansion Revenue it's the opportunity for a customer to pay you more money as they get more value from your product so in essence it's having pricing tiers that auto upgrade folks as they get more value and this is great because you make more money the first order effect is you make more money the second order effect is that you can literally add zero customers to your business in a given month but if you have expansion revenue and your churn is low enough you can have what's called net negative churn this is where you add zero customers and

[1:37] your business still grows the best and fastest growing SAS companies in the world have expansion Revenue that leads to net negative churn some of these are large companies like Salesforce HubSpot slack box and others are small companies for example my most recent SAS company Iran drip before I sold it we had expansion Revenue that led to net negative churn about eight or nine months of the year and it was a nice buffer offer against those months of the year where we didn't have a ton of growth December tends to be a slow month for a lot of B2B SAS and for us it was around tax time it was April or May

[2:08] where I felt like people were cutting expenses that's the U.S tax time anyways and in those months even though we added fewer customers that expansion Revenue that was built into our pricing since it was an ESP and as people added more subscribers they paid us more that helped make drip an incredible business and for me I now have a personal role that if I were to ever start another SAS company which I don't plan to but if I did I would want expansion Revenue built into that business it's so powerful there are three typical ways to price your SAS one is to have what's called a

[2:35] value metric so this is where you have a number that if people exceed that they move up to the next tier so for email service providers this is subscriber count for crms like Salesforce and clothes.com that is the seat count so as you add more seats it goes up and for box and Dropbox it's both seat based and it's based on the amount of storage say the gigabytes or terabytes that you're using the second option which is less ideal is feature gating we'll look at some examples of this in just a second but feature gating is where you may not have a value metric but if someone wants

[3:08] XYZ feature like a Salesforce integration then they move up to the next pricing tier and the third most common option is to have both a value metric and feature dating it can get really complicated quickly so you have to be careful with it but those are the three options that most SAS companies stay within if you want to go deeper on pricing I recorded a video a few months ago called SAS pricing models explained in five minutes and you can check it out in this channel so let's look at some value metric examples then we're going to look at a couple concrete examples of expansion revenue and how it happens so

[3:37] for Value metrics I already mentioned per seat pricing so if we look at savvycal which is a scheduling SAS per seat charge close.com as I mentioned sinewell which is electronic signature Dropbox G Suite Google workspace Google for work whatever they call it now keeping which is support software help Scout there are so many apps that are perceived it just might be the most common value metric and my rule of thumb is if you can charge per C you should and my rule of thumb of when you can charge per seat is if multiple people in the same account log in and they see different things so if you think about

[4:08] logging into calendar scheduling or electronic signature or project management software or sales CRM software you're going to see different things because things are assigned and you have notes that may be designated to you versus if five people log into an email service provider like MailChimp even if they're at the same company they usually see the same thing and so it doesn't make sense for MailChimp to charge per account to our next example which is per subscriber or per contact and so think of an email service provider like MailChimp drip aweber Infusionsoft activecampaign as I think about it this might just be the second most popular value metric and then we

[4:41] have domain specific value metrics like check out Judo scale at judoscale.com this is a Heroku add-on that involves scaling up your dinos on Heroku getting into the technical weeds here but the charge there is per Dyno with higher prices for higher priced dinos frankly the the more performant dinos cost you more to to scale up and down or postpone.app which is a Reddit scheduling and messaging tool the value metrics there are posts and number of accounts you're managing and Status Gator which is instant cloud service monitoring charges based on the number of cloud services you're monitoring plus the number of websites you're monitoring and users so they have three value

[5:18] metrics all mixed into their pricing so whether you're charging per seat per subscriber or by some domain specific value metric the idea is that as a customer gets more value from your product they should pay you more and so let's take a quick look at an example of expansion Revenue that is leading to net negative churn in a business called textual at textual.com text tool is text to buy for e-commerce and they're one of the leading providers and they're also a company that I've invested in through Tennessee if we look at textuals pricing you'll see 99 a month and that's for 1 000 subscribers so this is kind of the

[5:51] email service provider model where it's subscriber based they also limit on SMS messages because SMS messages are a hard cost to send and so their lowest to year 99 allows 3 000 SMS messages then their second tier for 299 up to 499 subscribers and 12 000 SMS messages and then they have their more Enterprise tier with variable pricing for unlimited subscribers and expansion revenue is as simple as this imagine hypothetically that textual has 10 customers each paying 99 a month and let's round up to a hundred dollars a month for easy math 10 customers a hundred dollars thousand dollars in mrr per month and let's say

[6:26] in any given month one of their customers adds enough subscribers that they climb up to the next tier the 300 per month tier so now we have nine customers paying a hundred and we have one paying 300 you didn't have to add any new customers in order to get an extra 200 of mrr which in this case if no one canceled if your turn was Zero you would have twenty percent net negative churn this is a contrived example but you can imagine if you had a thousand customers and at any given time you had 20 or 30 or 40 that were going up tiers and as the revenue they're

[6:55] paying you expands you make more money without changing anything and without doing any more marketing work onboarding new customers adding support burden it's an incredible tool realistically in a lot of businesses if you make it to net negative churn with your expansion Revenue which if you recall it means you're adding mrr by doing nothing that number is usually pretty low it's two percent three percent four percent But realize if you're operating at scale let's say you're doing a hundred thousand dollars a month which I know of many many bootstrapped and mostly bootstraps SAS companies that are in that range if you have net negative turn of four percent that means you're adding

[7:28] four thousand dollars of mrr to your business without adding new customers and I've talked about this before if you don't think just in terms of mrr monthly recurring Revenue but you think in terms of Enterprise value of what you could sell that business for four thousand dollars in mrr times 12 it's just a forty eight thousand in annual recurring revenue or ARR and if we just take a 5x multiple on that that's almost a quarter of a million dollars it's two hundred and forty thousand dollars in Enterprise Value that's added to your net worth by having what might seem like a small percentage of net negative churn you can

[8:01] build an incredible business and there's a reason I call it one of the four SAS cheat codes in a second I'm going to tell you about one of the challenges with expansion Revenue before I do that I'd love to invite you to hit the like button if you've enjoyed this video And subscribe to the channel I have videos like this coming out every week on this channel covering things from building to launching to Growing to marketing your bootstrap SAS company so I want to add a caveat to expansion Revenue not every business can have it it just doesn't work in every business one of my SAS

[8:29] companies before drip was called Hit tail if it's an SEO keyword tool and no matter what I tried I couldn't get expansion Revenue into that business I couldn't get it to work at scale sometimes no matter which number you're using no matter which value metric you try people just aren't increasing that number at a fast enough rate to make expansion Revenue really work for your business and so you have a couple choices you can keep experimenting with your pricing or you can put that business on the back burner or sell it and start a business where expansion revenue is built in from the start and honestly if you're building an early

[8:58] stage business a step one business trying to quit your day job do you need expansion Revenue no you don't are there great businesses built without expansion revenue or without net negative churn absolutely but since it is such an incredible lever for your business I wanted to talk about it in today's video I hope you enjoyed it and I'll see you next week

[9:28] [Music]

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