Hey, there.
Dan Martell a serial entrepreneur, investor,
and creator of SaaS Academy.
In this video, I'm going to teach you
how to use your growth ceiling.
So if you're out of SaaS business,
you have actually a SaaS growth ceiling for positive change.
I'm going to teach you how to understand when the ceiling is
going to happen, when the wall occurs,
and what you can do in your business
today to make sure that you push it out,
way out, into the future and continue growing your business.
Be sure to stay to the end.
We're going to tell you how to get access to my free Churn
Buster Cheatsheet guide which covers the five principles you
need to implement to increase retention
of your revenue and also the nine box framework
to be able to implement those churn busting tactics quickly.
Let's get into it.
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So one of the first things that I do with all my new coaching
clients, because I only coach B2B SaaS founders
software as a service, is teach them
how to think about membership or reoccurring revenue.
And I'm going to link up the tool I use below,
but one of the concepts is the growth ceiling,
that if you think about it, if you have clients that
cancel in any business that at a certain point
your ability to add new customers per month
will not outpace the amount of clients, the net-- what's
called the logo churn, the NetLogo churn that you
lose on a monthly basis.
Here's how the math works out.
OK.
I'm going to do a little bit of math.
I need you to think through this,
but it's going to be super simple.
If you add 100 new clients a year, but you lose 20% of them,
what you want to do is take the total new number of clients
multiplied times your churned rate, which is 0.20.
And that'll let you know what's the max number of clients
you'll ever be able to have because you're churning
through the new ones on an annual basis
to be able to replace the ones that-- or you're
adding the new ones to replace the ones you lost.
So the number is 500.
So you have 100 that you add every year.
You have 20%, the annual churn.
That means you'll max out at 100, or 500 total clients.
Now what's your max revenue, the growth ceiling for your MRR,
your Monthly Recurring Revenue?
Well, it's simple.
You take your AA--
it's called ARP.
Some people call it ARPU.
I call it ARPA, Average Rev-- so if you're
a B2C business, Business to Consumer,
you're going to use average revenue per user.
If you're B2B, which hopefully you are if you're in SaaS,
is business to business.
It's your average revenue per account.
OK.
So let's just keep the numbers simple.
Let's call it $100.
If you multiply the 500 times 100,
that equals $50,000 in ARR, annual reoccurring revenue.
So with your current numbers, if that was you,
you would max out at $50,000 of annual recurring
revenue per year.
OK.
So regardless of what software business
you're in, if you run your numbers-- again,
I'm going to link to a calculator
below so you can click it, put your numbers
in for your own business, and figure out.
When's the wall?
The wall is when you're at 75% growth potential
because at first it can seem steep,
but then you hit this kind of elbow.
And then the flat--
I call it the churn flat line.
When you hit the growth ceiling is essentially
when you're going to max out.
Now, the good news is I'm going to teach you how to fix this.
These are the three strategies, by priority,
that you need to implement and focus on
to push off your growth ceiling as far as
possible into the future.
Number one-- reduce churn.
So I know a lot of you guys are like, Dan,
I've done a bunch of studying.
Churn, churn, churn-- how do I retain customers?
I'm just going to walk you through the things
that I do with my clients.
Number one is we fix positioning.
Too often, I see, especially for folks
that come from an internet marketing
background or a sales-heavy background, is your overselling
the opportunity for your software.
You're positioning it as a business opportunity.
You're positioning it as the silver bullet
to help businesses solve every problem in their life,
and it's just not.
So positioning is a key thing.
Trial-- the trial activation-- so how you activate your new
customers, either through a trial or even onboarding them
after you sold them through a demo process--
that needs to be figured out.
And then finally, it's just what's
your process for retention.
Here's something simple.
I was walking my client through this recently,
where, on a monthly basis, they were losing $12,000
through retention churn.
So essentially, they weren't retaining the customer.
They were losing $12,000 a month.
And I asked them.
I was like, what percentage of that
is lost because the customers never activate?
He said, probably half.
So I'm saying $6,000 a month, you're
losing every month because the persons, the people, signing up
didn't know how to use the product.
Yeah, it's like you could pay somebody half of that
to just get on a call, set it up for them, support them.
And it compounds.
And then over time, you can write the code
to automate a lot of the manual process,
but those are the areas that you need
to focus on to reduce your churn at a high level.
I'm going to tell you how to get access to my Churn Buster
Cheatsheet that goes into this at depth,
but you want to make sure that the positioning, the conversion
process, and your retention system
is in place to reduce your churn.
Number two-- increase ARPA, Average Revenue Per Account.
Essentially, it's you want to monetize more.
You want to figure out how can you
create more value for your customer
and capture more value.
So the low-hanging fruit for many founders is, number one,
you need to have a value metric for pricing,
meaning that the more value that's
extracted from your product, the more the customer ends up
paying.
So this is sometimes you'll see this
as a per-seat pricing, some kind of metered pricing--
you know, it's per transaction-- number of contacts, et cetera.
But that's value metrics.
Number two, right off the bat, just so you know,
you just raise your prices.
I know you are reading this, and you probably thought about it.
The best SaaS companies-- and here's
a really great question to ask yourself how to deal with this.
I got this from Andrew Grove from High Output Management.
If somebody bought my business tomorrow,
what's the first thing they would change?
And I'll tell you, if I bought your SaaS business,
I know the first thing I would change
is I'd put your prices up, even by 20% or 15%
because it will have no impact.
The yield pricing will outweigh, 100%,
the lack in what you think is conversions or trials
or whatever-- so increasing your pricing.
And then third is have add-ons.
Look at the features that maybe in your middle plan
are only being used by 30% to 40% of the customers
and consider ripping it out and charging
a price per month for it so that it
can be used by folks in the smaller and the upper end plan.
And it increases your ARPA--
ARPU-- ARPA.
Sorry, I keep mixing them up.
So average revenue per account-- but here's
the kicker is most of you guys can just
add a premium level of service, a premium support feature,
as an add-on, maybe $100 a month.
And that will raise your average revenue per account.
So just do those things to make sure that you can increase
your monetization, your revenue, from your current customers
so you can reinvest in growth.
Number three-- grow customers.
So the third option you have to kind of push off the growth
ceiling is to increase the number of new customers
that you add on a monthly basis.
So if you're stuck at 10 every month,
you need to go to 12, 14, 15, 16.
How do you do that?
Here's the strategy.
One is you have to do a growth map.
You have to analyze what you're working on right now
and figure out where is the ROI.
Because you could be doing stuff today
that you don't even know is working,
but because you haven't looked at all the different channels
and marketing and where customers are coming
and hearing about you, you don't even
know where you should invest your time
to amplify those channels.
OK.
So that's one.
That's the auditing of your growth map.
And then number two is you got to operationalize your funnel.
So the way I think about is there's four key steps
to any marketing funnel.
There's the channel you put your message in.
There's a lead magnet that you use to convert
the viewer to an email address.
The third is a conversion tool you're
going to use to convince them to buy your products.
So it's either a trial, a demo, or a proof-of-concept sale--
very similar to a demo but more for enterprise.
And then third, if people don't buy
or they're in the trial process, what's your follow up formula?
What do you send on a frequency to make sure
that you educate them and convince them
that your product is the best solution for them?
So if you don't operationalize this,
then it's never going to work.
And then the third that you want to consider
is even moving up market.
Some of you guys have products that could
sell to a bigger customer.
And by doing that, you may reduce the number of customers,
but you'll increase your average revenue per account
because it's a bigger deal.
But you need to grow your customers.
So quick recap-- how do you use your growth ceiling
to motivate you to make critical changes in your business
in a positive way?
Number one, we need to reduce churn.
Number two, we have to increase our ARPA, Average Revenue
Per Account.
And number three, we need to grow our customers.
As I mentioned at the beginning of this episode,
I want to share with you a free resource called the Churn
Buster Cheatsheet.
It's my process to five core principles
that you need to implement to think about reducing
churn across your business and then the nine
specific strategies that you want
to use to be able to instrument, learn, and fix your churn.
If you're losing customers, they're
coming in the top of the funnel, and it's like a leaky bucket
and they're leaving, click the link below
to download your copy of the Churn Buster Cheatsheet.
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As per usual, I want to challenge
you to live a bigger life and/or bigger business,
and I'll see you next Monday.
Dan, how do you fix it?
Well, great question.
Let me talk about it.