SaaS growth isn’t a goal; it’s an obsession. The good news is that SaaS growth can be very smooth and predictable, because of the SaaS recurring revenue subscription model. The bad news is that SaaS growth can also be predictably slow the bigger you get. After a few years of rapid SaaS startup growth, it’s easy to find yourself on the short end of the hockey stick if you don’t know the right levers to push.

The Three Levers to Break Through the SaaS Growth Ceiling

At any given time, you can calculate the SaaS growth ceiling for your SaaS business with a simple formula: customer acquisition rate divided by percentage churn rate. For example, if you acquire 200 new customers each year and your percentage annual churn rate is 20%, then at 1,000 customers ( 200 / 20% ) your growth will slow to zero, because customer churn will equal new customer acquisition of 200 customers per year. New customers come in the front door, while old customers leave out the back. Moreover, you will begin to hit the SaaS growth ceiling in exactly one average customer lifetime of 5 years, equal to 1 divided by your 20% churn rate. Finally, your SaaS growth revenue ceiling will equal 1,000 customers times your average customer subscription, e.g., $10M per year for an average subscription of $10,000 in annual recurring revenue. Without a fundamental change to your business, that’s all the SaaS growth you get.

This SaaS growth ceiling depicted in this example is calculated generally by the following basic formulas from the SaaS metrics series.

max SaaS company # customers = acquisition rate ÷ % churn rate

max SaaS company revenue = acquisition rate x average subscription value ÷ % churn rate

Alternatively…

max SaaS company revenue = acquisition rate x average customer lifetime value

This last formula highlights two of the three fundamental SaaS growth levers: acquire customers faster and increase customer lifetime value. If you double your customer acquisition rate, the SaaS growth ceiling doubles with it. Double customer lifetime value by doubling average subscription value or halving your churn rate and again the SaaS growth ceiling doubles.

In the end, however, churn always wins. Churn scales with the size of your customer base. Churn is negatively viral and can only be countered completely by a positively viral growth lever: network effects. Adding more sales reps and increasing your marketing spend are not enough. These strategies may increase your acquisition rate, but to outpace churn you must increase your acquisition rate again and again and again.

The SaaS Growth Levers Follow the Customer Lifecycle

The three fundamental SaaS growth levers: customer acquisition rate, customer lifetime value and viral customer network effects arise naturally and sequentially as a SaaS business matures. Read more »

What is SaaS? We seem to need to ask this question every couple of years, because the answer is a bit of a moving target. It was simple enough when SaaS was merely software applications pushed through a Web browser, but now we have to contend with the cloud, mobile and even social. Recently, Scott Maxwell of OpenView partners sparked an interesting debate on the topic on LinkedIn that got me pondering it again. I’ve weighed in on the “What is SaaS?” question before, however, every time I encounter this debate, I can’t help feeling that it skirts the more important issue: Why SaaS?

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When trying to create a successful SaaS business model, being SaaS is interesting, but doing SaaS is essential. It’s far less important that your SaaS business model meet the exact definition of SaaS, than it is that your SaaS business model creates sustainable competitive advantage through SaaS. Why be SaaS in the first place? Why not just be software? At any rate, this recent debate got me to re-reading some of my old blog posts on the topic and I realized that they were very text heavy and could use an upgrade. So, in this post I revisit the topic of “Why SaaS?” with a short visual tour of SaaS business model basics.

SaaS Business Model Economics

At the risk of repeating myself, I will repeat myself. The only difference between software and software-as-a-service is that SaaS is delivered over a standards-based network called the Internet. Therefore, all new economic value and competitive advantage must flow from this difference.

The SaaS business model creates competitive advantage in two Internet enabled flavors:

1. Lower costs from…
   • Network automation of labor-intensive services and business processes
2. Economies-of-scale from aggregating customers via the network onto a uniform infrastructure
3. Differentiation from…
   • Reengineering business processes and service delivery through network automation
   • Network effects enabled by customer-customer interaction

Yes, it’s a mouthful. So let’s look at some pictures.

Competitive advantage in the SaaS business model comes from leveraging the customer-vendor network connection to reengineer business processes and service delivery, while building a large customer base to create economies-of-scale and network effects.

Network Automation in the SaaS Business Model

SaaS begins and ends with the Internet. The first impact the Internet has in SaaS is to connect the customer to the SaaS business through the product. Let’s think about that for a minute. How many products do we use everyday that can make this claim? Read more »

A few months back, Gartner placed big data at the peak of its hype cycle for cloud computing, meaning most big data products are solutions looking for a problem. I always find this bad entrepreneurial habit to be one of the most frustrating of our industry. Having recently joined Meltwater as head of marketing and product (BTW Meltwater is hiring marketing and product managers!), I think a lot about big data and how to unleash it’s value to solve important business problems, because that is our business. How does big data go from “so what” to “must have”?

The Big Data Challenge

Big data is a by-product of the Internet and the ever increasing power of computers. Kind of like petroleum sludge. We know there must be great value buried within this vast, raw resource, but the challenge lies in figuring out how to turn it into something useful like plastic, or the other thousands of petroleum products that we produce from the 20% of crude oil that can’t be turned into fuel.

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This is no small feat. I can confidently predict that there will be no shortage of well-intentioned, well-funded start-ups that fail to live up to this challenge, producing varying versions of gift-wrapped sludge that never quite deliver on the promises of their pitches. Overcoming the hype and producing real value from big data requires much more than data-processing infrastructure. It requires a laser-like focus on creating order-of-magnitude improvements to how we work and live.

Reengineering Across the Firewall

More than a year ago, McKinsey and Company predicted that big data would be “The Next Frontier of Innovation, Competition and Productivity.” Now, I’m not generally one to argue with the likes of McKinsey, especially in this case as I happen to agree with it. If you have the time, I highly recommend checking out the report. At 156 pages, however, it can be a little hard to digest, so I thought I’d fearlessly attempt to boil it down to a blog post by sharinig a little of how we think about the Big Data Challenge @Meltwater.

Big data implies a shift in real-time access to valuable information outside the firewall.
It offers the opportunity to reengineer business processes that cross the firewall
and that benefit greatly from this information, such as competitive strategy,
sales, customer support, vendor management, employee recruiting, etc.

Cloud-based businesses create value in one of two ways: Read more »

Sales professionals are some of the earliest adopters and most annoying users of social networking. The problem is that most sales reps treat LinkedIn like a prospecting database for cold calling. It’s just too enticing when all your target prospects are out there showing off their company names, titles, areas of expertise, blogs, and opinions. You can use LinkedIn as a prospecting database, but it is probably the weakest and most professionally irritating use of the technology. To succeed at social sales, you must have something to offer beyond your product. You must be someone your customers want to know.

This is the fourth post in a series on social business designed to help B2B sales and marketing professionals make better use of social media by thinking in terms of social networking. This installment provides ten social sales lead–ership tips that will turn social media into a lead generation machine for your business by following the B2B Social Business Bill of Rights.

Social Sales Lead–ership Tip #1 | Activate Your Social Sales Network

B2B businesses still have rather spotty usage of social networking. Most B2B sales reps are on LinkedIn, but far fewer have active Twitter accounts. Depending on the industry, B2B prospects and customers are even less likely to be active social networkers. Social Business Right #1 says you must expand your social sales network, Read more »

Since publishing the original SaaS metics blog series and subsequent SaaS Metrics Guide to SaaS Financial Performance, I’ve received numerous inquiries on various details and hidden gotchas in SaaS metrics implementation. This new series of SaaS Metrics FAQs explores some of these finer SaaS metrics points in a simple Q&A format. In this second post, I examine SaaS MRR churn, a SaaS metric that extends from SaaS customer churn which was covered in the first installment.

SaaS Metrics FAQ #4 | What is MRR Churn?

SaaS MRR churn measures the erosion of SaaS monthly recurring revenue (MRR). Mathematically, the SaaS MRR churn rate is an extension of the SaaS customer churn rate calculated by substituting monthly recurring revenue in place of the number of customers. For example, if your SaaS business has 100 customers representing an MRR base of $1M at the beginning of the year, and 5 customers cancel a total of $100K in MRR during the year, then your annual MRR churn rate is 10%, while your annual customer churn rate is only 5%. The general formula for for SaaS MRR churn can be stated as the amount of MRR cancelled (ΔMRR) per time interval (Δt) divided by the total MRR at the beginning of the interval (MRR_total).

In the formula above, the Δ is a common math symbol that means change or interval.

SaaS Metrics FAQ #5 | Why Measure MRR Churn?

The simple answer to this question is money. Read more »

Which is more important in B2B social media, social or media? For way too many B2B marketers, the answer is media. In the B2B marketing community, content marketing has eclipsed blogging, engagement is measured in click-throughs, and gamification is sexier than conversation. Too many B2B professionals see social media as just another marketing communication channel. It is not!

This is the third post in a series designed to help B2B professionals create better social business strategies by thinking in terms of B2B social networking over B2B social media. This post builds on the concepts introduced in the previous installment on professional social networking using B2B social media to explore the opportunities for social business at the company and industry levels. You won’t find tips and tricks for LinkedIn, Twitter or Facebook here, because the foundations of social business transcend the tools. I promise that later posts in the series will get to the tips and tricks, but social business is first and foremost about people, not technology.

Unlike a B2C brand, revenue at a B2B business is driven by the firm’s underlying professional network, because the social business network of B2B professionals includes their customers. By definition, every B2B business is selling to other businesses, as opposed to a consumer. As such, the professional ties between company and customer are very strong. Read more »

I believe many B2B professionals struggle in their adoption of social media for professional use, because they see it as a marketing platform as opposed to a professional networking tool. Those who do see it purely as a marketing tool and use it as such, clog up a valuable business resource with spam. I have colleagues that are very active on Facebook for personal use, but can’t seem to get their heads around LinkedIn. CEOs and CMOs don’t have time for Twitter, let alone time to blog. Sales professionals are too busy chasing after prospects, so when they squeeze in the time for B2B social media, they make the mistake of using it for intrusive prospecting instead of professional networking. However, I think if these B2B professionals really understood the purpose and value of B2B social networking, then they would make more time for it and better use of it.

The is the second post in a series designed to help B2B professionals create better social strategies by thinking in terms of B2B social networking over B2B social media. This second installment explores the opportunity of building a stellar B2B professional network through social media and lays the foundation for the following more advanced topics to come.

• The B2B Company Social Netork
• Social Media for B2B Demand Generation
• Social Networking for B2B Public Relations
• Social Networking for B2B Sales Enablement

It is not another top ten list on how to tweet. So many poor efforts at B2B social networking result from trying to master how to do it without truly understanding what it is. Using social media to build your professional network is a very personal endeavor, and my hope is that this second post in the series will provide a few very personal “aha moments” that help clarify your professional social networking strategy.

Read more »

I frequently find myself thinking that the dumbest thing we Internet marketers ever did in social networking was to rename it social media.  In the early days of Web 2.0, there was no such thing as social media. Everyone was just working to make software more social, whatever that meant. Then for a while, the terms “social networking” and “social media” were used almost interchangeably.  Today, it’s all social media, the Web 2.0 heir apparent of Web 1.0 new media. Social networking is largely reserved for describing the purest of social networks like Faceook and LinkedIn, or the more technical discussions about social graphs and the like.  Personally, I strongly prefer the term “B2B social networking”; because once you recognize that the smart way to use B2B social media is to drive B2B social networking, your fundamental understanding of the potential opportunity shifts.  Just for fun, I did a quick Google trend analysis on the terms to visualize the issue.

As it has grown in popularity, the term “social media”
has clouded our thinking about social networking with advertising concepts.

So, what’s the big deal Joel?  After all, it’s just a kind of new media, only social, right? The problem is that the term “social media” clouds our thinking about social networking with advertising concepts.  In particular, when it comes to B2B social networking, the term “B2B social media” misses the mark entirely.  It makes me cringe when I hear statements from B2B marketers and salespeople such as these: Read more »

A little over two years ago, I published a series of well received articles on SaaS metrics that culminated in the SaaS Metrics Guide to SaaS Financial Performance. Since then, I’ve received numerous inquiries regarding the many practical quirks encountered in day-to-day SaaS metrics implementation. In response, I’ve decided to revisit the SaaS metrics topic with this series of SaaS Metrics FAQs where I’ll elaborate on some of these finer SaaS metrics details in a simple Q&A format. This first SaaS Metrics FAQs installment tackles the many problems associated with measuring SaaS churn, so if you have a Q, please feel free to submit it in the comments and I’ll do my best to provide an A.

SaaS Metrics FAQ #1 | What is Churn?

SaaS churn is the percentage rate at which SaaS customers cancel their recurring revenue subscriptions. It is a key SaaS metric of historical SaaS business performance and an important parameter in revenue forecasting. When used in forecasting, SaaS churn can be interpreted as the probability rate at which customers will cancel their subscriptions. In it’s simplest form, SaaS churn can be stated as the number of customers cancelling (ΔC) per time interval (Δt) divided by the number of customers at the beginning of the interval (C).

In the formula above, the Δ is a common math symbol that means change or interval.

That’s the simple answer. In practice, SaaS churn can be both difficult to define and difficult to measure. Read more »