Growth Hacking
Oct 1, 2021

12 Key Lessons of SaaS Success

by
Tori Stroup

Image courtesy of Pexels.

There are many elements that go into running a successful SaaS business. From ensuring your product-market fit is just right to knowing when your customers are losing interest in your products -- it’s all important to consider.

In this article, we’ll take a look at 12 SaaS lessons that will help you set yourself up for success and continue to grow your SaaS business. Each of these lessons work together to build one comprehensive experience and will allow you to continue to improve and grow your business.

Here’s a quick look at the lesson’s we’ll cover:

  1. Don’t give up on the search for product-market fit
  2. Optimize the top of the funnel flow
  3. Identify and fix your conversion rates
  4. Understand your customer acquisition cost
  5. Calculate the months to recover customer acquisition costs
  6. Have the right number of salespeople to meet your quotas
  7. Track productivity per representative
  8. Focus on your recruiting, onboarding, and management efforts
  9. Generate enough leads to feed your funnel
  10. Get your pricing right
  11. Keep your customer retention rates high
  12. Track your dollar retention rates

Lesson 1: Don’t Give Up on the Search for Product-Market Fit

One of the first steps to SaaS success is determining if your products solve a problem for the audiences you’re marketing to. It means understanding and validating the core value hypothesis of your product.

Searching for product-market fit will require you to evolve and challenge the hypothesis you started with continuously. Having the ability to stay agile and adjust as your audiences do will help you find that sweet spot you’ve been searching for.

product market fit pyramid diagram
Product-market fit comes into play when you understand your customers’ needs and provide them with a solution that resolves these problems. Each layer of the pyramid works together to help you determine whether your hypotheses are correct and lead you towards success. Image courtesy of Lean Startup Co.

As you work towards finding product-market fit, you’ll likely identify product changes that will be required, but each of these iterations will get you closer to solving the needed pain points of your customers. Over time you’ll continue to fine-tune your products,, and before you know it, you’ll reach product-market fit.

Lesson 2: Optimize The Top of the Funnel Flow

Optimizing the top of the funnel flow is essential because if you’re not actively feeding new leads into your SaaS funnel, you’ll never see an increase in conversion rates or increased sales.

There are two critical types of sales motions you need to consider when optimizing the top of the funnel flow.

The first is the touchless self-serve motion. This is the idea of filtering customers through the funnel without the need for sales representatives or direct contact.

Think of this as your free trial or demos that someone signs up for on your website after browsing your products. The number of deals then determines the success of this motion closed after that free trial period.

sales funnel key metrics diagram
Optimizing your funnel is an important step in driving success for your SaaS business. Without the right amount of traffic drivers, you won’t be sending enough people through the funnel to have success converting and closing deals. Image courtesy of SaaStr Youtube Channel.

You need to continuously work to optimize your top of funnel flow to keep new opportunities filtering through. The more successful you are at bringing new leads into your funnel, the higher chances you have to convert those leads.

Lesson 3: Identify and Fix Your Conversion Rates

If you identify that your funnel efforts result in high conversion rates, you’ll want to address this problem before spending too much time working to increase traffic.

Just because you can drive high numbers of visits to your site doesn’t mean those are high-value visitors. If those visitors aren’t converting, you’re simply wasting your time, money, and energy filtering new audiences into a funnel that won’t fulfill their needs.

Having problems in your funnel that prevent audiences from converting can be a much larger problem that you’ll want to address head-on.

To do so, there are a few specific areas you’ll want to focus on:

  1. Improving your product-market fit and change your value proposition so that it resonates better with your audiences
  2. Figure out what customer segments are the right fit for the products you’re promoting
  3. Simplify your product messaging to relate to how your customers speak and put your business value at the forefront

Taking the time to fix your conversion rates is an important step in driving success within your SaaS business. If you continue to drive new audiences into your funnel, but they never make it to the conversion stage, you’ll keep finding yourself in an endless cycle.

Lesson 4: Understand Your Customer Acquisition Cost (CAC)

If you don’t know your customer acquisition costs, you’ll be at a disadvantage when pricing your products. You may be spending just as much to acquire a new customer as they’re going to spend with your company -- resulting in little to no profit.

To calculate your customer acquisition costs, you need to take your sales and marketing expenses and divide those by the number of new customers acquired.

Having a deep understanding of what you spend to acquire new customers is vital to the success of your business and can be a significant factor in companies that fail.

cost-revenue optimization diagram
Finding the right balance is essential when it comes to determining what customers to target. Without understanding your customers and what they’re willing to spend on your products, you could quickly find yourself in a pattern of loss. Image courtesy of ProfitWell.

Once you understand your CAC and know your target audiences, you can strategically price products to put your business in the green.

Lesson 5: Calculate the Months to Recover CAC

Once you’ve gained an understanding of what your CAC looks like and how you can target audiences for the right return, you need to know how many months it will take to break even on your initial investment.

For many SaaS companies, it is expected that they need to recover the customer acquisition costs within a year. While some companies can do it in a shorter time period, you’ll want to strive to hit that breakeven point no later than a year.

To calculate your months to recover CAC, you will want to divide your CAC by the average revenue per account and multiple by gross margin.

months to recover CAC calculation formula
Calculating the months to recover CAC is a reasonably simple process. This formula will help you understand each customer’s value and identify when you’ll see a return on investment. Image courtesy of Corporate Finance Institute.

Knowing how many months it takes to recover your CAC will help you understand how well your acquisition efforts are performing and pinpoint the timeframe it takes to return a profit on each lead you generate.

Lesson 6: Have the Right Number of Salespeople to Meet Your Quotas

If your business works off of a model that includes salespeople as a driving factor, you need to ensure you’re keeping your teams running at full capacity. It’s important to consider that each salesperson that you hire will have a limit on how many people they can engage with and sell to each day.

This means you need to plan your staffing needs accordingly. Choosing not to staff your sales teams to meet the demand of leads will keep you from missing your quota and goals month after month.

A salesperson has a capacity limit -- they will tap out at how many people they have.

Unit of growth in this model becomes how many salespeople do we have that are available to handle the inbound flow of leads and do that work.

To keep your sales teams up and running at full capacity, you need to ensure you have a solid recruiting strategy that helps you identify new talent and fill positions as they become available -- whether that’s through growth or turnover.

Lesson 7: Track Productivity Per Representative (PPR)

The second thing you need to consider when it comes to your sales team is how productive they are. You could be fully staffed, but if your salespeople are not working in a productive manner, you may still be bringing in less sales than expected.

So what we’re saying is more sales representatives doesn’t always mean more sales. The quality of your team can make or break your business deals.

To help elevate this issue, you should implement a sales training and onboarding process. Use this onboarding time to teach your sales teams what they should be doing to increase sales and provide them with the resources they need to become successful.

Then, once they’ve successfully completed their training, you’ll want to track performance in a variety of different ways, including:

  • Productivity rates overtime
  • Productivity rates based on how long a salesperson has been with the company
  • Productivity rates for each individual salesperson
  • Percentage of sales representatives at quota

Beyond these performance metrics, you can also track representatives based on their daily tasks.

most important metrics to track by sales rep chart
There are so many different ways you can track the success of your sales reps. Whether it’s by how many deals they’ve closed or the amount of calls and emails they’ve made, it can all give you a look into their productivity levels. Image courtesy of Databox.

A high-performing sales team will help you generate more sales and continue to grow your business successfully.

Lesson 8: Focus on Your Recruiting, Onboarding, and Management Efforts

As mentioned above, you need to ensure that the salespeople you’re hiring are high performers.

One way to do this is through developing a strong recruitment strategy. This will allow you to recruit people who have industry and sales knowledge and help you find people who are a better fit for the specific needs of your business.

The other side of this is providing your sales teams with the proper amount of training they need to excel. This should be something you consider as part of your onboarding experience.

Once a new hire joins your team, you should put them through a rigorous training program that helps them not only understand what your products and services are, but teaches them how you expect them to interact with customers and drive sales.

Lesson 9: Generate Enough Leads to Feed Your Funnel

Generating leads can often be a challenging process for SaaS businesses. As more people become more hesitant to provide personal information such as email addresses or phone numbers, generating enough leads to grow your business can be a heavy lift.

But it’s an essential step towards success.

If you’re not actively receiving leads and increasing the number of leads over time, you’re most likely not reaching new audiences. While you can continue to generate revenue from your current customers, if you don’t have a plan in place to attract new users, you won’t see the growth you’re looking for.

There are tons of different ways that you SaaS companies can generate leads, here are just a few examples to get you started:

  • Turn website visitors into leads with popups and forms
  • Use content marketing to help influence purchases
  • Tap into paid advertising to capture more high-quality leads
  • Expand your reach through networking
  • Create referral marketing campaigns to have customers help provide you with leads

Each of these strategies will help you to capture more leads and continue growing your business. However you choose to move forward with your lead generation plans, it’s something you don’t want to ignore.

Lesson 10: Get Your Pricing Right

Determining how to price your products is a challenging task. There are many factors that go into determining your go to market price.

You’ll need to ensure you’re considering things like:

  • Customer acquisition costs
  • The value your products provide your customers
  • Packages and service levels
  • What your customer lifetime value looks like
  • Customer churn rates
  • Level of effort and costs to produce your product or service

Each of these different elements will help you to determine exactly how you should price your products. Keeping in mind that you’ll likely want to do some competitive research to ensure the price point you land on is competitive with others already on the market.

Lesson 11: Keep Your Customer Retention Rates High

Once you’ve attracted new customers, the next task is to retain them. Calculating your customer retention rates can tell you just how well you’re achieving this goal.

customer retention relationship to profit
Focusing on increasing your customer retention rates is a great way to drive revenue growth. Even a 5% customer retention rate will have a drastic increase on your profit opportunities. Image courtesy of Marketing Insider Group.

Keeping your customer retention rate high is important because it’s much cheaper to retain current customers than it is to recruit new ones. That’s why it’s so important to take time to build a solid retention strategy and continue to keep an eye on your customer retention rates over time.

Here are a few metrics to keep an eye on to see how your retention strategy is performing:

  • Customer churn
  • Monthly recurring revenue churn
  • Customer lifetime value
  • Customer acquisition cost
  • Net promoter score

Together all of these metrics can help you to understand the health of your customer base and allow you to identify any potential problems that you might run into.

Lesson 12: Track Your Dollar Retention Rates

In addition to your customer retention rates, you’ll want to keep an eye on your dollar retention rates as well. This takes into consideration the percentage of recurring revenue retained from existing customers over a defined period of time.

Dollar retention rates and customer retention rates go hand in hand. By actively tracking your dollar retention rates will allow you to see a comprehensive view of the positive and negative changes within your customer retention rates.

With insights into both of these metrics, you’ll have a holistic view of how successful your SaaS business is in retaining customers.

Start Building Your Successful SaaS Business

Learning from these lessons will help you to achieve success in your SaaS business. While you might be able to pick and choose, tapping into all of these lessons and allowing them to build upon one another is what you really need to drive success.

So what are you waiting for? Now’s the time to start taking notes and implementing new elements into your current business model.

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