Running a SaaS business radically changes your relationship with the customer. Instead of fighting for one-time sales, you want to establish and monetize long-term relationships with people who will regularly pay for access to your product or service.
Once your SaaS business has come through the stepping-stone stage, it enters the stage of growth or scaling. In this article, we’re talking about this stage and how to most efficiently scale SaaS business.
What does SaaS product scaling involve?
SaaS business scaling is associated with the following activities:
- Aggressive customer acquisition
- User conversion optimization
- Sales streamlining
- Customer journey automation
- Increasing the team of executives
- Product development scaling
- Customer service scaling
- Aligning product, marketing, and sales teams
Business scale process can also involve the search for investors within Series A funding. This is a must activity if the business does not have its own funds for scaling.
Let’s dive into each part of your SaaS business scaling process.
Aggressive customer acquisition
The goal here is to boost efforts on acquiring customers using actionable techniques and increasing marketing channels. Aggressive means that you increase the investment of resources into your current acquisition activities and launch new ones. It can also include hiring sales reps if you haven’t had them on board before.
Users conversion optimization
This involves a set of activities aimed at turning free users of your SaaS product into paying ones. This can be done aggressively, for example, by changing the billing model. The smooth way of user conversion optimization includes different marketing techniques, such as discounts, or product development improvements, such as new features release.
Sales streamlining
Sales activities play a significant role in scaling SaaS. Streamlining sales means that you optimize the current SaaS sales process and even engage in additional sales activities, such as channel sales (aka partner sales) or lead nurturing. For SaaS businesses that approached the scaling threshold with no salesperson on the board, streamlining is equal to hiring a salesperson or a team of sales reps.
Customer journey automation
Many SaaS startups do not invest in customer journey automation at the very outset and hence enroll their first customers by hand. This includes even common things, such as the sign-up procedure, payment processing, invoicing, etc. When you scale SaaS, manual routines should be minimized as much as possible, so the customer journey should be automated as well. This is crucial not only to take your customer’s experience to the next level with your SaaS product but mostly to optimize your workflow and time efficiency.
Increasing the team of executives
Scaling SaaS is in direct ratio with increasing investments in different activities, which entails a higher load on members of different teams. In view of this, you’ll need to hire people who will let your scaling be smooth and balanced. Such executives can include product managers, engineers, marketing experts, etc.
Product development scaling
The product development scaling covers activities related to managing the growth of the development team and its scope of work. The growing customer base pushes the company to improve its SaaS product constantly. This entails the development of new features and functionalities, which, in turn, increases the scope of work. With this in mind, the development team needs to be scaled with new experts joining to cope with all the tasks. The dev team will grow or even be transformed into several dev squads that work on different parts of the product. As a result, you have to onboard new hires, organize work in different teams, align their plans and goals, modify the release schedule, and handle other related tasks.
Customer service scaling
You may have a finely balanced system of customer support designed to cope with your existing customer base. However, scaling SaaS implies the growth of the number of customers. Therefore you’ll need to get prepared to maintain the same high level of quality to an increased number of support requests. Scaling customer service is an essential step here. It covers the handling of several triggers, such as adding new customers, launching new support channels, increasing the geography for your service, and so on.
Aligning product, marketing, and sales teams
Before scaling SaaS, you could afford to run marketing and development separately. It’s a bad practice, of course, but it was not a big deal at the startup and stepping-stone stages. To efficiently scale SaaS business, it’s vitally important to align all of your teams. Their synergy will let you optimize product growth and be prepared to face many challenges in advance.
SaaS scaling threats
When your SaaS business scales, it causes an increase in not only revenue but also costs. The rule of thumb here is to keep the revenue growth higher than the growth of costs. Otherwise, it’s a road to business failure.
There are also other threats to scaling SaaS you should consider.
Lack of cash to support SaaS scaling
To grow the revenue of your SaaS product, you need to grow costs first. This requires cash. If you don’t have enough cash, you can try to find investors within Series A funding.
Premature scaling
Premature scaling is responsible for a large part of tech start-up failures. By choosing the right time, you’ll greatly reduce the risk of self-destruction and increase your chances of success. So, any SaaS business has to make an important decision about when to scale. Identifying the slope of growth of your business can be challenging, and you should consider signs that could help you make the correct decision. For example, if the LTV/CAC ratio is smaller than 3, then scaling is not what you should focus on so far. Your efforts should be aimed at fixing the funnel until the ratio reaches and exceeds 3. We’ll talk about signs and essential metrics below.
Lack of focus on getting things done
With scaling, your team gets bigger and the backlog grows as well. A chunk of time is spent planning and forecasting. Therefore, it’s crucial to balance the team’s focus on not only planning but implementing things according to their priorities.
Apart from these threats, you can encounter other risks and concerns associated with scaling a SaaS business. However, if you make decisions data-wise, these threats won’t be troublesome for your scaling SaaS.
How to scale SaaS business using data-driven decision-making
You can’t just wake up one morning and decide to start scaling your SaaS business today. Well, you can, but will it be wise to do scaling now, and what results can it bring?
To make a clever decision on whether your SaaS business is ready for scaling or not, you should analyze your KPIs. The best way to do this is via a SaaS analytics dashboard built into a BI tool or even in spreadsheets. For example, this humble yet actionable dashboard in Google Sheets allows you to track SaaS metrics and their correlation to full product-led growth (based on the AARRR framework).
With analytics dashboards, you can monitor the performance of different metrics and even build forecasts that will show scenarios of your business growth in terms of product development, sales, and marketing.
Which SaaS metrics are crucial for business SaaS scale-up
Let’s overview the top metrics that will let you define and plan scaling SaaS.
Monthly recurring revenue (MRR)
This metric refers to the income that your business expects to receive in payments in a month. When the MRR is relatively predictable, it enables you to plan your finances, predict your annual recurring revenue, and measure business growth.
The number of customers is not the only aspect that needs to be considered for calculating MRR. For a more detailed analysis of MRR growth, you need to consider the new revenue brought by newly acquired customers (new MRR) and the revenue brought by customers that upgrade their plans (expansion MRR). Furthermore, you should also calculate the revenue lost from customers canceling or downgrading their plans (churned MRR).
Customer lifetime value (LTV)
The purpose of this metric is to value the total revenue a customer will bring in over their lifetime relationship with your business. It allows you to predict revenue. When you know how many new customers you bring and their average lifetime, then you can forecast how much you expect to receive from them. This insight is essential for planning your marketing budget and scaling your business. The longer a customer stays with your business, the higher the LTV.
Customer acquisition cost (CAC)
CAC measures exactly how much it costs to acquire a new customer, considering sales and marketing expenses over a certain time. It is important for early-stage SaaS businesses and businesses offering basic or limited features to users at no cost. The reason is that it helps assess how sustainable the customer acquisition process is with reference to the profitability of the business. Above, we’ve mentioned the LTV/CAC ratio as one of the SaaS scale decision-making signs.
Average revenue per user (ARPU)
This metric refers to the revenue generated by an average active user over a certain period (per month, per week, etc.). Some underexperts claim that ARPU and LTV are interchangeable metrics, which is complete nonsense. The value of ARPU is in understanding how you monetize your active users. For example, the drop in new users will lead to an ARPU increase in most SaaS products. The reason is the proportion of relevant paying users is usually high in the active audience. So, without new users, the active audience will have a higher proportion of older cohorts, which results in ARPU growth. However, the lack of new user inflow is definitely not what you need when scaling your SaaS product.
Retention, churn, and renewal rates
The customer retention rate is the percentage of customers that your business was able to retain during a certain period. This metric is useful for understanding your SaaS product performance over time since users who stay active for longer provide more engagement and monetization opportunities.
To calculate the retention rate, you need to divide the number of retained customers at the end of the period by the number of customers active at the beginning of the period.
The churn rate is the percentage of subscribers who cancel their subscription plan over time. To retain business sustainability, the number of new customers must exceed the number of lost customers.
The renewal rate determines the percentage of users who renew their subscriptions. A measure of retention, a high renewal rate, is a good sign that your customers still benefit from your product or service.
Activation rate
An activated user refers to a customer who has experienced the value of your product/service. Therefore, the activation rate shows how many users actively use your product/service.
Referral rate
The referral rate describes the number of referred purchases as a percentage of the number of your total purchases. For example, if your referral rate is 1%, this means that 1 in every 100 purchases comes from your referral program.
Every successful SaaS company, from Mailchimp to Xero, has found its competitive advantage in data. SaaS metrics help you analyze the pulse of your SaaS business at a fundamental level and define your ability to scale. Of course, if you analyze this data in the right way.
How to analyze data for efficient SaaS scaling
Having the skills and the capacity necessary to collect and analyze the relevant data is key to your SaaS business growth. To efficiently gather and analyze data that is constantly generated, you will need:
- Solid data management infrastructure – The infrastructure should enable you to access and update data anytime, anywhere, from any device, and also support seamless synchronization between the various apps and tools you use in your business.
- Data analytics/reporting system – A set of interactive trustworthy dashboards or reports with automated data pipelines that allow you to monitor key SaaS metrics on a daily basis.
As your business collects more data, the need to manage and get meaningful insights from it grows as well. Venturing into data analytics alone could be troublesome. Setting up a process of proper data analytics can take a few months if done under your own steam. However, you can speed up the process and gain insights from your data more efficiently with the help of Coupler.io data analytics service.
Coupler.io is a data analytics and automation platform that provides a tool to automate data flows and a service to get more of your data. The latter is represented by a team of data experts who can consolidate large volumes of data, turning them into actionable insights.
Efficient tracking and analysis of metrics are vital for businesses to find opportunities on numbers. Interactive analytics dashboards prepared by Coupler.io analytics service, like the one depicted below, simplify data management, enabling you to explore the data on a deeper level and make well-informed, data-driven decisions.
Coupler.io experts can assist with several tasks, from building a custom dashboard to setting up data analytics from scratch. The analytics service largely helps in guiding decision-making since it prevents you from wasting a great deal of time and money trying to go it alone, especially if decisions are erroneous.
Strategies for scaling a SaaS business
Data analytics will help you not only decide that your business is ready for scaling but also avoid or mitigate risks associated with running the actual scaling SaaS process. We’ve also compiled a list of top strategies that you can use to scale SaaS business for success.
Underlining the problem and offering a way around
Sometimes, a problem is apparent to you but not to the customer. The customers could be unaware of the existence of this problem and its impact on their business. Why not open the customers’ eyes to the problem and the way they can solve it using your SaaS product?
Some of the key benefits that SaaS offers, like the flexibility to work from anywhere, enhanced support, scalability, and automated updates might not be visible to certain types of businesses unless you highlight them. Now it is time to share your solution and explain the value it offers. Ultimately, you need to highlight how your solution is superior to all other offers in the market.
Once you have an idea for your niche, survey that target market to uncover their pain points. However, not all companies in all industries may need the type of product or service that you offer. The focus should be placed on adapting your sales story to one market. After gaining success there, you can expand to new markets.
Recognizing changes in customer needs
Customer behavior and values could change over time, so it is important to make your SaaS business more customer-centric. After the pandemic, and in light of supply-chain issues, and high inflation levels, you must be able to continuously assess customer pain points, optimize your product or service, and deliver tailored and exceptional support.
Looking at an optimistic scenario, you might have a customer who has started with a free trial and then chose to upgrade it because they wanted to add more users or wanted to access advanced features. You could offer discounts on upgrades during a user’s free trial period to motivate those who are on the fence about upgrading.
To keep an eye on customer sentiment, you could start by identifying frequently asked questions to build a knowledge base, analyzing customer feedback and actively seeking it, and elevating the overall user experience.
Don’t forget to set up a categorization process to organize such feedback and transform it into data to make decisions based on it.
Optimizing pricing strategy
A balanced SaaS pricing model lets your business attract more customers and sell more subscriptions, while also generating more revenue.
Unlike traditional software, customers using SaaS solutions pay for your product/service on a recurring basis. This gives you more options for pricing models. The price might be influenced by the target markets, revenue objectives, and the marketing strategy of the product or service.
Here is a list of SaaS pricing models currently used:
- Usage-based pricing: It enables customers to pay for a product/service according to how much they use it, which is much like a postpaid phone plan
- User-count pricing: It charges a subscriber for each user of its product/service
- Tiered-based pricing: It offers customers various prices, each based on certain features, benefits, or services
- Flat-rate pricing: It charges a single, fixed rate for a particular product/service
- Per-feature pricing: The product/service is priced based on the features and functionalities offered to your customers
Another thing to keep in mind is that justifying the price is easy when the customer sees value. Customers are likely to pay any price to bridge the identified gap, especially if it is significant.
Improving customer satisfaction
A healthy business requires keeping customers happy with both your product and your service.
One way to do this is to improve customer service using ticketing system, call center software, knowledge base, and other tools. This is vital as it is the main connection between your business and your customers. Another thing to do is run short surveys to gather feedback and assess your current level of customer satisfaction.
You should also bear in mind not to automate your processes to the point where you lose the human connection. For example, this means addressing your customers by their names or providing them with personalized discounts, promotions, and services.
An excellent way of catering to your customer’s needs is to communicate with them across multiple channels, such as social media, email, live chat software, etc. Employing omnichannel strategies significantly increases your customer satisfaction rate as customers can quickly reach out to you to resolve issues.
Customer satisfaction affects your business metrics. For example, it increases the customer lifetime value, meaning that subscribers will continue to use your SaaS product for longer. It also decreases the churn rate and improves customer retention.
However, don’t forget, that you can’t compensate for a poor product with great service.
Running a referral/affiliate program
A SaaS referral program enables businesses to expand their customer base and acquire high-quality leads by rewarding their existing customers every time they recommend your solution.
Referral and affiliate programs increase customer loyalty, drive down your overall customer acquisition cost, and increase your marketing return on investment. Studies show that referred customers have a 37% higher retention rate.
Launching an affiliate program is one of the useful activities when scaling a SaaS business. The referral should be visible and accessible. But before you go ahead, you should decide if you will offer a one-sided or two-sided referral and decide on the type of reward. Will it be a free product? Exclusive access to certain features?
Leveraging various digital channels
Use of multiple channels maximizes your opportunities to acquire customers. It is the best way of covering all grounds to grab the attention of your target audience(s).
Some of the best SaaS marketing channels you could invest in to boost sales and user engagement is social media (paid advertising on Facebook and Twitter), content marketing, email marketing, and influencers.
After some rounds of testing, you will discover which ones work best for your business and generate more revenue.
Choosing the right SaaS architecture
A highly scalable backend architecture could take your business to the next level of growth.
Single-tenant and multi-tenant are two different types of server ecosystems for SaaS applications. Single-tenancy refers to a cloud environment where every customer has a separate software instance, database, and a set of computing resources. By contrast, multi-tenancy refers to a cloud environment where software instances and supporting infrastructure serve multiple customers.
In single-tenant architectures, the tenant’s data is isolated, and every aspect of their product/service is completely tailored to their needs. However, customers need to manually maintain and upgrade their environment. In multi-tenant architectures, tenants have less freedom to customize their cloud environment but enjoy an easier and more user-friendly onboarding process.
Both structures come with their advantages and disadvantages. But at first look, multi-tenancy facilitates business scale-up as it costs less for customers. Furthermore, scaling SaaS has fewer implications as new users can access the same software as the original buyers, and maintenance and upgrade costs are ingrained in the subscription plan.
Other things that you will encounter as your business scales up are:
- Increasing the number of app servers,
- Optimizing database engines
- Increasing storage space
- Setting additional database servers
- Launching monitoring systems to notify once you need more resources to add
- etc.
How scaling SaaS business changes from scaling other business models
Running a SaaS business implies a long-term relationship with the customer. Therefore, key metrics are typically associated more with customers than products. Unlike traditional business models, SaaS offers you new challenges to tackle, such as tracking customer renewal rate, retention, and churn. Recurring revenue, namely more predictable revenue streams, improves the bottom line of your business, somehow reducing anxiety about one-time sales.
Furthermore, communication with your team will mainly revolve around customer success metrics which are reflected by changes in your customer acquisition cost, customer lifetime value, or your success rate in upselling a percentage of your accounts to a premium product.
SaaS businesses demand patience, no fix is quick. Actions taken today, like growing and optimizing cloud infrastructure and testing various channels to attract a larger customer base, may have an impact months later.
Overall, scaling a SaaS business is easier said than done. It requires combining many strategies, tracking metrics, and certainly time.
