Dan Martell - January 27, 2020


How To Use Your SaaS Growth Ceiling For Positive Change


Episode Stats

Length

9 minutes

Words per Minute

195.8742

Word Count

1,937

Sentence Count

115

Hate Speech Sentences

1


Summary

Summaries generated with gmurro/bart-large-finetuned-filtered-spotify-podcast-summ .

Transcript

Transcript generated with Whisper (turbo).
Hate speech classifications generated with facebook/roberta-hate-speech-dynabench-r4-target .
00:00:00.000 Hey there, Dan Martell here, serial entrepreneur,
00:00:01.760 investor, and creator of SaaS Academy.
00:00:03.320 In this video, I'm going to teach you
00:00:05.440 how to use your growth ceiling.
00:00:07.320 So if you have a SaaS business, you have actually a SaaS growth
00:00:10.280 ceiling for positive change.
00:00:12.720 I'm going to teach you how to understand when
00:00:15.080 this ceiling is going to happen, when the wall occurs,
00:00:18.360 and what you can do in your business today
00:00:20.320 to make sure that you push it out way out into the future
00:00:23.640 and continue growing your business.
00:00:24.840 Be sure to stay to the end.
00:00:26.040 We're going to tell you how to get access to my free churn
00:00:28.080 Buster Cheat Sheet Guide, which covers the five principles
00:00:31.420 you need to implement to increase retention of your revenue
00:00:34.360 and also the nine box framework to be
00:00:36.780 able to implement those turn busting tactics quickly.
00:00:40.260 Let's get into it.
00:00:53.800 So one of the first things that I
00:00:55.480 do with all my new coaching clients,
00:00:57.140 because I only coach B2B SaaS founders, software as a service,
00:01:01.820 is teach them how to think about membership
00:01:04.700 or reoccurring revenue.
00:01:06.180 And I'm going to link up the tool I use below,
00:01:09.100 but one of the concepts is the growth ceiling.
00:01:12.100 That if you think about it, if you
00:01:14.240 have clients that cancel in any business,
00:01:16.980 that at a certain point, your ability
00:01:19.160 to add new customers per month will not outpace
00:01:23.360 the amount of clients, the net, what's called the logo churn,
00:01:26.440 the net logo churn that you lose on a monthly basis.
00:01:29.240 Here's how the math works out, OK?
00:01:31.320 I'm going to do a little bit of math.
00:01:32.840 I need you to think through this, but it's
00:01:34.120 going to be super simple.
00:01:35.460 If you add 100 new clients a year, but you lose 20% of them,
00:01:41.060 what you want to do is take the total new number of clients,
00:01:44.480 multiply times your churned rate, which is 0.20,
00:01:48.960 and that'll let you know what's the max number of clients
00:01:52.460 you'll ever be able to have because you're churning
00:01:55.820 through the new ones on an annual basis
00:01:59.200 to be able to replace the ones that you're adding the new ones
00:02:02.280 to replace the ones you lost.
00:02:03.740 So the number is 500.
00:02:05.260 So you have 100 that you add every year.
00:02:07.280 You have 20% annual churn.
00:02:09.800 That means you'll max out at 500 total clients.
00:02:14.180 Now, what's your max revenue, the growth ceiling
00:02:17.300 for your MRR, your monthly recurring revenue?
00:02:19.700 Well, it's simple.
00:02:20.340 You take your, it's called ARP.
00:02:23.300 Some people call it ARPU.
00:02:24.480 I call it ARPA.
00:02:25.920 Average revenue, so if you're a B2C business, business
00:02:28.620 consumer, you're going to use average revenue per user.
00:02:30.960 If you're B2B, which hopefully you are if you're in SAS,
00:02:34.720 is business to business, it's your average revenue
00:02:37.320 per account, OK?
00:02:38.300 So let's just keep the number simple.
00:02:39.860 Let's call it $100.
00:02:42.080 If you multiply the 500 times 100,
00:02:44.300 that equals $50,000 in ARR, annual reoccurring revenue.
00:02:48.980 So with your current numbers, if that was you,
00:02:52.360 you would max out at $50,000 of annual reoccurring revenue
00:02:56.120 per year, OK?
00:02:57.740 So regardless of what software business you're in,
00:03:00.760 if you run your numbers, again, I'm
00:03:02.360 going to link to a calculator below.
00:03:04.600 So you can click it, put your numbers in for your own business
00:03:06.920 and figure out when's the wall.
00:03:08.880 The wall is when you're at 75% growth potential,
00:03:12.580 because at first it can seem steep,
00:03:14.300 but then you hit this kind of elbow.
00:03:16.600 And then the flat, I call it the churn flat line,
00:03:19.300 when you hit the growth ceiling is essentially
00:03:20.960 when you're going to max out.
00:03:22.340 Now, the good news is I'm going to teach you how to fix this.
00:03:24.760 These are the three strategies by priority
00:03:27.200 that you need to implement and focus on
00:03:29.080 to push off your growth ceiling as far as possible
00:03:32.780 into the future.
00:03:33.800 Number one, reduce churn.
00:03:35.820 So I know a lot of you guys are like, Dan,
00:03:37.920 I've done a bunch of studying.
00:03:39.560 Churn, churn, churn.
00:03:40.440 How do I retain customers?
00:03:41.580 I'm just going to walk you through the things
00:03:43.340 that I do with my clients.
00:03:44.380 Number one is we fix positioning.
00:03:46.580 Too often, I see, especially for folks
00:03:48.800 that come from an internet marketing background
00:03:50.660 or a sales-heavy background, is you're overselling
00:03:53.600 the opportunity for your software.
00:03:55.520 You're positioning it as a business opportunity.
00:03:58.000 You're positioning it as the silver bullet
00:04:00.900 to help businesses solve every problem in their life.
00:04:03.440 And it's just not.
00:04:04.140 So positioning is a key thing.
00:04:05.600 Trial, the trial activation.
00:04:08.060 So how you activate your new customers,
00:04:11.720 either through a trial or even onboarding them
00:04:13.940 after you sold them through a demo process,
00:04:16.140 that needs to be figured out.
00:04:17.300 And then finally, it's just what's
00:04:18.660 your process for retention?
00:04:20.240 Here's something simple.
00:04:21.120 I was walking my client through this recently,
00:04:23.220 where on a monthly basis, they were losing $12,000
00:04:27.060 through retention churn.
00:04:29.420 So essentially, they weren't retaining the customer.
00:04:31.320 They were losing $12,000 a month.
00:04:33.340 And I asked them, I was like, what percentage of that
00:04:36.240 is lost because the customer's never activated?
00:04:38.520 So probably half.
00:04:39.380 So I'm saying $6,000 a month, you're
00:04:41.860 losing every month because the people signing up
00:04:45.760 didn't know how to use the product yet.
00:04:47.220 You could pay somebody half of that
00:04:49.580 to just get on a call, set it up for them, support them.
00:04:54.300 And it compounds.
00:04:55.820 And then over time, you can write the code
00:04:57.860 to automate a lot of the manual process.
00:04:59.700 But those are the areas that you need
00:05:02.120 to focus on to reduce your churn at a high level.
00:05:04.800 I'm going to tell you how to get access to my Churn Buster
00:05:06.800 Cheat Sheet that goes into this at depth.
00:05:08.840 But you want to make sure that the positioning, the conversion
00:05:11.180 process, and your retention system
00:05:13.480 is in place to reduce your churn.
00:05:15.860 Number two, increase ARPA.
00:05:18.060 Average revenue per account.
00:05:20.220 Essentially, it's you want to monetize more.
00:05:22.080 You want to figure out how can you create more value
00:05:25.320 for your customer and capture more value.
00:05:26.960 So the low-hanging fruit for many founders
00:05:29.520 is, number one, you need to have a value metric for pricing,
00:05:33.180 meaning that the more value that's
00:05:34.880 extracted from your product, the more the customer ends up
00:05:39.900 paying.
00:05:40.400 So sometimes you'll see this as a per seat pricing,
00:05:43.620 some kind of metered pricing per transaction,
00:05:46.220 number of contacts, et cetera.
00:05:48.240 But that's value metrics.
00:05:49.520 Number two, right off the bat, just so you know,
00:05:51.860 you should just raise your prices.
00:05:53.080 I know you're reading this, and you probably thought about it.
00:05:56.000 The best SaaS companies, and here's
00:05:58.240 a really great question to ask yourself how to deal with this.
00:06:00.760 I got this from Andrew Grove from High Output Management.
00:06:03.400 If somebody bought my business tomorrow,
00:06:05.120 what's the first thing they would change?
00:06:07.180 And I'll tell you, if I bought your SaaS business,
00:06:09.180 I know the first thing I would change
00:06:10.520 is I'd put your prices up, even by 20% or 15%,
00:06:13.400 because it will have no impact.
00:06:15.300 The yield pricing will outweigh 100%
00:06:17.680 the lack in what you think is conversions or trials
00:06:21.160 or whatever.
00:06:21.880 So increasing your pricing.
00:06:23.540 And then third is have add-ons.
00:06:25.620 Look at the features that may be in your middle plan
00:06:28.940 are only being used by 30% to 40% of the customers.
00:06:33.120 And consider ripping it out and charging a price per month
00:06:37.100 for it so that it can be used by folks
00:06:39.480 in the smaller and the upper end plan.
00:06:43.260 And it increases your ARPU.
00:06:46.320 ARPA.
00:06:46.820 Sorry, I keep mixing them up.
00:06:47.880 So average revenue per account.
00:06:49.140 But here's the kicker is most of you guys
00:06:50.900 can just add a premium level of service, a premium support
00:06:54.160 feature as an add-on, maybe $100 a month,
00:06:56.800 and that will raise your average revenue per account.
00:06:59.260 So just do those things to make sure
00:07:02.160 that you can increase your monetization, your revenue,
00:07:04.740 from your current customers so you can reinvest it in growth.
00:07:07.660 Number three, grow customers.
00:07:10.160 So the third option you have to kind of push off
00:07:13.080 The growth ceiling is to increase the number of new customers
00:07:16.260 that you add on a monthly basis.
00:07:18.080 So if you're stuck at 10 every month,
00:07:20.680 you need to go to 12, 14, 15, 16.
00:07:23.400 How do you do that?
00:07:24.700 Here's the strategy.
00:07:25.700 One is you have to do a growth map.
00:07:27.760 You have to analyze what you're working on right now
00:07:30.520 and figure out where is the ROI.
00:07:32.260 Because you could be doing stuff today
00:07:33.860 that you don't even know is working.
00:07:35.600 But because you haven't looked at all the different channels
00:07:37.940 and marketing and where customers are coming
00:07:39.900 and hearing about you, you don't even
00:07:41.600 know where you should invest your time
00:07:43.260 to amplify those channels, OK?
00:07:45.740 So that's one.
00:07:46.700 That's the auditing of your growth map.
00:07:48.860 And then number two is you've got to operationalize your funnel.
00:07:53.280 So the way I think about it is there's four key steps
00:07:55.640 to any marketing funnel.
00:07:56.960 There's the channel you put your message in.
00:07:58.740 There's a lead magnet that you use
00:08:00.240 to convert the viewer to an email address.
00:08:04.480 The third is a conversion tool you're
00:08:05.900 going to use to convince them to buy your products.
00:08:08.640 So it's either a trial, a demo, or a proof of concept sale.
00:08:11.720 Very similar to demo, but more for enterprise.
00:08:14.020 And then third, if people don't buy
00:08:15.540 or they're in the trial process, what's your follow up formula?
00:08:18.780 What do you send on a frequency to make sure
00:08:21.100 that you educate them and convince them
00:08:23.260 that your product is the best solution for them?
00:08:25.800 So if you don't operationalize this,
00:08:27.400 then it's never going to work.
00:08:28.480 And then the third that you want to consider
00:08:29.820 is even moving up market.
00:08:32.100 Some of you guys have products that
00:08:33.640 could sell to a bigger customer.
00:08:35.540 And by doing that, you may reduce the number of customers,
00:08:38.600 but you'll increase your average revenue per account
00:08:40.760 because it's a bigger deal.
00:08:42.620 But you need to grow your customers.
00:08:44.840 So quick recap, how to use your growth ceiling
00:08:47.060 to motivate you to make critical changes in your business
00:08:50.060 in a positive way.
00:08:51.080 Number one, we need to reduce churn.
00:08:52.920 Number two, we have to increase our ARPA, average revenue
00:08:55.220 per account.
00:08:55.940 And number three, we need to grow our customers.
00:08:59.420 As I mentioned at the beginning of this episode,
00:09:01.420 I want to share with you a free resource called the Churn
00:09:03.500 Buster Cheat Sheet.
00:09:04.780 It's my process, the five core principles
00:09:07.440 that you need to implement to think about reducing churn
00:09:10.180 across your business, and then the nine specific strategies
00:09:13.980 that you want to use to be able to instrument, learn,
00:09:18.420 and fix your churn.
00:09:19.920 If you're losing customers, they're
00:09:21.360 coming in the top of the funnel, and it's
00:09:23.060 like a leaky bucket and they're leaving,
00:09:24.960 click the link below to download your copy of the Churn Buster
00:09:28.040 Cheat Sheet.
00:09:28.920 And if you like this video, be sure
00:09:30.780 to smash that like button.
00:09:32.480 Click the notification bell so you
00:09:34.200 You get notified when I drop new videos twice per week.
00:09:37.860 Every week I drop new videos.
00:09:40.000 And if there's somebody that you think
00:09:41.400 that could benefit from this video,
00:09:43.200 feel free to share it with them directly.
00:09:44.760 As per usual, I want to challenge you
00:09:46.080 to live a bigger life and a bigger business.
00:09:48.000 And I'll see you next Monday.
00:09:50.480 Dan, how do you fix it?
00:09:51.520 Well, great question.
00:09:52.560 Let me talk about it.