Dan Martell - How To Use Your SaaS Growth Ceiling For Positive Change

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 1.00

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.

Dan Martell - January 27, 2020

How To Use Your SaaS Growth Ceiling For Positive Change

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