On the surface, SaaS growth seems like an obvious and pretty basic goal or directive for any company to pursue and engage. The idea that a company will attempt to expand its customer acquisition over time, and become a more respected, more equitable company is a pretty obvious objective of any business. However, the challenges in growth aren’t immediately obvious when a company starts up, and when it comes to service-based industries like SaaS, well, there are some unique problems that brings about.
You see, with a service industry, there’s a phenomenon known as churn, and it’s present from successful launch onward. At first, it may seem like a minor negative element that can be offset with some cleverness, but the more a company grows, the more churn will grow as well.
Churn, which is the loss of subscribers per financial cycle, will eventually elevate to a level where it parallels or outclasses customer acquisition in a system. It’s an inevitability that this churn issue will happen, and it will become a serious problem. The fact that churn has caught up with you, and is becoming a direct obstacle to further SaaS growth, is not an indicator of a company’s failure or a flaw in strategies leading up to this point. It happens to every service industry company across the board.
But, just because it happens to everyone, complacency and abandonment of the growth directive is not the way to respond to this inevitability.
The problem is then obvious – the biggest obstacle to growth is this churn problem, so you have to leverage every facility at your disposal to drive customer acquisition to a level where it exceeds this churn. At this point, your initial successful customer acquisition strategies are no longer effective enough to overcome this expanded churn.
The thing to do is to reevaluate your CAC, or your customer acquisition cost first and foremost. While churn itself is an offset to growth, reducing your CAC will serve as a temporary buffer for this, to give you that slight notch of progress so you can address this churn without it actually increasing its damage.
Following this, you need to find out what your leading causes of churn are. Some of them are impossible to prevent on any level, but others may be possible to address. Reducing the cost for long term customers, or offering them other incentives should serve to further undercut the churn enough to allow acquisition to out-gross it. At this point, you can allow the CAC to raise back up a bit, because you’re a notch ahead of churn, though churn will never go away. At this point, you should also reinforce incentives for satisfied customers to recommend you to others, offering further discounts or rewards for bringing in new subscribers themselves.
This will permit, if strategically handled, some true SaaS growth. The thing to bear in mind though, is that eventually, churn will catch up again, and this same trickery to get ahead and grow in increments will have to be taken back up once more. This is the thing with growth past a certain level, in a service industry. The bigger you become, the slower you’re able to grow unless you’ve got some unsavory techniques in place to monopolize, like utilities and communications companies are woefully known to engage in.