A shift from an acquisition-first mindset to a retention-first mindset can have rippling effects on the growth of your SaaS business.
Drew Sanocki, CMO at Teamwork, has used this retention-first mindset—and the corresponding actions—to drastically improve the bottom line at many companies. Now he’s trying his hand at rapidly growing Teamwork. In his talk at SaaSFest 2016, Drew shares his experiences optimizing for rapid growth by prioritizing retention, monetization, and ultimately, acquisition.
There are only 3 ways to grow a business
Most businesses could be growing faster if they were focusing on the right things. You want to make sure you’re pouring your company’s time, money, and energy into efforts that are going to have tangible results to show CEOs, VPs, and investors.
What resonates at Teamwork is marketer Jay Abraham’s idea that there are three ways to tangibly grow a business, which all in some form require a focus on customer retention:
- Reducing customer churn
- Increasing Average Revenue Per User
- Increasing the total number of customers
These three growth levers are powerful because the results multiply. For instance, Drew found at Teamwork that decreasing churn by 30%, increasing ARPU by 30%, and increasing the total number of customers by 30% increases customer LTV by over 100%.
At Teamwork, a 30% increase in customer lifetime (churn reduction), total number of customers, and ARPU resulted in an aggregate increase of LTV from just below $30 million to $65 million.
These are the strategies for increasing each multiplier that Drew is using at Teamwork—and that you could be using to fuel rapid and sustainable growth at your SaaS company.
1. Reducing customer churn
Reducing churn should be at the forefront of your growth strategy. If you can’t hold on to a solid customer base, you can forget about rapid growth—you’ll never even reach stability.
Replacing customers who churn is expensive and unsustainable. To nip that problem in the bud, work on reducing your user churn by:
Identifying the red flags before churn
Increase your customer’s time with your company by pinpointing when a customer is going to leave and then preventing the churn. SaaS companies should look for patterns in behavior before customers churn, and then monitor current customers for these “red flag” metrics. This could mean recency of last sign-in, frequency of usage, and length of onboarding time—they’ll be different for every company and every product.
For instance, the team at Groove found that the length of the first session with their app and the frequency of logins were red flag metrics for churn.
Cohort 1, which consisted of customers that were retained after 30 days, had on average longer first sessions and a higher frequency of logins than Cohort 2, which consisted of customers that churned before 30 days. By targeting customers who weren’t spending a long time in their first session or logging in frequently, Groove was able to reduce churn from 4.5% to 1.6%.
Drew found in his experiences at other companies that identifying red flags and making efforts to re-engage customers can prevent churn and have around 500% ROI.
Improving your product
A product that solves customers’ problems well is going to be absolutely necessary to them. These are customers that will not churn. Teamwork uses feedback surveys to reach out to churned customers to find out what they are dissatisfied with. Companies like Qualaroo provide templates for surveys and aggregate responses so you can turn the feedback into action to better meet customers’ needs.
Once you get feedback and make changes, be sure to communicate them with your current customers, your former customers, and the untapped market.
Running a reactivation campaign
Reach out to your customers that have already churned and try to win them back. Restate your value proposition, explain your new features, or offer them a call with a customer service team member to alleviate any of their frustrations.
You can use behavioral email marketing to do this by setting up a reactivation email campaign triggered by recency of last visit. For example, at Teamwork, Drew runs email campaigns to reach out to customers that have not signed in after x number of days.
Small improvements in each of these areas will stack and amount to large improvements in churn reduction. Churn reductions from red flagging and reengagement tactics, product improvements, and reactivation campaigns by just 10% each will amount to a 30% reduction in churn.
2. Increasing Average Revenue Per User
Improvements in ARPU are direct results of better monetization of your customers. Proper monetization of your existing customers helps you benefit as much as possible from a subscription model. It allows you to profit from recurring revenue and not constantly rely on one-off sales.
You can better monetize your customers, increase ARPU, and fuel growth by:
The equity investor Robert Smith believes that most entrepreneurs undervalue the elasticity of demand—which results in them not charging enough for their products.
You can probably better align your product’s prices with the value that customers are willing to pay for, which might be more than you’re currently charging. The best way to to do this is by surveying customers and then quantifying willingness-to-pay of various buyer personas to determine the price ranges that lose the lowest percentage of sales.
Teamwork found that they didn’t even have to raise their prices to increase revenue—they just had to refine their pricing tiers.
Teamwork simply removed 2 pricing tiers that they found were extraneous. They didn’t actually change the prices of any numbers—they changed the design and played into the patterns of buyer psychology and willingness-to-pay that they observed. This change alone increased ARPU by 20%. Your prices, and how you present them to customers, can make a huge difference in ARPU.
Cross-selling and up-selling
Cross-selling is when you encourage customers to buy something related to what they already purchased; up-selling is when you encourage them to buy a more expensive service or product. Think of it as improving the customer experience—try to cross-sell and up-sell things that really will add to your customer’s experience with the product and enhance their purchase. Teamwork uses drip campaigns to cross-sell project buyers to the help desk, and help desk buyers to the projects. If a customer purchases one, they enter a funnel for the another.
If you only sell one product or service, consider affiliate programs and partnerships. Other relevant SaaS companies or consulting services might pay you if you cross-sell their product at the end of your customer’s purchasing sequence. This can raise ARPU and enhance your customer’s experience with the product.
Though unbundling has its advantages, the right amount of bundling can also be effective for increasing ARPU. Find out what features and products customers value most through surveys and Max Diff analysis. Then bundle the most valued features according to buyer personas at each price point. When customers grow and have a greater need for different services and features, up-sell (and corresponding ARPU increase) will be natural.
Increases in pricing, better cross-selling and up-selling, and more effective bundling have stackable effects as well. A 10% increase in ARPU from each of these techniques results in a 30% increase in ARPU overall.
3. Increasing total number of customers
Focusing on your total number of customers can be risky because it’s tempting to just barrel headlong into acquiring more logos and forget about your current customers. Acquisition is the least effective growth lever and gets increasingly expensive as your company matures, so acquisition strategies should always augment a solid retention strategy.
Increasing your total number of customers starts with retaining more customers and better monetizing your existing customer base. When you’re ready to add more customers on top of your stable base of retained customers, you can try:
Optimizing your conversion rate
This is all about responding to what potential customers do and identifying where a lead goes dark. If a potential customer is on your website and then doesn’t convert, use a heatmap to track site activity and consider how to improve your website with a better explanation of your value proposition, better UI, or simply more calls to action.
Potential customers that are signed up to your mailing list can be reached through email drip campaigns that provide product updates and instill the sense that your product and company are dynamic. Drew found that when he emailed the Teamwork mailing list about a new feature, it drove 50 upgrades that amounted to $6,000-$7000 in additional MRR and 66 trial sign ups.
Creating content marketing materials
Content marketing is all about providing your potential customers with the information to better understand your product or service and your industry. It’s a valuable opportunity because you can reach potential customers through many channels like blogs, podcasts, and even YouTube videos.
It’s important to target information that is interesting to your market.
To determine what content to create at Teamwork, Drew reaches out to customers (segmented by LTV) and asks them, “Out of x number of topics, what are you most interested in learning about?”
Advertising through paid acquisition channels
Paid acquisition can be tricky because it has the potential to plateau in ROI. Drew believes that the key is to create a very specific, very targeted funnel with an ad that directs to a great piece of content, that then allows potential customers to opt into a drip sequence that ultimately converts.
Like churn reduction and ARPU improvement, your efforts in increasing the total number of customers stack up.
However, the most important thing to remember when optimizing for total number of customers is to first maximize before multiplying. Work first on turning more of your existing traffic into paying customers before you direct your efforts toward more traffic. That means start with conversion rate optimization and eventually work your way down the list to paid acquisition.
You already have all the right tools for rapid growth
Changing the numbers on your growth curve is about changing your mindset. Instead of investing time and money in arbitrary acquisition, focus on these three growth levers and plan how you’re actually going to optimize each lever. Drew recommends using Sean Ellis’s ICE scoring method to prioritize your plans for implementation: consider each in terms of ease of Implementation, Cost, and Expected impact.
Look to reduce customer churn, increase ARPU, and increase your total number of customers. Small results in each of these areas will stack and multiply—and you’ll see that bottom-line revenue increase.