Over the past years, the SaaS industry has seen explosive growth in revenue and SaaS operations. According to Gartner, SaaS businesses were worth $31.5 billion in 2015, increasing almost five-fold by 2021 to roughly $145.5 billion. In fact, the SaaS growth space is projected to be valued at just under $172 billion by the end of 2022, its biggest annual growth increase yet.
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The Challenge That SaaS Companies Face: Failed Operations and Limited Growth Opportunities
Despite being a financially lucrative space with investors and early-stage startups, the SaaS industry is littered with thousands of failed startups. Part of this can be attributed to the SaaS model’s unique aspect of relying primarily on future revenue.
Take a traditional business, like a furniture store. It makes most of its revenue from immediate, one-time purchases, like a bathroom set.
However, a SaaS company providing global HR and payroll solutions may have a few hundred customers paying a monthly or annual fee—in other words, making recurring payments over a longer period of time. If customers want to make a switch to another SaaS competitor, it’s easier to do so, affecting the bottom line. This is what SaaS companies call “user churn,” and it can affect their monthly recurring revenue (MRR), as well as their annual recurring revenue (ARR).
While traditional business models have a harder time estimating their future revenue, SaaS companies have access to more accurate revenue forecasts, such as their MRR and ARR.
Ensuring long-term success with SaaS operations and sustainable growth is difficult for most SaaS companies. It can be easy to consistently double revenue if you’re an early-stage company, but as you scale up, sustaining that becomes more difficult.
SaaS Growth and Operational Metrics To Track
One of the best ways to ensure that your SaaS operations are on the right track toward high SaaS growth is by tracking key metrics. Consider the following SaaS metrics to ensure your company is operationally strong.
- Churn rate. Churn is the percentage of customers that end their subscriptions within a certain amount of time. To ensure revenue growth, your user churn rate must always be lower than your growth rate of new signups.
- Customer lifetime value. Often abbreviated to CLV or LTV, this is the amount of revenue generated by a customer as long as they have an account with your SaaS company.
- Customer acquisition cost. Your CAC is how much you spend on acquiring and onboarding a customer, and can include marketing, communications, sales, and other expenses. Divide those expenses by the number of customers acquired in that period to reach that growth metric.
- Monthly/annual recurring revenue. Also called the run rate, your MRR or ARR is how much revenue you’re generating via your customer accounts over the month or year.
- Activation rate. The “Aha! moment” focuses on when users first-handedly experience your product’s value through great user experience. Once this happens, they’re less likely to go with a competitor, and more likely to refer your SaaS company to their network.
7 Tips to Scale Your SaaS Operations and Growth
Now that we’ve covered the fundamentals of the SaaS business model, let’s look at some of the ways that you can grow your SaaS company and scale your SaaS operations. Some of the ways to reach optimal SaaS growth include generating new leads with interesting product features that stand out from the rest. Or, explore additional revenue streams outside of the monthly or annual SaaS fee customers pay. An additional revenue stream to include in your SaaS operations model includes payment monetization by implementing a payments ecosystem within your software. More on that later.
1. Generate product interest through lead generation
Lead generation is a way to pique the interest of prospective customers to increase your SaaS growth rate by nurturing and converting them into customers. There are various lead generation strategies, such as free trials, gated content (like whitepapers locked behind a form), or events such as webinars.
As a SaaS company, the best lead generation asset is your product itself. Start by gaining a deep knowledge of your buyer persona, and creating great user experience through lead generation assets that address their pain points.
Let’s say you’re a SaaS company offering AI HR services. To help raise awareness and attract potential customers, you could offer demos and free trials, offer a lower-tier recruitment solution for free while still promoting your paid products, or adopt dynamic pricing strategies. Other ways to capture leads directly from your site include chatbots or customer-targeted and optimized pages that clearly showcase your product’s value. By repackaging and repurposing your biggest asset, you can connect with SaaS prospects and convert them into customers, all by using your own product.
2. Improve your conversions
SaaS products often come at high costs, so it’s important to fully map out customer touchpoints to best optimize your conversion rate. Remember that leads may be at various stages of the buyer journey, so it’s important to have content that targets these different customer segments.
If you provide a SaaS collaboration tool, you could create content on the importance of organizational collaboration with visual media to target leads earlier in the funnel. For leads seriously considering your product, you could offer competitor comparisons to nudge them towards your solution. Other steps you could take include improving your targeting, cross-selling additional features for a more comprehensive product package, or utilizing a referral system.
Whichever route you take, remember to run A/B testing so you can make data-informed decisions in order to fully engage your SaaS operations. Switch just one variable (such as different copy on landing pages) and run analytics on both versions to determine which one has the highest conversion rate. This method can help you determine the best ways to reach SaaS growth within your business.
3. Improve your customer acquisition cost
A huge part of your budget goes towards converting customers. While you want to spend enough on your customer acquisition cost to increase your customers’ lifetime value, there’s a fine balance that needs to be struck to achieve optimal SaaS growth.
The easiest way to bring down costs is to go back to the SaaS operations drawing board and really understand and analyze your target audience. How granular are your personas? How much do you actually know about them? By learning their motivations, desires, and interests, you can create stronger ad copy and campaigns, try out different creative elements for retargeting, and optimize your marketing funnel.
4. Optimize your software onboarding process
User experience is everything. If your product is amazing, but you have a poor onboarding process, chances are high you’ll have a low activation rate. To ensure you set your customer base up for success, your onboarding experience should have minimal friction and be customized to their needs.
One way to do this is by using a short survey to determine what customers want to get out of your application, then redirect them to that functionality so they directly experience its value. You can also provide contextual tooltips, walkthroughs, and on-demand resources, so they can receive support that works on their schedule, not yours.
5. Increase product and feature adoption
Industry data shows it’s 5 times as expensive to onboard new customers than to keep existing ones, so it’s critical to provide ample focus here and keep your MRR up in order to reach SaaS growth. Some questions to ask yourself include: How comprehensive is your product support? Are users fully aware of all your product benefits? If not, can you educate them using in-app messaging or retargeting? Are you offering demos, trials, or dynamic pricing strategies for premium functionalities? By optimizing your SaaS operations activation rate, you’ll simultaneously increase your product and feature adoption rate.
6. Lower customer churn to scale SaaS operations
It’s inevitable that some customers will churn, but that doesn’t mean you shouldn’t try to prevent it. While you should always be working to improve product weaknesses from feedback customers have provided, you should use your SaaS operations cancellation flow to minimize churn.
For example, offer alternatives to canceling, such as membership pauses, discounts, or downgrades, which still keep your users in your SaaS operations ecosystem. Also, don’t forget to utilize customer segmentation: your users are at different lifecycle stages, and this should inform your communication strategies, which will help minimize the likelihood of users churning.
7. Explore additional revenue streams
You can also grow your SaaS business by finding new revenue streams. Additional sources of revenue can come in the form of new products or services that add value to your existing offerings.
One popular revenue stream among SaaS companies is integrated payments, aka payment monetization. You could give users the ability to accept or process payments through your platform, and monetize those transactions by taking a percentage out of each sale or by offering payments as an add-on service. Adding payments will scale your SaaS operations and increase growth substantially.
Stax Connect is an all-in-one payment ecosystem with integrated software solutions to help your SaaS company increase revenue, all through one API. We offer powerful payment integrations, setting SaaS companies up with a full payment ecosystem in as little as 30 days. From risk management to bank sponsorship, Stax Connect provides scalable payment infrastructure, so you can focus on offering payments services and growing your SaaS business with confidence.
Final Words on SaaS Growth and Operations
Scaling your SaaS company beyond the startup phase and achieving sustainable growth is no easy feat, but it can be achieved. By focusing on the right growth metrics to optimize, you’ll be able to optimize growth strategies to build your SaaS business up for success.
Having the right tech partners also helps. Stax Connect provides an all-in-one payment ecosystem that can modernize your SaaS company’s payment technology. We offer deep insights and help your business monetize payments fast through our customizable software solutions.
FAQs about SaaS Growth and Operations
Q: What is the current growth projection of the SaaS industry?
The Software as a Service (SaaS) industry has witnessed a significant surge in revenue and operations over the past years. SaaS businesses were valued at $31.5 billion in 2015, which increased almost fivefold to $145.5 billion by 2021. The SaaS growth space is projected to be valued at just under $172 billion by the end of 2022.
Q: What is the key challenge faced by SaaS companies?
While the SaaS industry is a profitable space, it faces the challenge of failed operations and limited growth opportunities. This is primarily because the SaaS model relies on future revenue. Varying customer churn rates and challenges in sustaining revenue growth while scaling up are common issues for SaaS companies.
Q: What are some essential SaaS growth and operational metrics to track?
Some key metrics for tracking SaaS growth and operations include churn rate, customer lifetime value, customer acquisition cost, monthly/annual recurring revenue, and activation rate. These metrics provide valuable insights into how well the SaaS company is operationally performing and its growth potential.
Q: How can a SaaS company improve its conversions?
Companies can improve their conversion rates by fully mapping out customer touchpoints and ensuring there is content tailored to different customer segments. Techniques can include A/B testing of website or landing page elements, cross-selling additional features, and implementing referral systems.
Q: What strategies can a SaaS company use to lower customer churn?
SaaS companies can minimize churn by continuously improving product performance based on customer feedback and optimizing their cancellation process. Offering alternatives such as membership pauses, discounts, and downgrades can help retain customers. Utilizing customer segmentation to inform communication strategies can also reduce churn.
Q: How can SaaS operations and growth be scaled?
SaaS companies can scale their operations and growth by generating product interest through lead generation, improving conversions, optimizing customer acquisition costs, improving the software onboarding process, increasing product and feature adoption, lowering customer churn, and exploring additional revenue streams.
Q: What is payment monetization, and how can it aid SaaS growth?
Payment monetization is a popular revenue stream among SaaS companies. They can give users the ability to accept or process payments through their platform and monetize those transactions either by taking a percentage out of each sale or by offering payments as an add-on service. This can significantly increase SaaS growth.
Q: What is the role of the right tech partners in SaaS growth?
Having the right tech partners can aid in SaaS growth by providing modern payment technology solutions, offering deep insights, and helping the business rapidly monetize payments through customizable software solutions.
Q: What is Stax Connect, and how can it support SaaS growth?
Stax Connect is an all-in-one payment ecosystem that provides integrated software solutions to help SaaS companies increase revenue. It offers powerful payment integrations, enabling SaaS companies to set up a full payment ecosystem in as little as 30 days. By providing scalable payment infrastructure, Stax Connect allows businesses to focus on offering payment services and growing their SaaS operations.
Q: Why is it important to reduce customer acquisition costs for a SaaS Company?
A significant part of the SaaS company’s budget goes towards customer conversion. Lowering the customer acquisition cost while increasing customer lifetime value helps strike a balance that’s vital for optimal SaaS growth. This can be achieved by understanding and analyzing the target audience deeply to create robust ad campaigns and optimize the marketing funnel.
