No matter your go-to-market strategy, your company must successfully execute three fundamental growth drivers if you expect it to be ready for scalable growth: winning new revenue, retaining customers, and expanding contracts within existing accounts.
Growth always starts with acquiring new customers. However, the key lies in balancing customer acquisition costs (CAC) with lifetime value (LTV).
LTV: CAC ratio: Compare your Customer Acquisition Cost to your Customer Lifetime Value. The LTV: CAC ratio is calculated by dividing the lifetime value of a customer by the CAC.
How do they stack up against each other? I usually look for my LTV:CAC ratio to be greater than 3:1, which means my company will receive 3x the revenue from a customer than it costs to acquire them. Achieving this will set your company up for profitable growth, but a lower ratio will make it more difficult for your company to grow profitably.
CAC Payback Period: This is another way to assess the profitability of your growth engine. If it takes a customer longer than a year to pay back their acquisition cost, your product and customer success need to over-deliver to make up for the investment. If they can't, you may look like you’re growing, but you’ll lose money every time you sign a customer, which is a dangerous cycle to enter. Aim for a payback period of under 12 months for sustainable growth.
Learn more about key marketing KPIs.
Funnel Velocity: How efficiently do prospects move through your marketing and sales funnels? Are there bottlenecks where prospects slow down or drop out?
Each of these is a break in the prospect experience and is an opportunity for you to improve the customer journey. Keep in mind that it’s often a better idea to improve your prospects' experience throughout the funnel rather than focusing all of your energy on filling the top of the funnel. If your funnel conversion rates are low, it might be time to revisit messaging, positioning, sales & marketing alignment, or even the target market itself.
Much of the SaaS model is based on companies being able to keep customers engaged with the product or service and continually paying a subscription to the company. Put another way, customer churn is the silent killer of SaaS companies. If you can keep your clients, you’ll retain a revenue base from which you can grow, but if you can’t, your company will constantly be fighting tooth and nail to either break even or slowly lose ground.
Early Churn vs. Long-Term Churn: Early churn can indicate that your marketing and sales efforts are misaligned with your product’s value proposition. Long-term churn, however, could signal product issues or poor customer success.
Logo vs. Revenue Churn: Always track logo churn (lost customers) and revenue churn (lost contract value). Revenue churn may be hidden by expansion within larger accounts, so keep an eye on this metric to ensure long-term sustainability.
Good Churn vs. Bad Churn: Not all churn is bad. In fact, some customers are a bad fit for the product, cost too much to service, and/or are too much of a drain on resources.
Discover other churn metrics to track.
Make sure that you and your team know the difference between good and bad churn, what types of customers your company is ok letting go of, vs which ones you’re going to fight like hell to keep so you can focus your finite retention resources on evangelizing the customers who will pay, stay, and refer others.
Finally, as great as retaining customers is for a company’s ability to grow, increasing your average revenue per user is even better. A successful SaaS company grows by effectively monetizing its customer base—whether through upselling, cross-selling, or increasing prices.
Price increases: When was the last time you raised your prices? More often than not, the last increase occurred over a year ago. When you take into account inflation and the steadily consistent rise in your costs, you’re actually making less money per customer than you were one year ago.
Make sure you regularly increase your prices to make sure you’re staying profitable, but do so in a thoughtful manner. You need to be able to communicate the value you’ve been delivering to customers, tie the increase to new features, etc., or even give customers the choice of staying in a lower feature tier or jumping into a higher-price, more feature-rich package.
Land and Expand: Look at opportunities to grow existing accounts by offering additional value through features, services, or users. This is often the most cost-effective form of growth since the customer acquisition cost is zero and has been used by many of the highest-performing B2B SaaS companies like HubSpot, Salesforce, Tableau, Slack, etc.
Monetization Red Flags: If price increases result in high churn, or customers are unwilling to expand, you may not deliver enough ongoing value. The key is to provide continuous improvements that are directly in line with your prospects' pains, hopes, and dreams to justify higher costs.
Scaling a B2B SaaS company requires more than just a great product and market opportunity—it demands a deliberate approach to understanding and optimizing every aspect of your business.
By thoroughly assessing your market dynamics, product-market fit, go-to-market strategy, and execution capabilities, you can identify both opportunities and potential roadblocks before they impact your growth trajectory.
Remember these critical elements as you evaluate your company's readiness for scale:
The path to sustainable growth becomes much clearer when you thoroughly audit these areas and create a strategic roadmap based on your findings. While the journey may still be challenging, understanding where you stand today and what needs to be improved will help you make informed decisions about where to invest your limited resources for maximum impact.
Ready to take the next step in scaling your B2B SaaS company? Start by conducting a thorough audit of these key areas, and don't hesitate to reach out if you need help along the way.
The difference between struggling to grow and achieving scalable success often comes down to having the right framework and focus—which you now have in hand. Contact us for a customized audit and strategy session to unlock your growth potential.