If you’ve been scaling a subscription SaaS business, you’ve likely enjoyed the ability to quickly build a product that generates recurring revenue. You might even have been able to expand your customer base thus far with relative ease and very little sales and support effort. [Hold for the applause…]
But the reality is, most SaaS businesses will hit a growth plateau sooner or later. Why? Here are a couple common reasons.
The early years for most SaaS businesses involve a lot of small customers. This might include freelancers and small companies with only one or two people in the account.
These early customers sign on to the base level of your service because it solves a current problem for them; but as they scale, their needs increase and they tend to churn at a high rate.
A high churn rate not only has a negative impact on your business’s recurring revenue growth, but it also means you’ll have to continue bringing in a high volume of new customers to replace those who cancel their subscriptions. It’s a two steps forward, one step back scenario.
2. Customer acquisition cost (CAC)
While this challenge isn’t unique to the SaaS market, it is a tough one to tackle—especially if you happen to have a high churn rate.
The cost of cutting through the noise and acquiring customers is only going up, and from emails to inbound marketing, it can be difficult to connect with potential customers. Many SaaS businesses break even only after 12 months. If customers do not renew their contracts, it is impossible to cover the customer acquisition cost (CAC).
At the end of the day, if you need to spend more money to acquire a new customer than you get back from them in revenue, your business is potentially at risk.
When the growth of your SaaS business hits that plateau, it’s time to shake things up if you want to continue scaling. Moving upmarket can be the way to not only overcome high customer churn and stalled revenue growth, but also to open the door to entirely new levels of growth potential.
What are the benefits of moving your SaaS business upmarket?
Sure, moving upmarket means taking on the challenge of acquiring larger, higher-paying customers. But to put it simply, larger customers that pay more for your product—and that put a lot more time and effort into the decision to subscribe to your service—will churn at a much lower rate than the little guys.
Additionally, they provide more revenue to your business each year and over their lifetime as a customer.
Moving upmarket can also expand your market while simultaneously reducing your competition pool. You’ll have the opportunity to continue servicing your current customers while adding mid-level and enterprise customers into the mix.
Salesforce is a prime example of a SaaS that moved upmarket with great success. While this cloud-based CRM platform was initially targeted to small- to medium-size businesses (SMBs), it quickly scaled and began servicing enterprise customers as well.
Alternately, your move upmarket might see your business migrating from its original audience altogether to focus its acquisition efforts solely on larger customers.
When enterprise-level customers are looking for services, they have fewer choices because of their broader requirements. This will help your business stand out as a contender if it has the ability to provide solutions for those requirements.
It’s important to weigh all the elements, including your business’s ability—both in terms of skills and funding—to scale its sales efforts, client retention efforts, and infrastructure. But if you can do it, there’s no doubt bigger customers will provide your business with increased and more predictable revenue over time.
It’s time to up your SaaS game
Back when your SaaS was a start-up, your team likely spent a lot of time getting to know your customers and their needs. As a result, what you offer has suited them just fine until now. But it’s time to get to know your customers again.
Mapistry’s team experienced this exact scenario. The SaaS business—which provides manufacturers with software solutions to ensure environmental compliance—began its journey selling to small businesses with a single or just a handful of facilities. Over time, it realized its value would be better suited for larger companies with hundreds of facilities country-wide.
However, in order to move upmarket, Mapistry first had to make some changes to its product to suit the greater needs of these companies.
While Mapistry’s initial customer base could easily review their basic raw data to determine how they were doing in terms of compliance, this was more difficult for larger companies because they weren’t able to have a corporate presence at each facility.
To solve the problem, Mapistry needed to build more analytics and visibility with regard to data to help these customers pinpoint issues and solve them effectively.
“When you start selling to companies who are spending $100,000 or a million a year on you, you can’t just ignore their suggestions because if someone who’s paying you a hundred grand, churns [it’s] going to hurt a lot more than someone who pays you $1,000 if they churn,” said Mapistry CEO Allie Janoch in a recent Saastr podcast.
Don’t expect that you can take your product that you sell now to SMBs and sell the same thing to big companies. It’s not going to work.”
Consider reaching out to several of your largest current customers. Why did they select your business, what do they value most about what you have to offer, and what are the main ways your product could be improved from their perspective?
Product upgrades can sometimes be driven organically as well. As you grow, your customers will demand new features. Implementing these features can enable you to scale upmarket.
Taking the time to do this research will not only inform your upmarket potential, but also it will provide you with ways to improve your business to benefit your current largest revenue-generating customers based on their pain points. This can go a long way in terms of their loyalty to your business, and thus their lifetime value as customers—a win for your business now as well as in the future!
As you move upmarket, there may be a number of features and processes you’ll need to improve or build on to meet the needs and expectations of larger companies.
In terms of your product, you should consider the following.
1. Security and permissions.
The larger customers your SaaS is targeting will have greater concerns when it comes to advanced security and permission control. They may have concerns surrounding two-factor authentication, your business’s hosting infrastructure, and your security and data storage practices.
And larger businesses often require the ability to manage what their account users are able to see and do.
If your features aren’t up to snuff, or if you can’t communicate them effectively, you aren’t going to win the business.
Of course, you aren’t the only SaaS in town. Large businesses use a variety of solutions to meet their operational needs. Examples may include Salesforce, HubSpot, NetSuite, QuickBooks, or even some custom-built legacy software.
Your business’s product needs the ability to integrate seamlessly with your customers’ other SaaS providers and processes to really create efficient solutions.
Accessing these and potentially many other software solutions via APIs will not only give your business the ability to access new markets, but also build your own offerings with the best components available.
3. Reporting and administrative tools.
Large customers will have a multitude of requirements for the various users who’ll use your product. And it’s important to keep in mind you’ll be servicing a larger team of people for these companies, whereas with your previous smaller customers, you may have only been servicing the needs of one or a handful of individuals.
You may also find the needs of larger customers differ dramatically from those of a smaller customer. This means some of your current core features might not be as useful for your new customers as they have been for those in the past.
Ensuring your product has the reporting and process functionality to service the needs of larger companies is crucial.
The hardest part of moving a SaaS business upmarket?
The most challenging part of moving your SaaS business upmarket might just be the changes you’ll need to make within your organization.
As a start-up, you began with a certain product and a certain target customer. Moving upmarket means evolving what your business looks like at its core. This often involves maturing your marketing approach, retraining or building out your sales team, and scaling your internal infrastructure.
Evolving your marketing and positioning.
When you’re selling to larger companies, you must consider their different needs as compared to your previous customers. What do they care about, what are their pain points, and how will they use your product to solve them?
Larger businesses obviously have larger budgets to work with, but they aren’t going to consider your service unless it solves a large enough issue to make it worth their while.
Your marketing needs to reflect the sophistication of the companies you’re after, and it needs to make those customers feel understood.
SaaS pricing and billing at scale.
Your business’s SaaS pricing needs to be designed to grow with your customers. Once you move upmarket, your growth potential might be huge. Don’t limit your business’s earning potential by putting a cap on your pricing strategy.
It’s important to determine whether your business is prepared to accommodate an increased volume of subscriptions and billing requirements. Automating this process with cloud-based billing and subscription management software can create incredible efficiencies while also giving your business better revenue recognition, reporting, compliance capabilities, and more.
It’s a process evolution that can enable your team to focus its best efforts in other important areas of the business during this period of growth.
Building out your SaaS sales process.
When you’re trying to capture upmarket customers, you can no longer rely on a Google search and your website alone.
While smaller customers may be able to find your SaaS, give it a trial run, and sign up for a subscription all on their own—thus adding quickly to your monthly recurring revenue (MRR)—the process will likely involve a lot more handholding for the bigger guys.
Buyers are going to want to speak to a representative from your business. They may need to see demos of your product in action, and perhaps even a proof of concept. Your contract negotiation process also might expand to include discussions about service level agreements and as-needed professional services. Your team needs to be prepared to not only work out these expanded offerings, but also deliver on them.
Mapistry’s Janoch touched on this during the podcast. It’s a shift in focus from customer service to customer success, she points out.
One of the big differences between selling to small businesses and selling to large companies is that it becomes a lot more of a partnership than it ever was before.”
When you first decide to move upmarket, it can be beneficial to have a founder or CEO involved in the sales process. These individuals often carry a lot of weight with potential customers, and they tend to be the best at selling their own product.
C-suite involvement can also be a great way to transition sales staff into their evolved process. And it will likely take some time to figure out what that process is.
Ensure customer success.
Once you make an upmarket sale and your new larger-than-life customer starts using your product, it’s going to be important to make sure they’re happy and finding great value in your solutions. Sometimes winning the business is the easy part.
Circling back to the idea of partnership, there can be a lot of effort and cost involved in delivering the kind of support services and infrastructure scale large companies require. A move upmarket might necessitate the introduction of a dedicated customer success team into your business to help keep your churn rate as close to zero as possible.
Taking the first steps
If moving upmarket were easy, every subscription SaaS business would be competing in that space—but it isn’t, and they aren’t. It’s challenging to scale up.
Start by validating your real upmarket potential based on your conversations with your largest current customers.
Next, get every member of your team on board and prepared to evolve their practices and processes to serve the needs of your new target customers. Accept and budget for the reality that this is going to add complexity and perhaps additional staff and infrastructure.
Finally, start small. Test out the market and see if it makes sense to commit time and resources to acquire the business of larger companies. This will enable your business to keep its focus on what’s driving it currently while also working toward more.
After all, moving upmarket can be the catalyst to turn your business into a scaling machine.