Inc - The Most Important SaaS Metric of All

So in the early days of SaaS, we looked mostly at ARR growth. Then, we realized NRR was just about as important.  NRR is the mathematical key to keeping growth going and going.

But now fast forward to today, and we have a large swath of public SaaS and Cloud leaders. And one thing that’s become clear is that not only does high NRR keep scaling well past $1B in ARR … so can net new customers. Yes, you will exhaust your core ICP and buyer at some point.

But you have to keep growing that circle, that sweet spot of customers. So you can keep growing new customers ideally at least +20% a year, even at $100m+ ARR. And yes even at $1B+ ARR.

Let’s step back. If you have gotten to $25k in MRR ($300k in ARR) … you have something. Real. It’s not big enough yet. But it’s real. So …

You WILL get to $3m in ARR ($250k MRR) from $300k ARR … as long as:

• you have truly happy customers (they can’t churn),
• keep hustling to get more of them (you found a way to get some already) and
• you don’t quit.

Period.

Happy customers will beget more happy customers. Not in 60 seconds, not even often in a month or two. But over time. It can take months for one paid customer to create another paid customers from word-of-mouth or other positive effects you get from happy customers. But it will happen.

It will happen much faster, of course, if you are growing 15% MoM vs. 7.5% MoM, but it will happen.

So my #1 suggestion is Triple Down on the Happiness of the Customers You Do Have:

• Measure NPS (Net Promoter Score) and CSAT — more on that here: I Was Wrong. NPS is A Great Core Metric.,
• Meet as many of your customers in person as you can, not just on Zoom
• Talk to as many as you can, and
• Make them Happy.  Almost whatever it takes.

This edition of the SaaStr Daily is sponsored in part by Stripe

Stripe Sessions brings together business leaders and builders to discuss the most important internet economy trends. In 2024, we’re focusing on what’s possible—and what’s inevitable—as technological advancements change the world and the global economy with it.

One of the most subtly stressful parts of running a SaaS company, or any company with larger customers, is Champion Change.  When the key stakeholder at your customer who brought you in, shepherded the deal, baked you into their business process … leaves.

Your champions may on average stay ~24 months. For some ICPs, e.g., CMOs, it could be even shorter.

Once you have 10 or 20 key customers, then every few months, you are going to be losing a top champion. That can be tough.

More often than we want to admit, we’re all to blame.  

I can’t tell you how many interviews I’ve done in the past months where I was told how their last company was “toxic”. Twice this week, at least.

It’s the new hot term to describe situations that are challenging. Or hard. Or that we didn’t enjoy. Or where we were asked to do more than we wanted to.  And calling these situations “toxic” puts 100% of the blame … on them. They are toxic, after all. That job was toxic. That VP was toxic. The VCs were toxic.

Even the Wall Street Journal put out a piece on it.

If you’d asked me earlier in my career, maybe even just 10 years ago, while I wouldn’t have used the word “toxic”, I would have said — hey it happened to me too. 

This edition of the SaaStr Daily is sponsored in part by Luzmo

Building reporting and analytics features for your SaaS users can be costly and time-consuming. But with AI, it no longer has to be. In this 30-minute webinar, you’ll learn 5 ways in which AI can help you speed up your analytics project from months to days.

“My App Stack” is a new series where we dig in with top CMOs, CROs, CTOs and CEOs on just what apps they’re really using to run their business.  I always learn a lot from these — they are in essence a best practices list from each leader. 

This week we have Rik Haandrikman, VP of Marketing at RevenueCat!

Let me list some of the ones I see most often going from say $1m to $10m in ARR:

• Chasing the Shiny Penny. One of the biggest mistakes I see after $1m in trying to enter new market segments, new verticals, where you have zero traction. It’s one thing to invest in an area where only 5% of your business is today. But 0%? Leave the pipedreams for $100m in ARR.  Or at least, maybe $10m-$20m ARR. Then, you’ll have enough folks and experience to put a small team on a new initiative / segment / market.
• The “I Give Up” VP Hire. Hiring is >hard<. And at some point, you definitely have to compromise in some ways. But not on quality. Hiring a VP you don’t really believe in, to get the hire done after X months … never works. They will spend all your money, fail, and derail your growth.
• Micromanaging Your First (and Second) Management Team. I know you can do it all. But there’s a reason you hired managers. To manage. If you don’t let them do that … you’ll frustrate the heck out of the best ones. And stymie all of them.
• Bad operational model / misunderstanding the burn rate. Often, you can sort of intuit the business model up to $1m or $2m or so in ARR. After that, it all starts to change. It’s a ton of reps, higher absolute marketing spend, more CSMs, etc. If you don’t model it properly (and often for the first time) — your burn can creep up on you, no matter how carefully you think you are managing expenses.
• Getting too comfortable with yourself because of your High Win Rates. As you scale, your win rate — the % of deals you close vs. the competition — should go down. Because as you start to develop a mini-brand, you should start being considered for deals you never would have even been part of the selection process before. If your win rates stay extremely high, that means your are doing a pretty terrible job of getting into more and new deals. More on that here: Beware of the Confidence of High Win Rates
• Not being 100% laser focused on NPS and CSAT (and driving down churn). Your happy customers beget more happy customers in SaaS. Measure your NPS, and then have the whole company align on raising it every quarter. If you don’t … you’ll stall out somewhere around $5m, or $10m, or maybe even $20m ARR. But you’ll stall out if your customers don’t recommend you to others, and if they only reluctantly buy more from you. More on that here: I Was Wrong. NPS is A Great Core Metric.

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