Saturday, 1 May 2021

SaaStr

SaaStr

We All Sort of Underestimate the Power of 110%+ NRR

Posted: 30 Apr 2021 07:28 AM PDT

We all have figured out now that top-tier NRR is the key to the winners in SaaS.  Some best-of-breed examples:

So we all know this matters, and that world-class here is a critical lever in SaaS.  It helps you scale much faster, more efficiently.

But what we tend to get wrong is just how powerful even 110% NRR is.

Simple maths:

  • 125% NRR: A $10m business grows to $25m in 5 years and $75m in 10 years with no new customers.  Whoa.
  • 120% NRR: A $10m business grows to $20m in 5 years and $50m in 10 years with no new customers.
  •  110% NRR: A $10m business grows to $15m in 5 years and $24m in 10 years with no new customers.

Ok, but it gets even better.  Let’s say you can do 120% NRR.  Very good, but less than Smartsheet, Slack, etc.

Now let’s say all you do is add 30% new customer growth.  That’s it.  Not crazy 100% growth, but just 30% new customer growth.

At $10m, combine 120% NRR and just 30% new customer growth and here’s the magic of compounding.  A truly awesome force of nature:

In 5 years, that $10m ARR business now is doing $50m.  And in 10 years, it’s doing $150m.  And is a unicorn, or maybe even more.

And look, you can do this.  I know you can.  Get to 120% NRR, or even just 110%.  Add even 30% new customers a year.  That’s not crazy growth.  And the key is to keep them all happy, and keep adding more and more awesome features and functionality.

Then … you’ll have a unicorn.  Not this year, or next.  But definitely, almost for sure, in 5-10 years.

The post We All Sort of Underestimate the Power of 110%+ NRR appeared first on SaaStr.

Maybe Every SaaS Contract Should Have An Automatic Out Clause

Posted: 30 Apr 2021 06:29 AM PDT

Lately at SaaStr, we’ve become more and more buyers of SaaS software ourselves.  Our own tiny little team and organization has grown, and we have to start putting the infrastructure in place for a $20m+ business.

And it’s been a vivid reminder of what I hate so much about buying software:

  • Vendors selling you software you never use or deploy.
  • Salespeople pushing you to sign multi-year contracts you don’t want.
  • Less tech-savvy buyers being told software does things it doesn’t do.
  • Being “qualified out” by a BDR.
  • Not being able to talk to a salesperson, having to go through a BDR.
  • Not being able to do a free trial, or even really try out a product first.
  • A salesperson discouraging you from doing a free trial, even when one is available.
  • A salesperson discouraging a pilot, even when one is possible.

The list goes on.  Traditional SaaS sales is incented to close 1+ year contracts without no outs as quickly as possible, and where possible, for every possible seat you might ever use in Year 1.  That’s the game.

And yet … it does add friction to many sales processes.  Not necessarily the most enterprise sales processes, but often, many other ones.  Freemium tried to revolutionize how we buy and try software, but that’s not a model that works for most solution-oriented products that require more evaluation and business-process change.

So what’s the right answer?  Maybe giving everyone an out. 

  • Slack in some ways pioneered a hybrid of this by, at least for quite a while, only charging you for the seats you actually used.
  • The majority of Zoom customers now pay monthly
  • And MongoDB found they closed more when they stopped having their sales team push annual contracts!  More on that here.

Maybe in the 2020s, it’s time to stand behind our products more and just let every customer cancel whenever they want.  For any or no reason:

  • First, if the customer is unhappy and isn’t going to renew, in the long run, it doesn’t matter if they cancel on month 4 or simply don’t renew on month 12.  They won’t be part of your long-term revenue base either way.
  • Second, SaaS buyers are all veterans now.  It’s time to start letting them buy the way they want to buy.  There aren’t many customers left who are new to any segment of SaaS, let alone SaaS itself.  If they want to buy annual, great.  If they want to buy quarterly, terrific.  If they prefer utility pricing, maybe that’s the way there.  If they want to pay with Bitcoin, maybe just let them.  A little more on that here.
  • Third, we’ve all figured out that having sales processes that in the end close customers that don’t “stick” is a net negative.  Having even 5% of your customers be sold products that simply don’t work for them not only drags down your NPS, it creates huge stresses on customer sucess, support, etc.  It also creates drama for the sales team, too, if you have to deal with clawbacks and other related issues.  These mis-sold customers are incredibly distracting to the organization.

In the long run in SaaS, any customer that churns was never really a customer at all — unless you get them back later.

Maybe make onboarding, and buying, as simple as possible.  Maybe just let the customer buy, at a given price point, however they want to buy.  Drive up your NPS, close the deal even faster.  And maybe just let them cancel and leave whenever they want.  Just give them a pro-rated refund, and move on.  And say thank you for trying us.  And let them know they can have this refund whenever they want, no questions (or not too many at least) asked.

I bet you close more.

(note: an updated SaaStr Classic post)

The post Maybe Every SaaS Contract Should Have An Automatic Out Clause appeared first on SaaStr.
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