One of the things I enjoy about putting together GTM Strategies is that sometimes it’s the smallest, most innocuous change that completely alters a company’s growth trajectory.
I’ll be writing in-depth about each topic, but take a look at some of these data points to show how small tweaks can equate to massive growth.
#1 ChurnZero’s research showed that for every 1% increase in net retention, SaaS companies’ value after 5 years increased 12%. I’ve read similar data as well that went to as high as 15%!
Whatever that number is, it’s safe to say it’s probably over 10%, which shows just how important incremental increases in your net retention can be. As someone who’s been down the due diligence process with private equity a few times, I can tell you that I spent the majority of my time talking about retention – why customers churned, expansion opportunity, customer segmentations, multi-year pricing, strategies for increasing pricing upon renewal, etc.
At a minimum, and generally through some simple changes, I feel there’s almost always a relatively easy path to increase retention 4-5% (48-60% increase in your company value in 5 years). There are typically always strategies to get that to 10%+ over an 18-month period as well. These changes are usually related to pricing, becoming more proactive vs reactive, changing the quarterly business revenue processes, changing the sales process to bring in the right types of customers, generating intelligence on customer segmentation or making some tweaks to the comp plan to incentivize the right behavior.
#2 According to Chilipiper, 78% of all B2B buyers purchase from the vendor that they talk to first.
The data also showed that only 30% of SaaS companies get back to prospects in 24 hours. If you’re doing that now, congratulations because you’re ahead of the curve. However, you’re still probably losing out on deals by not being the first to the table.
I have an example of this when the Head of Finance and I were evaluating SaaS Management tools at one of my last jobs. We had just
received a walkthrough from one vendor and wanted to check out another well known vendor before making a decision. I submitted three requests in a period of 24 hours to this well known vendor. After hearing nothing back for three days we signed with the vendor that had responded the following day. By the way, we never did hear back from the vendor where I submitted all of the requests.
Many times I find that sales and marketing get in their own way by creating operational agreements or conditions that create this lag time and these inefficiencies. Going from the third vendor to make contact with a prospect to the first one to contact can have unbelievable results to your top line revenue.
#3 Too many mis-hires that are costing the company hundreds of thousands, if not millions of dollars a year.
I’ll be writing another blog about this since I think it is so important and often overlooked, but I have done the math and a mis-hire from a $750k quota carrying Account Executive (AE) is over $500k. For just that one hire.
Quick math: Conservatively, $50k in recruitment fees, onboarding, training, etc. $70k loaded salary, $375k in opportunity cost from only hitting 50% of target and another $50k to go through the recruitment, onboarding and training processes again. That’s about $550k.
Now imagine you’re missing out on 50% of your AE hires. This is surprisingly more common than you might think. That’s a massive amount of waste. The good thing is it’s fixable. First, you need interview training across the board. Surprisingly enough, most managers don’t get training on how to interview and end up making candidate selections based on who they’d enjoy getting a drink with. There are also generally unclear onboarding procedures that lead to dissatisfaction and turnover. Finally, I find sometimes that expectations are not clear, or items that have been exaggerated (think On Target Earnings) in the interview process, leading to friction and churn. This churn always makes recruiting top talent more challenging, creating a vicious cycle.
I’m not saying you’ll ever get to zero mis-hires, that’s not reasonable. However, imagine the cost savings associated with going from 50% to 35%, on just AEs. Imagine other departments and hires as well. The money adds up quickly.
#4 Discounting is killing your Customer Lifetime Value
Another great topic for a longer blog – I call discounting the secret killer of ARR and growth. I’m not saying all discounting is bad, in fact, when used properly it could be an incredibly effective tool. But, it’s rarely used properly. Discounts given are usually too high, which devalues your product.
But they help us hit our goal right?
Maybe, but what good is hitting that monthly or quarterly booking target if those customers will just be churning come renewal time. Profiltwell did some amazing analysis looking at over 6,000 SaaS companies and with each increase in discount % an increase in churn was shown as well. When you’re past 30% in discounts, it can get really ugly. Additionally, those with higher discounts brought in far less expansion revenue as well.
What I find in most companies is oftentimes the guidelines for discounts are unclear, not written down, or simply not adhered to. The overall ramifications are enormous. You’re devaluing your product and losing money out the gate with unnecessary discounting. Plus, you’re also shooting yourself in the foot by decreasing the likelihood that customers will grow or renew, causing issues with retention (go back to #1).
By creating stronger checks and balances on the discount front, and by providing better training for your sales team on selling value vs throwing out massive discounts, you’ll set yourself up for a more prosperous, more predictable, future growth.
#5 Pricing and Packaging Changes
I’ve seen a lot of different data on how long companies spend evaluating their package and pricing yearly, and it’s shocking to me. Almost all the data points to less than 30 minutes a year, but I’ve heard as little as less than 10 minutes ever.
Regardless, the data points to it’s not enough. Having pricing that isn’t optimized for initial purchase or for expansion can cost a company hundreds of thousands of dollars. My advice always starts with going ahead and putting a recurring meeting together quarterly to review pricing. Make sure this isn’t just senior leadership. Get input and valuable feedback from those on the frontlines.
Prior to these meetings, collect as much data as you can on conversation rates, retention based on certain packages/features, expansion revenue, competition, etc. Do this prior to the meeting so you’ll be prepared to make strategic decisions on your pricing.
Finally, experiment. Just because you decide to change your pricing doesn’t mean you’re locked into it for eternity. Try some A/B testing.
A few small changes can have a massive impact.
