SHOULD I FOCUS ON ACQUISITION OR RETENTION?
So many opportunities, so little time - that’s how it feels most of the time.
In last post I wrote about growth plateaus. But when you find your SaaS approaching a plateau, what should you actually do?
You know that there are just a couple of levers to pull:
Get more new customers & MRR
Upsell & cross-sell
And one might think that all those options are equal - it doesn’t matter where the growth comes from, as long as you have it. If only things were that simple.
Let’s see an example.
WHICH SAAS IS MORE HEALTHY?
Let’s imagine two little SaaS businesses that at quick look seem to be identical.
Both started this month with $10,000 of MRR.
Both grew by $2,000 this month.
Company A focuses in acquisition. As a result it has $1,000 more new MRR than Company B.
Company B focuses in retention. It has $1,000 less lost MRR than Company A.
￼Which of these companies would you like to own?
LET’S TAKE A LOOK AT THE GROWTH CEILINGS
If you only look at the short term changes in MRR, both companies seem to be equal. Or you might even think that the Company A is better as more customers flow through it.
But what if we calculate the growth ceiling for both companies?
Company A maximum business size: $23,000 of MRR Company B maximum business size: $50,000 of MRR
So the Company B should be able to grow smoothly to $35,000 or so before the growth ceiling will start to slow it down.
Whereas for Company A it will take just several months before it will have to start struggling against the growth ceiling.
LET’S TAKE ANOTHER LONG-TERM POINT OF VIEW
One way to think about business value is to imagine what would happen if you wouldn’t get any new customers.
How many months would it take until churn would leak you dry and all customers would disappear? What’s the value of your current customer base?
Company A average customer life-time: 7 months Company B average customer life-time: 20 months
Normally you’d need to convert this to MRR. But these companies have same MRR, so we can skip that. Now we know that Company B is currently more valuable, more fail-safe and more stable.
THE BIG TUG OF WAR
There are two factors here - the short term MRR and long term business value. And whether you do it actively or not, you are always optimizing between those two.
Just like you did when you decided to become an entrepreneur. You decided to invest your hours to your product, instead of selling them for immediate benefit. You did that because you knew that you’d eventually get way more money and freedom and other nice non-money things.
Now when your business is running you’ll need that investment mindset more than ever.
And this is where collecting the metrics and actually using them to do little calculations like we did here can really pay off. Otherwise it will be super hard to guess whether your main focus should be on acquisition or on retention.