Digging in the Wrong Place: Misunderstanding Where SaaS Growth Comes From (Article 1 of 3)

Marketing Strategy — Thu., Mar. 23, 2023

In the classic movie Indiana Jones and the Raiders of the Lost Ark, the search is on for the Ark of the Covenant. The instructions to find it are inscribed on two sides of a medallion, but the bad guys only have one side and are thus missing crucial information. This scenario is analogous to the classic marketing and sales funnel, which provides an incomplete picture of growth in a recurring-revenue business such as software as a service (SaaS).

At around $20M in annual recurring revenue for a SaaS business, growth no longer comes from acquiring new customers, but from expanding the accounts of current customers, which takes place outside the purview of the classic marketing and sales funnel. Companies that fail to recognize this shift often spend money on leads and hire more salespeople, resulting in an increase in the customer acquisition cost.

To prevent digging in the wrong place for growth, recognize three telltale signs: a maniacal focus on winning deals, a frantic demand for leads, and customer success that only aims for happy customers. To ensure sustainable growth, focus on quality over quantity, educate leads, and measure net revenue retention instead of an emotional measure like NPS.

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