How much money should early-stage B2B SaaS companies spend on marketing? It depends on four things: your product & company maturity, your market...
BSMS 43 - What to do when your numbers stall
It’s easy to get caught in the weeds and forget that SaaS companies are relatively simple. Before anything else, take a step back and look at the three core levers for ARR growth:
- Grow number of units per account (i.e., expand user penetration).
- Increase ARPU (price optimization & cross-sells).
- Drive advocacy: Turn referrals into new opportunities.
- Renew customer commitments (minimize churn).
- Minimize down-sells by existing customers.
- Increase features usage and/or usage frequency by existing users.
- Increase win rate (conversion rate from Opp to Win)
- Increase average sales price/deal size (ACV)
- Grow opportunity volume. Make the funnel bigger
Retention: Number of down-sells, feature usage/frequency, NPS/CSAT scores
Acquisition: Average sales price/deal size (ACV), opportunity volume, conversion rate from opp to win
This topic is also covered in the T2D3 Masterclass lecture 13, “Inspect what you expect”.
Welcome to episode 43 of B2B SaaS Marketing Snacks. My name is Mike, and I'm the product lead here at Kalungi. And as always, I'm with Stijn Hendrikse, who was the ex-product marketing lead for Office 365 at Microsoft, and he has turned serial entrepreneur and marketing leader for dozens of other software companies. In today's episode, we are going in-depth into the things that you can look at as a software company leader when your numbers are starting to stall out or when you're starting to fall behind a little bit, especially in today's market, when things are starting to soften and companies are getting a little pickier about which vendors they're taking on into their tech stack. It's easy to get caught in the weeds and kind of forget that software companies are relatively simple at their base in terms of how they operate.
There're really three levers for growing ARR and kind of making sure that your growth curve isn't stalling out and those are really monetizing, so upselling and monetizing your existing audience and customers, retaining those customers better so that they don't leave you continuing to get recurring revenue streams from those people or those accounts, and then increasing your wins, so getting new customers in the door, finding more customers that look like your existing ones and increasing your win rate of the people in your funnel. So we go into depth on those three categories and then talk about some of the metrics that you can look at for each of those groups as leading and lagging indicators to figure out to diagnose and understand where to go focus your time and attention when things are starting to slow down a little bit. So we talk about that.
And then Stijn and I also share each of our own frameworks for problem-solving when it comes to identifying when there's an issue, and then where exactly that issue is in the depths of the operating system for your software company and your marketing team. And as always, thank you again for choosing to spend your time with us. We really appreciate it. If you're looking for more content like this, Stein and I also wrote a book where we encapsulate a lot of the methodologies and frameworks and systems that we talk about on this podcast in one place. It's called T2D3, How Some Software Startups Scale Where Many Fail. You can find it on Amazon, or if you want to learn more about it, you can go to t2d3.pro and check it out there. All right, let's get into it.
Mike, have you ever had the question, "Hey, I'm falling behind on my number of leads, or my revenue is not doing as I wanted to. What do I do?"
Oh yeah, all the time.
Do you have a good answer?
Great answer. Let's talk about what it depends on. I'm happy to go.
Yeah, go for it. I was just going to say, because you recently published a really in-depth article, specifically on what to do when you're not meeting your growth targets on the T2D3 site, and I think it's one of probably the most important articles that you've ever published, and there's a lot of rich information on that. And I was going to ask if you can go into depth on that.
Yeah, there're probably 20 years of not only blood, sweat, and tears debating with people why things are not working or hoping you still have a job tomorrow and figuring out where to spend the next set of either dollars or time. Yeah, marketing is this really challenging field where there's so many things that you're responsible for. There's always something that's not working by definition. If nothing, you're probably not trying to do enough things. So how do you know when you're falling behind? And then what do you focus your limited time and resources on? What are you going to fix or address? First, let's just ground ourselves. When you're running a B2B SaaS company, the business is relatively simple. It's about ARR and you recurring revenue, but it breaks down into multiple drivers of that ARR.
So let's just ground ourselves there because when you ask yourself, "How do I know when I'm falling behind, and what do I then focus on?", it's important, I think, to realize there's multiple areas that drive ARR. So I always like to think of four, no, sorry, three buckets, three big buckets that really define how you drive ARR. The first one is you monetize your existing customers, you have customers who are staying with you, and now you want to get as much revenue out of those individual customers, right? By growing the number of units, users, for example, per customer, per logo, expanding user penetration, increasing the output, the revenue per unit, increasing your price, doing cross-sell, et cetera, or driving advocacy, getting users to refer others or customers to refer others. So that all falls under monetizing your existing customer base, which really should be the first priority to drive ARR growth.
The second priority to drive ARR growth is to make sure those customers stay with you, right? That you retain them. That's why churn is such a critical metric for most, for every SaaS company. Minimize downsells, renew customer commitments, increase the usage of features and the products they're already paying for the frequency of people logging in. Those are all good indicators to drive retention up and churn down. So it's retention. So monetize number one, retention number two, and then finally winning new customers, driving new pipeline, increasing the win rate of MQLs, becoming opportunities, becoming customers driving up your effort, sales price, the deal size, or the number of dollars you get when you sign a new customer is going up, growing the volume of MQLs and leads that come into your funnel. So it's those three things. Monetize, retain, win, with a couple of those KPIs under it. So when you have to answer the question: How am I doing? And when do I know that I'm falling behind and what to do about it? You can look at all these metrics.
And then what I typically recommend, Mike, is to look at every number in three ways. One is: How am I doing versus my plan? Right? Actual versus plan. Understand that you can see a delta, good or bad, you're behind plan or maybe you're above plan, but that you also need to think about what the trend is, right? When you are below plan, but it's improving over time, you may have less of an issue than when you're above plan, but it's going down very fast. So not only look at how am I doing versus plan, but also what's the trend? And for all these things, context is critical. So you have a time series, you look at something versus yesterday versus last week versus last month, and you look at something versus the original plan, the original assumptions. And I mean, you assess whether if you're, for example, falling behind plan, whether that's good or bad, you also want to think about, "What were my original assumptions were—some of those may be wrong—and am I doing fine?" And then the last thing, the third thing to think about is, is there a way to see noise and cancel it out versus what's really the signal-noise ratio? If you have a big dashboard, you have a lot of numbers, some things might be red, right? You're behind plan, but it's just a one-time thing.
There was a good explanation for it that would be noise and versus a trend and you see something that's significantly going in the wrong direction, that will be a signal, something that's worth looking at. But I think that for me, Mike, is when you ask that question, how do you know when you're falling behind? It's important to think about monetization, retention and driving new wins as the three areas of a sales business. And then looking at every number, at every metric, at every dashboard from an actual versus plan perspective. But then also, what is the trend? And is any of what I see noise versus a real signal that's worth looking into.
And I think another really important distinction in this particular conversation is that in order to even have these conversations, you have to have a plan to begin with and be looking and tracking all of the metrics that go along with that plan. Otherwise, this conversation is very difficult to have. So that's a prereq for this. And I think maybe where some people fall into the trap to begin with is there is no plan or there is no really good and accurate way of measuring the success of each of your efforts.
There's so often a plan or a dashboard or a bowler or a tracker, and then we ask, how have you defined X? How do you define ARPU? How do you define an MQL? How do you define a conversion event that people don't really know where? It's not clear what system, the source of the data is really the only source of truth. And so I think having all those things in place will be helpful if you need to answer the question: Am I falling behind, and where should I focus next?
And so the next question that follows that is, what do you do when you're actually falling behind?
Yeah. Oh, this is such a traditional problem. You have a lot of ability to look at data and to conclude that things are good or bad, but then people have no idea what to do next. And the reality is that it's often over complicated. People get very anxious sometimes about, "Oh, we don't have enough leads and we're spending so much money, etc." The best thing to do is to make it extremely simple and to get to a couple of action items with clear owners that you leave a meeting with or you leave an annual or a quarterly or a monthly review with. And there's a really cool tool that I found I think about 10 years ago when I was in an environment where they used a lot of lean manufacturing methodologies, and that's where my passion for bowlers come from, Mike. But another tool that was often used was called a three problem-solving sheet.
And it comes from the paper size A3—and of course now we would do that digitally—but it's this concept where you have a set of boxes on a piece of paper that force you to first make sure that you understand the problem, that whether you're looking at a problem that's worth solving, right? To clarify, it goes back to my earlier comment, signal versus noise, that you understand what were the assumptions of the plan so you can really understand what the gap is, the gap between my actual performance versus the original plan. But after you've done that, a really important step is to do what's called root cause analysis to really understand what is the real problem, maybe the problem behind this symptom, and I'll ask you to talk a little bit here about, I love your plumbing example, the you...
Oh, the leaky pipe. Yeah.
So Mike often talks about this problem, "Hey, I see water on the floor in my basement." And then, yeah, there's all kinds of things you can do then.
So if you see water on the floor and you ask somebody, "Well, what do you do?" Normally your initial response is to go clean up the water, go mop it up, which is fine. You should go do that, take care of the problem. But the next thing that you also have to do is ask why or where is the water coming from? And there's a lot of different reasons there could be water on the floor. So the next kind of step would be to look up; there's probably a leaky pipe. Okay, so why is the pipe leaking, right? There's a lot of reasons that could be happening. Maybe it's corroded, maybe there's a break in the pipe. Maybe the water pressure is too high.
So the next thing that you need to do is make sure that you fix the break in the pipe, but do you need to tape it up? Will that do it? Or is the water pressure just going to keep breaking the pipe, right? Do you need to replace the entire pipe with new material? Do you need to get PVC because your old material is just not going to last you very much longer? And then beyond that too, if the water pressure is too high, do you need to go to the boiler room and check the water pressure? Do you need to just tweak the adjustment and turn the dial a little bit? Or do you need to adjust the regulator or get a new regulator? So there's all these things that when you start to really dig into the question of "Why is there water on the floor?" So suddenly now you've got 10 different points that you can kind of look at to say, alright, this could be the problem. So as long as we go attack that and then ask why, what the root of that is, then you can really get down to the core of it.
So I call that the leaky pipe conundrum, I guess. And what's interesting about A3 format that you're talking about, you have an example of it in the article that you have on the t2d3.pro website, but you've shared this with our team a few different times, and every time that I go to use it, what's funny is that I don't make it through the first box without having a pretty clear understanding of what I need to go do to fix the problem. You can pick any of these boxes. There's clarify the problem, break down the problem, analyze the cause, develop countermeasures, and by the time I make it through the first box, which really forces you to sit down and like, okay, what is the actual problem? By the time I keep asking why three or four times, I know what I need to go do, and then I can just go do it. And I think part of the issue is that a lot of people just jump into action before actually going through that exercise of saying, okay, what is the root of this? We have all those examples, by the way, on the blog that I'll share. We'll put it in the show notes page.
[See the full blog here: "Founder's guide for B2B SaaS sales strategy go-to-market performance"]
Yeah. So you get to the root cause. Two things, right? Is this a signal? Is this worth solving? Maybe you find out it's just water on the floor because someone spilled a bucket, and then you're done, right? One time I call that noise, right? Because it probably would've evaporated the water if you didn't do anything about it, fine. But yeah, if it's a still a problem, you got to go do something about it. So that would be the next part of this, A3 exercise that you actually document. What are your actions and who's the owner and how do you follow up and how do you know whether it worked or not? And I think making things very specific and concrete, these follow-ups, often misses in driving the right focus on results, resolving whether if your leads are behind, if you don't get enough marketing leads versus what people are expecting versus the budget you're spending, you can solve it.
You can either find out what's the root cause and you get to one of two outcomes. Either your assumptions were wrong, the market is not as big as you thought it was, the clicks are more expensive than you thought they were, there are not as many people searching for it because maybe they don't know yet they have a problem or they know have a problem, but there's another solution that they think is better. All these things are actionable insights. So it's either going to be the conclusion of this is what is actually happening. This is the cause and this is what I can do about it. Or you conclude that it's just not that important and it's not worth solving. And there are other things that are going to be far more critical for your business. And maybe this was just not the right target, but both outcomes are great because now you feel that you're in control of your own destiny again. And you're not sitting there deer in the headlights looking at the same number, being read one week to the next and feeling disempowered.
Yeah, that's a good point. Sometimes it's okay to let the pipe just leak because maybe half the other floor just fell down and you need to go fix that first, and we can just let the pipe leak over here, prioritize your problems.
Absolutely. Yeah. And there's also all these things you can throw a lot of quotable. If the horse is dead, get off the horse. You might find out that pursuing a certain growth opportunity is not worth it, it's not working, and you should stop. You should go do something else with that energy, with that capital, et cetera. But yeah, the worst thing you can do is not deal with it.