SaaS Growth Machine
Few indicators of growth machines source:
- Should aim to build a repeatable, scalable, profitable growth machine
- The 40% rule - growth rate + profit should add up to 40%. So, if you are growing at 20%, you should be generating a profit of 20%. If you are growing at 40%, you should be generating a 0% profit. If you are growing at 50%, you can lose 10%.
- T2D3 approach - triple your size/revenue for two years in a row, and then double it for three years in a row. After that you should pursue the rule of 40%.
- The no. 1 indicator for saas should be growing no. of bookings
- bookings = lead flow * funnel conversion rates * average deal size
- bookings when there are sales rep = no of reps * PPR (productivity per rep)
- ARR has a linear growth with flat bookings
- ARR shows exponential growth with growing bookings
- Hence, instead of ARR, focus on net new ARR
- Net new ARR = New ARR + Expansion ARR - Churn ARR
- CAC < LTV, more specifically for a growth machine, LTV > 3 * CAC
- Recover CAC in 12-18 months
- Negative churn => expansion revenue > revenue from lost customers
- Expansion revenue means variable price is required
- Variable price can be based on
- price for features
- price on number of users
- price from depth of usage (infra cost, etc.)
- Classify churn as customer churn vs dollar churn