Dear SaaStr: Does it get easier or harder to scale SaaS as your company grows?
Generally, it gets easier to grow at a “good”/modest rate at you scale, but harder to grow at an outsize rate.
Why?
Once you cross $5m-$10m in ARR, then usually:
- You have a brand. At least, you have a mini-brand in your niche. And that brand generates leads organically, and fairly low-cost leads. This helps a lot.
- Renewals make things more efficient. It’s much cheaper to renew a customer than to acquire one. Efficiency goes down in other places (sales efficiency usually, marketing efficiency often). But renewals really do make cash flow much more repeatable.
- Account expansion starts to work. The best mid-market and enterprise SaaS companies grow their accounts 120%-160% as a cohort, inclusive of churn. But, this takes a while to kick in. A couple of years, really.
- It’s much more predictable. After $10m ARR or so, you start to have a good sense, within a range, of how you are going to do this quarter and this year.
- Your infrastructure usually is stronger. From your technical infrastructure and platform, to your financial controls and recruiting processes … you have more people, process and technologies to scale.
- You have redundancy. You can lose a top salesperson or engineer, and it’s still tough. But no longer the end of the world.
So a certain amount of predictable growth becomes much, much easier as you approach and pass $10m ARR.
But … the absolute numbers also get larger.
To go from $10m to $20.1m ARR in a year, then in that 1 year, you have to close more revenue than in all the prior years combined. That isn’t easy. Especially if you haven’t staffed up properly.
So for example, it often gets pretty easy after $5m-$10m ARR to grow anywhere from 40%-60% a year. NRR expansion from bigger accounts often takes care of half of that growth right there. But the incremental growth gets much harder than it used to be.
And, generally, everything just gets more expensive after $10m-$15m ARR or so:
- You need more people to do the same amount of work.
- People don’t work as hard, and want others to do the work for them.
- You start to saturate your core ICP. So you have to really expand your TAM in new ways and directions.
- Competition wakes up to the fact that you’re doing something good.
So it’s a new set of challenges. But after $20m ARR or so at least, it’s pretty hard to kill anything in SaaS with 100%+ NRR. At least get there.
A few more thoughts: SaaS Start-Ups: Buck Up – It Really Does Get Easier. Or At Least — You Get Better. | SaaStr
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