How do you take good revenue growth to great revenue growth? Intercom CEO Karen Peacock reveals the top strategies that accelerate revenue growth and the steps to take your business to the next level.
Know Your Business
It’s likely that most SaaS leaders can immediately spout off their ARR (Annual Recurring Revenue) –– after all, that’s the key growth metric. Yet your top-level numbers may actually obscure critical information that could help with company growth.
Peacock explains, “I’m sure everyone knows the revenue of their business…You have to go much, much deeper because the averages –– those high-level numbers about your business –– hide the insights.”
Of course, it’s still important to track the big ARR picture, but GRR (Gross Revenue Retention) and NRR (Net Revenue Retention) are just as important to monitor. So here’s a quick reminder on how to calculate these numbers:
GRR = (ARR at the Start of Year – Churn – Contractions) / ARR at the Start of Year
NRR = (ARR at the Start of Year + Expansions – Churn – Contractions) / ARR at the Start of Year
Strong revenue health means your ARR, NRR, and GRR are all working together in a positive direction. But examining these three metrics still isn’t enough to get maximum insights. Peacock recommends breaking down your customers into segments to understand exactly what is driving growth, and what might be causing churn. You can create segments based on product, buyer type, sales motion, customer size, geography, or whatever is relevant to your business. Then, review revenue metrics for each segment.
When Intercom examined ARR, GRR, and NRR for each segment, they discovered that one of their products had weak revenue metrics, while a certain customer type also performed poorly. As a result, they were able to adjust and move forward with a strategy more primed to drive revenue growth.
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Know Your Customers
We are certainly in the “Age of the Customer,” where empowered buyers demand a new level of customer obsession. SaaS companies must deliver this stellar experience to win in the market. The key to impressing your customers is to watch what they do and not necessarily what they say.
Peacock shared an interesting example of this principle that she observed while serving as the VP of Marketing and Product Management at Intuit. She surveyed many customers and asked them what feature they would most need, and nearly all of them said they would love to have a budgeting tool. So the product team built the requested budgeting tool and released it, expecting heavy usage. But then something puzzling happened: Hardly anybody used it.
Determined to understand the disconnect, Peacock began watching customer behavior more closely and realized that customers spent lots of time reconciling bills and invoices on the Quickbooks platform. In a true eureka moment, she realized that the real problem customers needed help with was, “I can’t pay my bills.” This problem drove customers to ask for a budgeting tool as a solution, but that wasn’t actually what they needed. So, the Intuit team went back to solve the problem and released a cash management feature in the lending marketplace that experienced much higher usage.
The lesson here is to fall in love with a customer problem, not a solution. And remember to listen to your customers and watch their behavior to determine their problems so you can help them.
Pricing & Packaging
There’s no way around it –– pricing is tough to determine, especially for SaaS. But it is possible to figure out the perfect pricing structure with the right strategy.
Most critical in the pricing planning is aligning your price to the value. You must spend time with customers to fully understand what value your product brings them and then decide the price based upon that value. One important caveat to remember, according to Peacock: “You always need to make sure that the price you’re charging is less than the value [for the customer].”
Intercom came up with a pricing pyramid to ensure correct alignment:
Pricing Metrics (Foundational Layer): What units drive value? Is it contacts, storage, API calls? Choose whatever pricing unit makes sense for your business and provides optimum value for your customers.
Packaging (Middle Layer): Once you build the product, package it in a way that makes sense to sell. In this layer, you need to consider customer segments. Every customer should have a clear idea of what your solution does for them. Design your tiers and packaging based on the needs of each customer segment.
Price (Top Layer): This is how much you charge. Once you understand your units and customer segments, you should be equipped to align the value and price appropriately.
Design An End-to-End Customer Experience
Customer-centricity is vital, and once you understand your customers, you are ready to build the perfect experience for them, from marketing to support, whether they are B2C or B2B. Says Peacock, “We talked about this being the age of the customer. And while this started with B2C companies and consumers having these high expectations, every single one of your B2B buyers is a consumer in all other parts of their life. So companies expect consumer-grade experiences.”
Create a flywheel that begins when a buyer first hears about your brand, all the way until they might need to talk to your support team. You need to think beyond the close and create a strategy to prevent churn and boost retention: “The way you drive strong customer retention is to build strong relationships and a delightful customer experience. And do that in a way that scales.” Personalized, in-context scalable experiences will ultimately increase retention and accelerate company growth.
- Look beyond averages for real insights.
- Fall in love with your customer’s problem, not a solution.
- Align price to value by customer segment.
- Personalized, in-context, scalable customer experiences always win.