The SaaS Growth System: 6 Steps to Scaling & Exiting Big

Welcome back to The SaaS Circle newsletter for SaaS CEOs. SaaS Circle is a community for growth-focused SaaS CEOs and founders who help each other grow faster. You can join us here.

This week, I’m sharing my process for scaling up any SaaS company and preparing it for an exit… I call it The SaaS Growth System.

It’s a six-phase process designed to increase lead volume, customer acquisition, and revenue growth — and then scale up the sales team, executive team, and investor support as you prepare for a big fundraising rounds or a nine-figure exit.

Let’s jump right in to the good stuff…

The SaaS Growth System
By Ryan Allis, SaaS Scaling Coach & Former CEO & Co-Founder of iContact

This article should be a big help to any SaaS CEO (or CMO/CRO for that matter) who is focused on scaling revenue within a SaaS firm.

The SaaS Growth System is a six phase process designed to increase lead volume, customer acquisition, and revenue growth — and then scale up the sales team, executive team, and investor support as you prepare for a big fundraising round or a nine to ten figure exit.

The six steps in The SaaS Growth System are…

Let’s go through each step in detail…

Phase 1: Calculate Unit Economics By Channel

Once you have product/market fit and your first 50 customers or so, it becomes possible to estimate how much revenue and gross margin a customer generates and then determine the maximum of how much you can afford in incremental S&M costs to acquire them.

Step one is determining (as accurately as possible) what your CAC (All-in S&M CAC), Churn, Lifespan, LTV, and Max CAC is.

Here are the definitions and formulas I use:

1. Advertising Customer Acquisition Cost (Ad CAC) - Total ad spend in a month divided by new customers added that month
   

2. All-in S&M Customer Acquisition Cost (S&M CAC) - Total advertising, marketing, and sales costs in a month divided by new customers added that month
   

3. Account Churn - The % of customers who cancel their account that month
   

4. Lifespan Months - The average number of months of life of a customer. Approximate by dividing 1 / Monthly Account Churn %.
   

5. Lifetime Value (LTV) - The total amount of revenue generated by an average new customer.
   

6. Max Customer Acquisition Cost (Max CAC) - The maximum you’re willing to spend to acquire a new customer. It should be between 1/3rd and 1/6th of your lifetime revenue for that customer — 1/6th if you want to grow less quickly and be more profitable — 1/3rd if you want to really speed up and grow more quickly and are less concerned with short term profits.
   

7. LTV:CAC Ratio - The ratio of of Lifetime Revenue to Customer Acquisition Cost. It needs to be at least 3:1 in order to cover all your other costs of running the business.

See my separate in-depth guide “How to Scale a SaaS Company” for how to calculate all your unit economics.

It’s important to calculate your unit economics:

1. For the entire business

2. For each major product or market segment

3. For each channel (yes, you should be calculating churn and ARPU and lifespan and LTV for each major marketing channel!)

Build a spreadsheet like the one below so you can tell at a glance which channels are profitable and have low CACs (and thus more volume in them) and which channels need to be pulled back because they have high CACs.

Some firms choose to put this data into a visible dashboard or integrate it into their CRM/ERP, others keep it in a spreadsheet. As long as you have it and it’s calculated monthly, you’re good. The simple version output is a sheet that looks something like the graphic below.

Think of this initial evaluator step as the lab tests and diagnosis process at a functional medicine clinic.

First we assess where we are – then we work on getting better and scaling all working channels (and fixing the channels that aren’t working) so that the top of your lead funnel is full and your sales team (if you have one) is happy and beating OTE every quarter.

Strong funnels lead to happy sales teams which lead to happy investors which lead to exceptional business exits.

Phase Two: Channel Optimization

Once we get clear on the unit economics by channel – then we go into Step 2: Channel Optimization.

The goal is to get as many net present value positive customers per month as possible. That starts with getting as many net present value positive leads per month as possible – and calculating your Lead Acquisition Cost and Lead Conversion Rate for each channel.

While it’s great to focus on product-led and integration partnership led growth initially, what really can accelerate customer acquisition and fill the sales pipeline (and break you through the $10M-$20M ARR plateau) is when you can scale up to spending $2M+ per month on paid online and offline media, within you CAC targets.

The key here is to scale up the channels that are working (about 20% per month so you don’t blow up the CACs) and then fix the channels that aren’t working through lots and lots of creative optimization, offer optimization, landing page optimization, and then finally sales process optimization.

First we optimize Cost Per Lead, then Cost Per SQL (sales qualified lead), then Cost Per Customer — and then finally the lifetime value of that customer (which is a function of two numbers — ARPU and Retention).

When I work with clients, I attack the top of the funnel first to scale up what’s working and help you fix what’s not. I take a look at your channels, your creatives, your targeting, your website, your landing pages, and your CTAs (freemium, free trial, demo call, webinar, etc). If you need a great agency, I have one to refer you to that does great work that has worked with our unit economics method many times.

I’ll look at both your paid channels (Google, LinkedIn, Facebook, Instagram, TikTok, YouTube Review Sites, Streaming Audio, Streaming TV, Traditional TV, Traditional Radio, Postcards, Tradeshows, Affiliates, Resellers) as well as your organic channels (SEO, API integrations, viral referrals, earned media, and word-of-mouth). We start with the online channels first and then go to scaling up offline channels.

Can you make Instagram, TikTok, and YouTube work for B2C and B2B SaaS? You better believe it!

This process has helped the SaaS clients I’ve worked with go from $5M to $50M ARR in 18 months, helped another B2B client reach $160M in ARR, and helped a B2C client scale to $25M per year with 100%+ growth.

What I often find is that within 6-12 months of implementing this scientific approach to unit economics and channel scaling you can 3x to 6x the number of new customers signing up per month.

Once we nail the top of the funnel — then we nail the middle…

Phase Three: Conversion Optimization

The third phase is optimizing the conversion rates of each stage of the funnel. This involved primarily working on the middle of the funnel.

Of course, the firm in your niche that has the best sales followup and closing process and product will naturally be able to pay the most per eyeball — winning the ad auctions and getting you multiples of traffic compared to the other competitors.

This process looks like the following. You just keep doing it over and over again until you’ve reached full scale. It’s iterative…

1. Calculate CAC - Calculate your CAC for each channel so you know what’s working and what isn’t.
   

2. Expand What Works Initially - Expand the Top of the Funnel by scaling spend on working channels up to Max CAC
   

3. Fix What Doesn’t Work Initially - Improve conversion rates in the middle of the funnel, to increase the number of conversions at that spend level, reducing CAC below your Max CAC
   

4. Expand Further - Expand the Top of the Funnel further, using the lower CAC achieved from funnel optimizations to increase spend and beat your competitors in the media auctions that happen every moment on Google/FB/IG/TT/YT/LI/Review sites, etc.

During the optimization of the middle of the funnel here’s what you should take a close look at.

• Creatives

• Landing Pages

• Prospect Messaging

• Click Through Rates (CTRs) by Channel

• Lead Acquisition Costs (LACs) by Channel

• Customer Acquisition Costs (CAC) by Channel

• Supporting Marketing Materials

• Trial Conversion / Freemium Upgrade Process

• Demo Call / Discover Call / Webinar Conversion

• Follow-up Email Sequences

• Product UI/UX

• Product Pricing & Packaging Structure

• Social Media Presence, Message, & Consistency

• Retargeting ads to drive omnipresence

The more you can improve each stage of your funnel conversion, the lower your CAC will become (again, allowing you to spend more money to accelerate growth).

Let’s say you want to increase your number of new customers from 10 per month to 40 per month. By mapping out your funnel math (example below) you can see where the holes are and work to improve them.

Phase Four: Optimizing & Growing Your Sales Team

By this point in the process as we install this growth system, we’ve helped you fix your funnel and probably increased your monthly lead flow by 2x to 5x.

Now, we have a good problem. What do we do with all these leads?

We know we’re supposed to Always Be Closing (ABC) but how do we make sure this is happening consistently in a process-driven, scaled, and optimal manner?

And how in the world do we recruit, retain, and compensate our sales leadership and sales teams?

Well, it depends a LOT on your ACV (annual contract value). Based on your ACV, here’s the basic processes of how you should follow up with your leads to get them across the finish line with money in the bank…

• ACV < $1k: Automated email sequence + newsletter + blog + retargeting
  

• ACV $1k to $5k: Automated email sequence + newsletter + + blog + retargeting + SDR phone call
  

• ACV $5k to $25k: Automated email sequence + newsletter + blog + retargeting + SDR phone call + invite to educational webinar
  

• ACV $25k-$100k: Automated email sequence + newsletter + blog + retargeting + SDR phone call + invite to educational webinar + invite to schedule demo
  

• ACV $100k-$500k: Automated email sequence + newsletter + blog + retargeting + SDR phone call + invite to educational webinar + invite to discovery call
  

• ACV $500k+: Automated email sequence + newsletter + blog + retargeting + SDR phone call + invite to educational webinar + invite to discovery call, in-person partner/exec visit if needed

You can of course invest a lot more time / energy / sales team resources into larger fish. You can also refer to the below chart to get a sense of what market segments you play in and how you should approach sales and service for your accounts.

If your ACV is at least $1k+ you will have enough margin to invest in an inbound sales team that manually follows up with your best prospects.

And if your ACV is at least $10k+, you will be able to have enough margin to be able to do targeted outbound sales.

So if you’re at $10k+ ACV you should absolutely be doing Targeted Outbound Sales using an Account Based Marketing (ABM) strategy via email and LinkedIn (and potentially via mail and local and national events as well).

You can refer to the following sections in the PDF Guide I recently wrote: How to Scale a B2B SaaS Company to learn how to set up your outbound and inbound sales team for success from a structure and compensation standpoint. In that free guide, I cover:

1. Building Your Outbound Sales Team

2. How to Do Outbound Sales Well

3. Structuring Your Sales Team

4. Sales Compensation Math

I also walk you through how we set up our 60 person sales team at iContact including our BD reps, SDRs, SEs, and AMs.

Here’s some sales compensation guidelines from David Sacks that may be helpful.

Phase Five: Expanding Existing Customer Accounts

Now, we’re at the bottom of the funnel.

The last stage that we work with you on the scaling side is expanding your ACV by increasing the revenue per client over time (more users, more features, more usage, better contract structuring, etc.).

We’ll work with you to set up your Account Management team for optimal results. This step includes creating the right AM comp plans, the right AM recruiting process, and hiring the right SVP of Customer Success.

As they say, land and expand to win.

In this phase we also look at your customer listening, product management, and UI/UX testing processes so that you’re actually delivering a product that wows customers every time they use it.

Here’s a recap of the scaling steps that we’ve covered in phases 2-5.

Once you’ve optimized the funnel and customer acquisition, it’s time to shift our focus to team scaling, systematization, fundraising (if desired), and exit prep (if desired). Of course, sometimes depending on your balance sheet you need to do both of these things (sales growth + fundraising) at the exact same time. That’s just the nature of being a venture-backed CEO.

Phase Six: Professionalizing, Systematizing, & Exiting

Businesses that make money while you sleep are the best types of businesses. In this phase it’s time to ensure you have the people in place to be able to run and grow the business entirely without you if and when needed.

Firms that successfully get through phases 1-5 tend to be at the $10M to $30M in ARR range and are starting to put in place processes throughout the organization and recruit in world-class experienced executives and investors who can help the firm build out additional products, acquire other firms if desired, and either prepare for IPO or to be acquired by another firm.

My massive (and free) 1240 slide SaaS Growth Playbook goes into great detail about each stage of this process. Refer to sections 22-40 here.

Once you get through the process of scaling up revenue – then the task becomes how to build the team that can service that revenue and put in place the SOPs needed to scale with excellence.

If we’re working together, this usually is what I do in years 2-4 of an assignment – or if customer acquisition and growth is already very strong and you simply need help exiting. Think of me as the right hand coach and guide to the CEO.

One of the areas I’ll look at is your team. The executive team that you want from $5M to $25M may also be a different team than you want from $25M to $100M – and so working with a world class recruiting team to get the right C-Level execs and SVPs will be key. We can help guide you to the right headhunting firm that specializes in placing top SaaS Senior Executives.

I can also guide you in bringing in the right venture capitalists to the company (if you want them), help you manage your relationships with existing investors, and prepare to sell a minority stake or majority stake to a PE firm if you choose.

I led iContact to a $40M recap from a private equity firm named JMI Equity out of Baltimore, MD. We took $25M to the balance sheet and $15M as liquidity for early shareholders. There’s an HBS case study of this transaction here. We hired Allen & Co out of New York City as our investment bankers to help us find the right partner.

Following our Series B, we had to go through the process of preparing to file an S1 with the SEC and got good at the process of successful annual financial audits, top tier executive recruiting, culture building, and turning our first product into multiple offerings. I learned how to navigate the later stages – which involve leadership and communication rather than founder-led product and sales and feel more like being Captain of a Cruise Ship than a Speedboat.

Then we decided to sell the company and got acquired by a public company called Vocus (now Cision) for $169M. It was one of the largest early SaaS outcomes in the Southeast at the time.

I learned a lot about the sale process, the post-sale process, and then how to set up your personal and financial life in a post-sale environment. While we didn’t end up using an i-bank for the sale process – we previously had used Montgomery & Co and Allen & Co for the Series B rounds and earlier M&A explorations and I got quite familiar with the process of hiring the right investment bank to prepare for a large fundraise, PE recap, or complete sale.

So when the time is right I can help you prepare the firm for an exit, coach you through the exit process, and guide you in post-exit company integration and post-exit life design. I’ve been through every step of the process the last 20 years and look forward to guiding you toward an optimal outcome for your family, company, customers, and shareholders.

The Four Major Stages of a SaaS Company

Based on the above diagram on the four stages of a SaaS company, I tend to come in at Stage 3 (Scaling Up) and Stage 4 (Systematizing) when you are preparing for a sale. This usually is around years 2-7 for a company and is always after product-market fit has been achieved. It’s usually at the $5M to $50M in ARR stage.

Though I’ve been through the entrepreneurial process many times, today I am a mid-stage and end-stage advisors.

Initially I use a lot of SaaS math, and then later help you recruit and retain the right executive team and investor base to achieve your eventual target outcome. The full process is described below.

I often will work with a CEO for 1-5 years – sometimes all the way through to an exit. Here are the ten areas I coach the CEOs I work with on.

With each of the CEOs I work with – the very first thing I attack is the unit economics and the lead acquisition channels. If we don’t have our head wrapped firmly around those – we won’t get anywhere. Sometimes I’ll serve as a mentor to both the CEO and CMO of the organization.

I work with both B2B and B2C SaaS firms. The customer acquisition process for B2C SaaS companies is very similar to the SMB experience I had at iContact. There, when we get to the outbound sales process we focus you on going after channel partners instead of direct customer acquisition. Let’s now go through all six phases that I work with my SaaS CEO clients.

How to Work Together With Me as Your SaaS CEO Coach

So far I’ve coached the CEOs of Tatango, Green Packet, Seamless.ai, Pipeline CRM, BlockAero, Datalyse, Revenue Accelerator, EventMobi, Dow Janes, and Galleon. I work directly with no more than 2 clients at a time — and take on a pretty in-depth, yet external roles — sometimes joining the board if its helpful to you and desired.

While I’ll sometimes give advice to SaaS entrepreneurs who are still working on achieving product-market fit – where my process really starts to help is when there’s enough data to estimate the unit economics (the cost and value of what a new customer is worth to you). That’s when the scaling magic happens.

Once a firm has $1M+ in ARR and at least 50 or so customers – there’s enough data to model to calculate your unit economics (ARPU, Churn, Lifespan, LTV, CAC), I can help a lot with scaling up customer acquisition based on unit economics and then systematizing, professionalizing, and helping the firm prepare for later stage venture-rounds (if needed) and an exit (if desired).

At that point it’s simply a game of: how do we acquire as many customers as possible through online and offline channels where the cost of acquisition is lower than the present value of the incremental customer (in terms of cash flow if bootstrapped or long-term enterprise value if venture-backed). And how do we build the team and the capital stack needed to deliver the solution to customers with high excellence over and over again.

If you’re interested in working with me — just book a time for us to chat here.

Working Together Directly With Me as Your Scaling Coach

What’s the cost to have me work with you directly on a weekly basis to implement this system?

Depending on how in-depth the coaching assignment is – I usually charge between $15k and $35k per month plus some amount of NQSOs or revenue share that we can figure out together after a few months of working together and making sure there’s a mutual fit.

I limit myself to 2-3 clients max and look for what can become multi-year opportunities to help you scale and then have a very successful exit (or simply hold a cash flowing asset).

I’m definitely not cheap to work with directly. You’re not just paying for my time – you’re paying for the 20 years of SaaS scaling and exiting experience, for the relationships with others who can help your company scale up, and for the value increase I can bring to your company by knowing exactly what to do to build a scaled and successful business.

Ultimately, my metric of success is how much I can help you increase the value of your company while working together. If we can take enterprise value from $10M to $100M or $50M to $500M, or $100M to $1B together – it will be fun and rewarding on both sides.

My goal is to help you and your shareholders achieve at least 2x-3x the outcome you could on your own.

If your firm is at the right stage and moment, what you’re getting is the opportunity to 2x-10x the value of your business through working together with someone who’s been through it all before – and can help ensure you can hyperscale the right way and build what ultimately may become the most important and valuable asset of your life.

So, let’s explore working together and see if there’s a mutual fit. I’ve recently finished up a successful four year assignment, so that’s why I’m reaching out and doing some proactive marketing to find the next right clients. You can book a 30 minute exploratory call with me here.

About this article: This article builds on How to Scale a SaaS Company. If you haven’t seen that yet, you can download the guide here. If you like this article and want more my free 1240 slide SaaS Growth Playbook goes into even greater detail about each stage of this process.

How to Work Together: To learn more about our B2B SaaS CEO Coaching service working directly with Ryan, visit www.hillcanyon.com.

Join the Community: For more how-to-scale-up support and content, apply to join SaaSCircle, the mastermind community for growth-focused SaaS CEOs. We offer a free 14-day trial to the community for qualified SaaS CEOs and founders.

About The Author

Four Helpful Free SaaS Growth Resources

The most in-depth guide for scaling up SaaS companies from $0 to $50M in ARR. Including over 1,200 slides on every aspect of SaaS scaling.

A fourteen page in-depth PDF on we take each CEO client through a six-phase process designed to increase lead volume, customer acquisition, and revenue growth — and then scale up the sales team, executive team, and investor support as we help you prepare for future fundraising rounds (if needed) or an exit (if desired).

A twenty page in-depth PDF on how to scale a B2B SaaS Company from $1M to $50M ARR. Covering CAC-based customer acquisition, sales team scaling, venture capital markets, and preparing for the exit.

The SaaS Growth Formula was written to help SaaS CEOs who are focused on growing their company's sales - by implementing a simple formula called The Growth Formula. This formula is for companies that have already established product/market fit, already have paying customers, and are now ready to scale up through scientific and CAC-based digital marketing, inbound sales, and outbound sales.

We’ll see you next week with more great SaaS growth and scaling content!