Growth
Growth Hacking for SaaS
Growth hacking has been around eight years, but it had become popular word several years ago. Many companies talk about growth hacking. How to boost their sales, or get more users. More hacks, more growth, more unicorns.
Too many marketers turned out to be growth hackers in social media. Sometimes it irritates. Like it or not, growth hacking is really working. That’s why growth hacking is so crucial for any startup. If your business doesn’t grow, nothing else matters.
How growth hacking work and what does it mean?
Growth hacking is a process of rapid experimentation across marketing funnel, product development, sales segments, and other areas of the business to identify the most efficient ways to grow a business.
For me, growth hacking consists of two things:
1. Fundamental knowledge of your product and what the key reasons people use it are.
2. A simple framework for doing your work based on experiments and data.
These two things give a complete understanding of how to acquire new customers, what to do with users who are not sticking around, how to grow up your business.
Step 1. Product-Market Fit
It’s obvious but why then so many startups spend their budget on paid advertising and don’t have revenue. You must be sure that you create a product people really want. It’s easy to be confused about what real value looks like. Understanding your true value allows you to design good experiments.
I don’t recommend you to invest in growth until you find product-market fit. If you haven’t achieved product-market fit, you spend your money faster than you can imagine. It takes time to talk with your customers, to analyze their behavior, but it gives you the crucial advantages for growing faster. Validate your idea to make sure that you are moving in the right direction.
How to understand do we achieve Product-Market Fit or not?
These two key things help you understand it:
1. Identify the metrics that represent the value your users get from your product. It’s about «aha» moment for your users when they understand the real value of your product. For example, in Facebook one thing they were able to determine on early stages was a key link between the number of friends a user had in a given time and his/her probability to churn. Knowing that allowed them to do a lot to get new users to their “aha” moment quickly. For B2B startup or B2C who has paid tariffs, you can understand this key metric by comparing two targeted users: free users and customers. What’s the difference in behavior? Understanding this difference help you to define the key metric.
2. Measure the repeat usage of that metrics.
If you understand that you achieve product-market fit, then you can use paid growth.
Step 2. A Simple Framework for Pirates
Growth hacking is all about testing. To stay ahead of the curve, you have to test, test, and test again. Every growth experiment, no matter the results, yields an opportunity to learn about your business and users, and grow further. If the results are excellent, you’ve found something with meaningful impact – optimize it for all its worth.
But what testing at first?
Dave McClure was a marketing director at PayPal who published important metrics for a startup based on funnel stages. He called it AARRR which users then nicknamed it in «Pirate Metrics». It’s a useful framework which helps to prioritize work and allows understanding how to grow fast.
AARRR is an acronym of funnel stages:
– Acquisition
– Activation
– Retention
– Revenue
– Referrals
Let’s go through each stage.
1. Acquisition
It’s all about how to attract new users. Word of mouth was a primary way of finding new users in the early days of startups. Word of mouth is the most economical way to acquire new customers, but over time, its effectiveness was going down.
A company needs to think about a free way of acquisition. But let’s be clear – there are no silver bullets when it comes to where and how to attract new customers.
What channels will be better for you?
It depends on many factors. Gustaf Alstromer is a Product Lead at Growth Team at Airbnb recommends next:
– If you your customers have a rare need in your product, then use Google SEO and SEM.
– If your users already share your product via word of mouth, then improve on virality and referrals.
– If having more users improve the experience of a product, then work on virality.
– If you have already known all of your future customers, then use sales.
If you have high LTV, then you can use paid advertising. Also, I want to remind if you still don’t achieve product-market fit you need to avoid paid advertising for growth. It works better on content.
SEO is still the king. I know that SEO doesn’t sound like growth hack, but it’s true. Many startups must understand it and work on website optimization.
Facebook has three strong growth moments in the story. Firstly, it’s translation on other languages. After it, they rapidly increased the number of users. Secondly, it’s a mobile revolution when a lot of mobile users started to use Facebook on their smartphones. Thirdly, it’s initiative of internet.org. You can see the growth on the table of Gustaf Alstromer.
2. Activation
Many companies are focusing on acquiring new users and the top-of-funnel. Then they work on retaining those users in a product to turning them into longterm customers. But they forget about activation.
Activation is the new gold for SaaS.
Activation is a science of turning new users into active customers. Going between acquisition and retention, it’s an incredibly important part of your business to optimize.
Scott Belsky is an Adobe CPO, Behance co-founder claims that startups with strong growth must spend at least 30% of their resources on optimization the «first mile». The first mile is a first experience interacting with your product – especially in the first thirty seconds. It is the most critical yet underserved part of a product.
Scott also tells how they lost 10% of users in the first step in the activation process in Bechance when created a workflow where a user needed to choose specialization after sign up. You should create your activation simplest as you can because users are lazy and selfish. First thirty seconds of experience interacting with you product defines will your user leave your product or not.
Simple is sticky.
Karen Peacock former VP of Marketing at Intuit told that her first big decision in the company was to take a significant chunk of marketing program budget and use it to hire a product team to build a better first use and onboarding. Her peers in marketing were disappointed. But then Karen with new product team increased the trial to paid conversion by about 20%. It sounds good.
To optimize activation, you should understand one key action what made paid customers. To do that you must know what the key actions are for your product. Start by first looking at the steps your most successful customers take before becoming successful. What’s the difference in behavior between free users and customers? Understanding this difference help you to define the key metric.
3. Retention
Retention is a new growth hacking for many businesses. It’s critical to have strong lifetime value and low churn rate for SaaS company. Otherwise, your business model is broken.
I am truly convinced that retention is more important than acquisition. Jamie Quint is Managing Partner of Quint Growth, and Dan Wolchonok of Hubspot have told the same. Strong user acquisition with rapid user attrition is a sign of significant problems in a product. At the same time, with good user retention and low user acquisition, you will increase your user base step by step. Strong user retention is an indicator of product market fit.
If analyzing churn, cohorts and lifetime value gives you big issues, then you should be taking with your customers more often to work out what’s going right and wrong for them. Making a focus on providing meaningful value in the shortest period after registration. It will help you to get the barriers low.
For example, Mint, the personal finance product, found that the first «aha» moment, the first taste of value, was when a customer could see the pie chart of where they were spending their money. Customers who got to that point were likely to stay. So Mint did everything to make connecting customer’s bank account and getting to that pie chart as fast as possible.
Strong retention comes from driving up the core value as fast as possible with as few barriers as possible and creating an experience that is so good that no one can imagine going back to the old way.
Also, you must to craft effective communication with your user base to increase customer engagement. In the days, when people get a lot of junk on their email and social media you should build strong segmentation strategy in your business to craft your messages are personalized. You can find more here how segmentation used in customer retention.
4. Revenue
Revenue is the process of marrying your business model to customer value. Do that successfully, and you’ll be able to reinvest in new features or solutions, which will provide more value and bring in new users. Your product will change, its value will change, and your pricing must change along with it.
Charging $9/mo usually is not a good strategy for SaaS startup. It’s mean that you always close to redline. It can be the reason for negative cash flow. A customer on the $9/mo plan often costs just as much to acquire and support as a customer on the $500. Think about it.
Think about providing a true solution for a big problem. If you’re deciding a big issue for customers, you can charge more. To create better pricing plans get the rule regularly ask feedback from customers.
If you have a true solution that really makes an impact, you’ll probably get the 2x pricing. This useful practice I got from IIDF, one of the biggest European startup accelerator. They recommend to many startups get the 2x pricing. If you charged $50/mo before, then make $100/mo for a product today.
The higher plans give you the opportunity for investing in a scale.
5. Referrals
Word of mouth is an indicator of product market fit. And a single question can give you a strong understanding of performance. Even more, this simple question is a great predictor of virality.
This question is: «Would you recommend our company to a friend?»
Yeah, it’s so easy. But you must avoid being imposing.
For better integration into your processes, you may use the Net Promoter Score. It also gives you the right amount of feedback. All you need to do is ask people one question:
How likely are you to refer our product to a friend or colleague?
And give them a simple scale of one to ten.
Here’s how they break down:
– Promoters (score 9-10): These are the people who will recommend you to others as proof of your product concept.
– Passives (score 7-8): These people are okay with your product but would switch to another alternative if it presented itself.
– Detractors (score 0-6): These are the unhappy people who will not only churn soon but will also talk badly about your product.
You want to pay attention to the middle group for retention. Ideally, you want to get in touch and try to save them before they leave for someone else.
However, for Net Promoter purposes, ignore them completely.
Instead, you subtract the percentage of people at the bottom (Detractors) from people at the top (Promoters) to arrive at a score.
Now you can track this number over time. It helps you understand which direction you’re going.
Conclusion
– If you haven’t achieved product-market fit, don’t use paid growth
– Growth is about constantly testing
– Use AARRR to prioritize work how to grow fast
– Activation is gold for growth
– Startups with strong growth must spend at least 30% of their resources on optimization the «first mile»
– Localizations are low-hanging fruits for optimizing your funnel (Facebook case)
– Retention is more important than acquisition
– Identify the «aha» moment for users and work on it
Anton Cherkasov
https://aworker.io/Anton is a co-founder of Aworker, which is a blockchain platform for Recruitment. He is also a co-founder of Kepler Leads, is a lead generations software for eCommerce. Previously Anton has worked in Wildberries (#1 eCommerce store in Russia). He is falling in love with growth hacking and product management.