5 steps to master your SaaS Growth Flywheel

Do you want to launch your new product on the market? Or do you have your first couple of paying customers, but growth is really slow? Or are you wondering how you can grow from the first 100 to 1000 customers?

Then this article is the right one for you! Today we will have a look into the 5 steps of a powerful SaaS Growth Flywheel and how to master them.

What is a Growth Flywheel?

A growth flywheel is a framework to visualize and oversee the key steps of a successful growth strategy. It’s a great tool that makes it easier for you to analyze what parts of your growth strategy are working and what are the parts that need more of your attention.
SaaS Growth Flywheel

The flywheel, in comparison to a funnel, is a closed-loop. This means once you’ve acquired a new customer, they help you to acquire new leads (new fuel for the flywheel) and ultimately grow your business. That is when you see the power of a growth flywheel. Once you’ve mastered all steps in the flywheel your growth suddenly accelerates and you see your business taking off (hopefully with exponential growth). We all know the picture of the hamster in the flywheel 😉.

5 steps of a SaaS Growth Flywheel & how to master them

It all starts with your ideal customer profile. You need to know who your ideal customer is (your target audience), what problems they have and where to find them (How to create a powerful ideal customer profile).

Acquisition

The first thing you should spend your time and energy on is your acquisition strategy. Don’t spend time on implementing a referral program or adjusting your upselling, if you don’t get enough leads in the flywheel. You obviously need to master acquisition first and then move on to the next stage.

If it’s challenging for you to get enough leads (for sales-driven) or free trials (for product-led), your acquisition is not working. The chances are high, that one (or more) element of your go-to-market strategy (GTM) is the reason for that.

That’s when you need to review and adjust your go-to-market strategy (GTM).

The 3 key elements of your go-to-market strategy are:

Ideal customer profile (ICP)
Messaging & positioning
Growth activities

The most common problems I see are:

unspecific targeting; no clearly identified ICP, being too generic
missing pain point(s)
sales messaging not tailored to ICP
sales messaging focuses only on the product, not on the main problem and value of the product
the landing page is more a product description, not a marketing/sales page
wrong positioning in the (competition) landscape
not enough/too little activities (#call, #emails, #ads...)
focusing on the wrong growth channels
no testing of new growth channels
too many growth channels at the same time (with low quality)

Once you’ve fixed the acquisition, you will get enough new leads/free trials and can move on to the next stage - activation.

SaaS Growth Flywheel

Activation

Getting new leads is not enough. You want them to experience the value of your product. And this is when activation comes in place.

Activation is the phase where you want new leads to take meaningful action in your product (for product-led) or request a sales demo (for sales-driven).

To analyze, if the activation of your product-led business is healthy, track how many of your free trials are taking meaningful action in your product (AHA moment). For a sales-driven business analyze how many of the new leads book a sales demo with you.

Benchmark for healthy conversion rates vary from industry to industry, but you should be worried if your conversion rate is lower than 10% (for product-led & also sales-driven).

If most of the new leads are not getting active, this means you have a problem in your activation stage. Key elements to review in your activation strategy are:

What actions are you taking to activate them (email sequences; phone calls; webinars...)?
How do you present your product (value proposition; value-based selling; sales demo)?
Do you overload them with too much (detailed) information too early?
How do you communicate the value of your product (your language; design)?
Do they trust you (testimonials; social proof)?

Buying

So once your potential customers got active, you now want them to also buy and become paying customers. Depending on your sales strategy (sales-driven vs. product-led) this can look completely different.

The way you measure success is your win rate. The win rate for sales-driven businesses is normally the conversion rate from new opportunities (sales demos) to paying customers. For B2B SaaS you should aim for a blended win rate of at least 20%.

For product-led SaaS businesses, the win rate is defined as the conversion rate from free trials (new product sign-ups) to paying customers. For product-led B2B SaaS, you should aim for a 10%+ win rate.

For sales-driven businesses, the core elements of your sales methodology are:

What does the sales process look like (inside sales vs. hybrid sales vs. field sales)?
How do you prioritize, segment, and handle new opportunities?
What touchpoints do you have with customers and what is their quality (amount of meetings, type of meeting (e.g. demo meetings, onboarding calls, training webinars...), timing & response rate)?
What is your sales communication (how to demo the product, email sequences, how do you communicate your values, value-based selling vs. feature selling...)?
What does the customer journey look like? What are the touchpoints customers have within the product, with your sales team, support team, and your marketing activities)?

In product-led businesses, customers do not have any contact with sales. You give them straight away access to your product and want them to experience the AHA-moment of your product (they see the value in your product) as fast as possible. Core elements of your product-led strategy to review are:

How do you present your product (product tour; training videos; help center & academy)?
What does the communication look like (in the product, email, chatbot, marketing)?
How easy/fast do they experience the AHA moment of your product?

Retention

Growing your business does not only mean getting new customers onboard. It’s also important to work with your existing customers and keep them. That’s why retention is so important. Retention and churn go hand in hand. So measure your retention rate (& churn rate) to know, if your business is healthy. To keep your customers and make them happy, implement a proper customer success strategy:

Measure customer satisfaction (NPS)
Touchpoints with your customers (support center, webinars, help center...)
Product updates & training
Upselling program

Think about ways, how you can increase the revenue per customer over time. Happy customers are willing to spend more money. Selling new products to them is easier (and therefore also cheaper) than selling to new customers. If you do this, your customer acquisition costs (CACs) will go down and your customer lifetime value (CLV) goes up. This means your CLV to CAC ratio (important SaaS metric) improves.

There are core elements of a powerful upselling program:

What are you upselling? (new features, higher pricing tiers, yearly contracts; additional services)
What is the right timing?
How to sell it (your sales message; value-based selling)
Adjust your pricing (increase your pricing; how to communicate it; how it works)

Referral

Customers (especially happy customers) share the word about your product and refer other businesses to you. The advantage of referrals is, that it’s cheaper and more effective than acquiring new customers. Why? Because happy customers refer others to you (for free or for a small referral bonus) and they mostly refer peers to you (which is more likely your ICP). Additionally, research shows, that customers are more likely to buy your product when referred from someone else (higher trust).

In your referral marketing program, you think about ways to incentivize your existing customers to refer peers to you.

What’s important about a referral marketing program:

customer segmentation (focusing on happy customers; right timing & frequency)
referral incentive (referral bonus; how it works)
timing and communication (when to ask for a referral; how often; communication channel...)
technical implementation & tools (referral tracking; referral bonus payout)

So referral marketing can be a powerful acquisition channel to get new leads in your funnel (or better in your flywheel).

Personal recommendation for 2022

As this is the first newsletter in 2022 and I guess many of you set new intentions and goals for 2022, I want to share with you a personal recommendation for goal setting, keeping focused in life, and being grateful.

👉 6-Minute Success Journal

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