Why 'carrying capacity' is the single most important concept when trying to build a sustainable SaaS business

This was interesting, but I think the author doesn't consider that churn of overall userbase does not stay constant.

Imagine a consumer SaaS product like Grammarly. Say they acquire their first 100 users and 50% churn in the first month. Their 'churn' in this model is 50%.

In the next month, they lose 20 users. 20 out of entire userbase of 50 is 40% churn for month 2.

For a good consumer SaaS product, at least some customers from every cohort will stick around for years. So assume that after a year, only 5 users are left from those first 100 acquired. If the company goes out and acquires 100 new users, and 50 of them churn again, now the churn rate is 50/105, or 47%.

As you see, we haven't raised prices, or 'grown' faster, but the carrying capacity has gone up, because churn was observed to be lower.

This is why the challenge should be viewed as making a product that at least some users will want to use for a long time. Or something that users will use for a short time, but pay a lot for. And then acquire those customers profitably. If you can do that, who knows what the ceiling of your business would be?

Makes sense and good points. I've seen this with small established SaaS co's. They're just stuck at some revenue number. Not really growing, not really shrinking either. Its mildly perplexing. So they've hit "carrying capacity".

The problem is, their fixed R&D and administrative begin to creep up to eventually - and without increasing prices their margins will start to suffer. It's some odd no man's ground between large success and outright failure.

Personally, if you give me the choice of owning a SaaS with 3M in revenue, or a CPG co with 3M in revenue, both growing 30% YoY and identical margins I'll take the CPG. Because with the CPG I know my R&D costs won't creep up as much and my hurdle for profitability is far lower.

Exactly this! So many amazing nuggets of wisdom here. And you've really honed in on the one thing so many founders overlook. I genuinely used to believe I couldn't get my churn below 20%. I'd make excuses for why I couldn't. In reality, I just wasn't doing the right things.

I completely echo everything you say. This is so valuable and I wish I'd known all of this before starting my SaaS. It took two failed businesses before I really understood churn and carrying capacity. I'm in the 'good' category for churn now, hovering at about 5%. Still trying to bring that down. Your advice on multi-products is helpful. I've considered it, there are so many pros and cons.