Navigating Growth in SaaS from $1m to $10M.

The New Logo vs. Expansion Revenue Debate for SaaS business.

In the journey of a SaaS business, transitioning from $1–2 million in Annual Recurring Revenue (ARR) to the pivotal milestone of $10 million in ARR marks a crucial turning point. Given less than 0.04% of SaaS businesses scale past the $10M ARR milestone, demonstrates how hard it is.

During this phase, the primary focus should be on new customer acquisition, commonly referred to as “new logo” growth.

The focus, however, shouldn’t be customers at all costs but rather accelerating growth of the “right customers” predictably and efficiently. In the early days (up to $1M) the focus was a ‘say yes to anyone’ approach in the quest for survival and market-product fit.To scale to $10M it’s about attracting the right customers and consciously excluding those who don’t align with the company’s goals.

Greg Head has coined a great phrase CCP (Crappiest Customer Profiles), which he eloquently says “Your CCPs are the ones that you should not have sold way back when you didn’t know their true cost and you were desperate for any sale.” So not only is it important to sell to the right customers in this stage, it is equally important to ensure you do not sell to your CCP. They are distracting and diluting.

As a SaaS company eclipses the $10 million ARR mark, the balance between acquiring new customers and expanding within the existing customer base begins to evolve. This shift, although not seismic, becomes increasingly significant. Expansion revenue from existing customers assumes a more prominent role, propelling the SaaS business towards the next milestone of $30 million in ARR and onwards.

There is a lot of discussion about multi-product SaaS, particularly with vertical market software. The one thing that’s changed radically in SaaS over the past few years is everyone has realized to truly scale, you need to be multi-product. It increases addressable market, embeds you deeper into the control point and increases your NRR which everyone seems “ga-ga” about these days.

The average public SaaS company has 35,000 customers. So once you cross 3,500, let alone 10,000 — you’re starting to saturate most B2B markets. You’re hitting 10%-20% market share in horizontal markets and likely 50% in vertical markets or more, especially of your core customer base, and growth almost always slows at that point in SaaS.

The challenge is that if you go multi-product too soon it can be a huge distraction AND if you go too late, growth stalls.

How to Navigate through the milestones of building a SaaS business.

Every Logo Acquisition up to $1 Million ARR:

• SaaS businesses starting their journey typically prioritize acquiring their first customers. The initial phase, up to $1 million ARR, often revolves around proving the market-product fit, experimenting, customer funded product development, fine-tuning sales strategies, and gaining initial traction. It is messy, characterized by a ‘say yes to anyone’ approach in the quest for survival and market-product fit.

Right Logo Focus to $10 Million ARR:

• To scale rapidly, SaaS firms often shift their focus toward new “like minded” customer acquisition at this juncture with repeatable processes. The primary goal is to expand the customer base and increase market share. I’ve provided insights on this stage in another article
• This is about getting the right logos. Customers that immediately derive benefit from the product as it is. This is about scaling with repeatable processes that bring capital and unit economic efficiency to acquisition and retention.

$10 Million ARR Inflection Point:

• Crossing the $10 million ARR threshold signifies a major transition. Research has shown that many SaaS companies experience a turning point at this stage.

Beyond $10 Million ARR New Logo & Expansion

• Beyond $10 million ARR, expansion revenue, including upsells, cross-sells, and increased usage by existing customers, gains importance. Companies begin to monetize their existing customer relationships more effectively.
• While new logo acquisition remains crucial, successful SaaS companies start to strike a balance with expansion revenue. This balanced approach ensures revenue predictability and customer lifetime value (CLV) maximization.

The Journey beyond $30 Million ARR:

• As SaaS businesses progress toward the $30 million ARR milestone, they experience a gradual but meaningful shift in revenue sources. Expansion revenue contributes significantly to overall growth and helps the company reach the next milestone.

The journey from $1 million to $10 million in ARR in the SaaS industry demands a strategic shift from ‘any customer’ to the ‘right customer’ with repeatable and scalable processes.

Beyond $10M growth is a balanced approach between new customer acquisition and expansion revenue. While the shift is not abrupt, it is essential for ensuring long-term sustainability and growth.

The ability to effectively balance these two revenue streams becomes a defining factor as SaaS companies aim to scale beyond the $10 million ARR milestone and set their sights on reaching $30 million ARR and beyond.

Knowing where to focus your energy at each stage of business growth is important. We only have enough energy (resources) to truly focus on one primary initiative at a time. Choosing that primary initiative is important to improve the probability of success. Moving a SaaS business from $1-$2M to $10M is about focusing on new customer acquisition of the right customers.

Thanks for reading. I’m John McAuliffe and I help companies accelerate growth more consistently and with greater predictability using repeatable processes.