Revenue Growth Management

What is Revenue Growth Management?

Revenue growth management (RGM) focuses on strategic methodologies aimed at fostering sustainable and profitable growth. In the SaaS industry, RGM hinges on understanding and enhancing factors that directly influence recurring revenue streams, customer acquisition, retention, and expansion.

The strategic development within RGM encompasses:

• Customer segmentation
• Strategic pricing and offer optimization
• Customer lifetime value optimization
• Upselling and cross-selling tactics
• Product enhancements and integrations
• Adjustments to sales and marketing channels
• Revenue planning and forecasting

From 2022 to 2030, the global SaaS market is projected to grow from $237.48 billion to $908.21 billion. Advancements in AI and software development and the development of niche-specific SaaS products, coupled with an increasing demand for digital transformation, has spurred significant growth in the industry. And with that comes competition.

Software companies use revenue growth management platforms to help them stay ahead of the curve by analyzing and optimizing their key revenue drivers, improving customer retention, and identifying areas for growth.

Synonym

• RGM

Importance of Revenue Growth Management for SaaS Businesses

Revenue growth management first became a concept ~5 decades ago when the airline industry used it to optimize occupancy rates. Hotels caught on shortly after.

For these industries, RGM helps businesses manage several clear challenges when it comes to pricing and demand:

• Different product/service costs (think first-class vs. economy or penthouse suite vs. standard room)
• Constantly fluctuating demand based on seasonality, holidays, and other external factors
• Fixed capacity (a flight can only hold so many people, and a hotel has limited rooms)
• The time-sensitive nature of perishable inventory (there’s no way to compensate for unsold seats on previous flights or rooms on nights that pass)

Software platforms don’t have these problems. But they DO have many advantages that are especially suited for RGM:

• Low marginal costs (little to no cost is needed to add an additional user or subscriber)
• Automation (resources can be allocated elsewhere as opposed to manually altering pricing on a constant basis)
• Data availability and analysis capabilities (provides insights into customer behavior, preferences, and profitability)
• Recurring revenue streams (allows for long-term forecasting and planning)

RGM helps SaaS companies optimize pricing, sales, and marketing to increase your customer base, retain existing customers, and expand revenue streams. Successfully adopting an RGM strategy can foster sustainable and long-term growth, create a competitive advantage, and drive profitability.

Objectives of Revenue Growth Management

As a SaaS vendor, the recurring revenue model requires you to take a more retention- and expansion-focused approach to their revenue growth strategy.

RGM’s core objectives are:

• Identifying distinct customer segments based on demographics, behavior, and preferences allows for customized strategies
• Adjusting product pricing and offerings according to your ICP, market dynamics, and internal goals
• Finding the best monetization strategy by testing different subscription pricing models, packages, and discounts
• Implementing systems for automating routine tasks like invoicing, revenue recognition, and subscription management
• Minimizing customer turnover to ensure a steady increase in monthly recurring revenue (MRR) and annual recurring revenue (ARR)
• Eliminating barriers that hinder new customer acquisition and expansion opportunities for existing customers

Elements of a Revenue Growth Management Framework

To accomplish those objectives, you need a holistic framework that enables you to acquire customers, retain them, scale FinOps, and successfully integrate your business systems with one another, all while remaining globally compliant.

Acquiring Customers

RGM divides customers into groups based on specific criteria, like their demographics, behavior, and preferences. This process (called customer segmentation) is the first step in formulating a successful revenue growth management strategy. Once you know who to target, you can optimize your pricing and offerings to attract them.

From there, there are four areas of the acquisition process you’ll have to optimize:

1. Freemium and trial periods. Most SaaS companies offer a 14- or 30-day trial period where new subscribers can test the product before fully investing (this may not be possible for enterprise customers). Depending on the product, you might want to release a bare-bones free version with the hopes of converting 3% to 5% of those users to a paid subscription.
2. The CPQ process. The most important stage in your sales process is the configure, price, quote process. Here, you position your offerings in a way that communicates value effectively to your customers, while also ensuring a profitable deal for yourself.
3. Lead nurturing. 99% of the time, people don’t make a buying decision overnight. It’s your sales and marketing teams’ job to create and deliver the information that helps them make purchasing decisions.
4. Incentives. Periodically, you might use discounting or other promotions to generate a higher volume of subscription purchases. You might also offer a month free or 10% discount for annual billing vs. monthly.

Retaining Customers

Retaining an existing customer costs businesses ~5x less than acquiring a new one. For your SaaS business, it’s probably a lot more than that considering you’re entirely dependent on recurring revenue.

There are lots of moving parts when it comes to retention:

• Variant price testing (to see what subscription pricing and packages drive the most value for certain customer segments)
• Subscription payment and accounts receivable collections (which should mostly be automatic with subscription management)
• Churn prediction and analysis (Why are people leaving? Which ones look like they’re about to, and how can you reverse that?)
• Product usage analytics (Who are your most and least engaged customers, and which features do/don’t they use?)

Though you’ll have to test pricing separately, a lot of these insights are available right in your SaaS platform — e.g., you can tell from product usage which customers haven’t fully activated after onboarding or who’s disengaged with the product. It’s about taking this information and acting on it by proactively reaching out to them, updating your product, and improving your CX.

Scaling FinOps

FinOps (financial operations) involves automating your billing processes, reducing financial waste, and optimizing cash flow. This is where CPQ and subscription management software really come into play.

They can help you with just about every finance and accounting task:

• Reconciling financial data
• Recognizing revenue according to ASC 606 or IFRS 15
• Invoice automation
• Managing multiple currencies and entities
• Generating reports and dashboards

When you streamline and scale FinOps, you’re also reducing your risk of involuntary churn (where the subscriber didn’t intend to cancel but something went wrong that caused them to). This could happen when billing information changes and you don’t have a system that updates it automatically or notifies subscribers of payment failure.

Achieving Interoperability Between Business Systems

Between your sales workflow, customer data collection, billing process, and accounting tasks, there are multiple different tools that ultimately play a role in revenue growth management.

• CRM
• CPQ
• Marketing automation
• ERP and accounting
• Billing and payments
• Business intelligence

You can’t have these systems working in silos. Integration eliminates manual work and errors and improves the customer experience. Equally importantly, it ensures workflow consistency, alignment, and data accuracy from one function to the next.

Benefits of Using a Revenue Growth Management Platform

A revenue growth management platform has several features:

• SaaS subscription management
• Recurring billing
• Price and revenue optimization
• Revenue recognition and compliance automation
• Churn and retention management
• Global payments
• Predictive analytics (e.g., for at-risk customers)
• Software integrations

Like any comprehensive software suite, a revenue growth management system offers untold benefits in the form of greater operational efficiency, revenue growth, and cost savings.

With better data accuracy and customer insights, you have a much clearer picture of what’s driving revenue growth and where your opportunities for improvement are. You can optimize your pricing, promotions, and subscriptions based on real-time data and predictive analytics. That way, you can make strategic pricing and product decision without wasting months on testing.

Moreover, a revenue growth management platform streamlines everything. It eliminates the clerical work and risk of human error associated with manual accounting and billing processes and consolidates your data in one place.

RGM Strategies for SaaS Companies

Again, as a software company, you need a completely different approach to revenue management that covers the entire customer lifecycle — not just the initial sales phase.

Let’s take a look at different strategies you can use to achieve profitable revenue growth:

Customer Acquisition Strategies

Implement a rock-solid referral program.

Referral programs can transform your existing customer base into a potent acquisition tool. The trick is to ensure your program is enticing enough to motivate your customers to act.

Think along the lines of Dropbox’s approach — offering additional storage space for both the referrer and referee, which directly ties into the core value of their service​​. It’s what grew them 3,900% in 15 months.

Have affiliates market your product for you.

Affiliate marketing extends your reach by leveraging influencers and bloggers to promote your product in exchange for a commission. This strategy broadens your audience through trusted voices in your industry. More than 80% of brands (including SaaS companies) are doing this because it’s extremely low-cost and low-risk.​

Forge strategic partnerships.

Partnership marketing can open doors to new customer segments and markets. Look for complementary businesses and co-create campaigns or products. An excellent example is Spotify’s collaboration with Uber, allowing users to play their Spotify playlists during rides​ (Encharge)​.

Showcase social proof.

Prospective customers look for validation from others before making a commitment. Highlight positive reviews, testimonials, and case studies prominently across your marketing channels to build trust and mitigate purchase hesitations​. During the sales cycle, use current customers who are willing to provide references for deals in your pipeline.

Build a community.

Creating a community around your brand can significantly enhance customer loyalty and acquisition. Encourage your users to share experiences and engage with each other to foster a deeper connection with your brand​.

Create a comprehensive content marketing and SEO strategy.

Articles, infographics, videos, webinars, and case studies that cater to your target audience throughout their buyer’s journey. Combine this with a solid SEO strategy to improve your online visibility and draw in qualified prospects organically.

Personalize your cold outreach.

Cold outreach is still a powerful customer acquisition tool, but it’s important to personalize your messages and tailor them to the specific needs and pain points of your prospects. That’s what increases your chances of engagement and conversion.

Customer Retention Strategies

Ensure customer-product alignment.

Start by closing deals only with customers who genuinely need and will benefit from your product. Effective lead qualification and scoring early on results in significantly lower churn rates, longer customer lifespoans, and a higher CLV.

Gather and utilize data around your customer’s “jobs to be done.”

The jobs-to-be-done (JTBD) framework helps you understand the underlying needs and motivations of your customers. During the signup process, use a survey to gather information about what it is your customer actually needs the product to do (e.g., record videos, transcribe them to text). You’ll improve time to value by personalizing the onboarding experience this way.

Solicit feedback at pivotal moments in the customer journey.

For example, after a customer has been onboarded, ask them how the experience was and where you can improve. Similarly, after a customer churns, conduct exit interviews or send a survey to find out what could have been done differently to retain their business.

You should also implement CSAT surveys and analyze the feedback helps in making targeted improvements that boost overall customer satisfaction and retention.

Integrate self-help options.

Equip your application with self-help widgets, a knowledge base, chatbots, and an FAQ page. These tools give users the ability to find solutions independently. In addition to reducing your support workload, this improves satisfaction and loyalty.

Self-service support is another important one here. Nearly 100% of B2B customers want the ability to make purchases, upgrade, and add users without having to speak to your support or sales team.​ By integrating your subscription mananagement software with your customer portal, you can provide a seamless experience here.

Proactively address potential churn triggers.

Data-driven insights from your RGM platform can help identify customers who are at risk of churning. Take proactive measures (e.g., offering personalized discounts or additional support) to prevent them from leaving.

Keep users informed and engaged.

Regularly update your customers about new features or improvements. Also share valuable content that addresses common challenges and showcases best practices. This not only keeps your product top of mind but also positions your brand as a trusted resource.

Monetization Strategies

SaaS pricing is a tough nut to crack. Setting optimal prices requires you to embrace a mix of innovative pricing models and techniques to grow revenue and accurately reflect your product value.

Here’s a look at your options:

Usage-Based Pricing

The usage-based pricing model aligns your monthly charges with the customer’s usage levels, offering a fair pricing structure that adapts to varying customer needs. It’s particularly effective for SaaS products where usage can fluctuate significantly, ensuring customers pay in proportion to the value they receive.

Tiered Pricing

By structuring your pricing into different tiers, you cater to a diverse customer base with varying needs and budgets. Tiered pricing broadens your market appeal by making your product more accessible to a larger pool of potential buyers. It also opens up opportunities for upselling and cross-selling​.

Freemium Model

Offering a basic version of your software for free while charging for premium features can significantly lower the barrier to entry for new users. This approach allows users to experience your product’s value firsthand. It potentially leads to paid upgrades as their needs evolve​, but does wonders for positive brand recognition regardless.

Storage-Based Pricing

This straightforward model, where costs are based on the storage space used, exemplifies transparency and fairness in pricing. Companies like Google and Dropbox successfully employ this model, enticing users with a free storage quota before transitioning them to paid plans as their needs grow​.

Feature-Based Pricing

With feature-based pricing, you price your SaaS based on the set of features each plan offers. This approach motivates customers to upgrade for additional functionality, making it cost-effective for those who don’t require all features. However, it’s crucial to balance the features across different tiers to meet various customer needs effectively.

Pay-As-You-Go

In a pay-as-you-go model customers based on their actual usage of your product. This model is well-suited for B2B SaaS companies offering infrastructure services, where customer usage is variable. It lowers the entry barrier and aligns costs with customer growth, although predicting revenue can be challenging​.

Flat-Rate Subscription Pricing

You’ll have to set a number of users or a fixed price for all customers, no matter what other pricing strategy you choose. Otherwise, your pricing will be too confusing. Flat-rate subscription pricing (with nothing else attached to it) works best for simple SaaS applications that don’t have much variability in features or usage.​

Microservices

Microservices are a way to break up your application into smaller, more manageable pieces. You can then charge for each microservice separately based on usage or set prices for specific bundles of them.

Per-User/Per-Seat Pricing

In this model, the subscription charges levied on a company are directly proportional to its user base. The per-user pricing model is typically based on the number of active users, seats, or licenses (e.g., $29 per month up to 5 users, $3 per user per month for each additional user).

Psychological Pricing Tactics

In addition to selecting a pricing model, employing psychological tactics can give you a better return on investment. In SaaS, price anchoring is one that’s particularly effective. Our brains are hardwired to use the first piece of information we receive as an anchor for future decisions, so you can use a higher- and lower-priced tier to guide most users to the middle, most popular one​.

Tools and Technologies

To successfully execute revenue growth management strategy, you have to consider the entire customer journey. You also need to consider revenue growth KPIs, how you’ll measure them, and what tools and technologies you’ll need to do so.

Here’s a brief rundown of every type of software you’ll need to grow revenue effectively at your SaaS company:

• Subscription management and automated billing
• Accounting software
• Customer engagement and onboarding
• Configure, price, quote (CPQ)
• Marketing automation
• Live chat and chatbots
• Sales intelligence and analytics
• Sales enablement AI
• Customer relationship management (CRM)
• RevOps software
• Pricing engines (or other price optimization tools)

How Revenue Growth Management Software Helps SaaS Companies

Some vendors offer RGM software as a comprehensive suite, so you don’t have to integrate all these different functions. For larger companies that can’t work with dozens of disparate systems, this is the best option.

You can use RGM software for everything from lead scoring and nurturing to customer success, upselling, and cross-selling. And it can help you manage churn, set optimal prices, and streamline operations across your business.

Key Takeaways on Revenue Growth Management

As a modern SaaS company, you don’t really have a choice in the matter — you need to have a RGM strategy in place if you want to survive. Yes, that’s easier said than done, but it’ll be the competitive advantage your business needs.

Just remember these key takeaways:

• A successful RGM strategy involves cross-functional collaboration and alignment between marketing, sales, and CS teams.
• You need to track CAC, CLV, and churn closely so that you can set goals, measure progress, and adjust your strategy accordingly.
• Choose a pricing model that best suits your product, customer needs, and business objectives.
• Test different pricing strategies, and test them constantly. Raise prices, test different models, and monitor results so you can make real-time decisions.
• Use technology to your advantage — software for sales, marketing, RevOps, and FinOps will be the difference betwee​n success and a low-ROI program.

Most importantly, prioritize sustainable growth through the whole process. Scaling too quickly can cause you to burn through cash and valuable resources. You need to iron out the details first and build a solid foundation.

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