Subscriber-Led Growth

What is Subscriber-Led Growth?

Subscriber-led growth (SLG) is a business methodology in which subscription businesses use customer insights to guide product and marketing decisions. With SLG, customer acquisition, conversion, expansion, and retention are all driven by subscriber preferences.

The subscriber-led growth strategy is exclusively used within the subscription economy, which includes:

• SaaS companies
• Cloud-based services
• Streaming media companies
• Delivery services and subscription boxes
• Content subscriptions (e.g., digital publications, newsletters)
• Digital products (e.g., courses)
• Perks subscriptions (such as Amazon Prime)

SLG is similar to customer-led growth. The main difference lies in the fact that SLG focuses specifically on subscribers rather than all customers.

99% of businesses use at least one SaaS product. And the average Millennial has 17 media subscriptions.

With such high competition, the pressure is on businesses to create a seamless customer experience and make continuous product improvements. That’s where subscriber-led growth comes in.

Synonyms

• Customer-led growth
• SLG

Why SaaS Companies Should Focus on the Subscriber Journey

SaaS companies make almost all their money from account-based subscription sales. So, by extension, they rely on subscriber insights for just about everything they do.

According to insights from SaaStr, most annual growth comes from existing customers and expansion revenue. As a company matures, the proportion of new revenue from expansion and customer upgrades only grows.

• Salesforce’s existing customers account for 73% of its new bookings.
• UiPath, at $600 million ARR, attributes 75% of new revenue and bookings to current customers.
• Zoom’s customer base spends 30% more each year, and it has for 13 straight quarters.
• Slack was growing sales internally 5% faster than it was acquiring new customers when the company hit $1 billion ARR.

These figures all point to one thing: To drive growth, SaaS companies have to focus on customer experiences for all their subscribers. After all, those subscribers are growing their own businesses as well (i.e., they’ll need to add more users and upgrade features).

In that sense, customer retention pays in three ways:

• Subscribers pay recurring subscription fees.
• Retention often correlates with increased spending over time.
• Subscriber referrals and positive reviews attract more customers.

The only way to reap those benefits is to actually prioritize subscribers and their experience with your product. For that, you need a subscriber-led growth strategy.

Customer-Centric Business Strategies for SaaS

By nature, the subscription business model is inherently customer-centric. Subscribers are continuously loyal and engaged with a product (they have to be — they’re billed every month for it). So, it makes sense for subscription businesses to make decisions with the subscriber journey in mind.

Here’s a look at some of the best examples of customer-centric business strategies in SaaS:

Differential Pricing

Most SaaS companies use differential pricing in one way or another. It’s the best way to charge customers for the value they pay for rather than a predetermined value you set for them.

Examples include:

• Freemium plans for startups and small businesses
• Tiered pricing based on customer needs and product sophistication
• Pay-as-you-go pricing and other usage-based models
• Penetration pricing to get customers to try new products
• Private discounts and freemium opportunities to encourage existing customers to use new features
• Discounts for certain groups (e.g., student discounts)

Differential pricing is one of the best ways to create opportunities for all your customers individually. By making it more accessible to your total addressable market, providing transparent pricing customers can trust, and rewarding your most loyal ones, you can drive subscriber growth and retention.

Automated Upsells and Cross-Sells

SaaS companies that gather user data using a customer data platform know:

• how each customer uses the product
• which features they prioritize
• which ones they don’t
• what content they browse on the company website
• where they’ve asked for help or submitted support tickets
• their opinion on the product, user experience, and overall satisfaction

Since CDPs automate both data collection and reaction, a business using these systems can create automated triggers to email, message, or suggest an upgrade/add-on in-app based on a customer’s behavior and preferences.

In-App Messages and Notifications

Most SaaS companies offer their entire product to each customer to allow users to see all its features. However, they can only click on (and use) the ones they’ve paid for.

By using in-app messages and pop-ups, companies can show customers the features they don’t have access to whenever they try to use them (or accidentally click on them). When they do, the message gives them an opportunity to upgrade.

This kind of “feature nagging” is common practice for subscription businesses and is seen as a gentle reminder rather than aggressive selling.

Nurture Campaigns

Most SaaS companies expect customers to upgrade on their own within 3-6 months of signing up. That’s why nurture campaigns are so crucial.

Nurturing starts at the customer onboarding stage, where customers are familiarizing themselves with the product. At this point, Customer Success should actively engage with customers, respond to their queries, and send onboarding collateral that helps them get more value from the product quicker.

Throughout the subscriber journey, there are multiple opportunities to nurture customers:

• Feedback and surveys sent in-app or through email
• Tips and tricks emails focusing on everyday tasks
• Feature explainers that focus on the product’s sophistication
• Product updates through email or push notifications
• In-app product tours every time a new update/feature rolls out

By engaging customers with content related to their needs, you build trust and establish a connection with them. In the end, this strengthens the mutual connection and increases customer lifetime value.

User Feedback Sessions

If you asked 100 successful SaaS founders how they created such a great product, they’d all say, “We listened to our customers.” Although this truism is a bit of a cliché, it’s still spot-on.

User feedback sessions are essential for SaaS growth because they bridge the gap between assumptions and tangible insights from real customers.

The key is to talk directly with customers and ask them about their experience with the product and what they think should be improved. By talking to them in person (or over video calls), customer success teams can identify what users like about the product, what frustrates them, and how they would use certain features or change them if they could.

This kind of feedback is invaluable for product teams because they can use it to make decisions that prioritize users and their needs. They can also figure out what new products/features customers would be interested in and which channels to target for customer acquisition.

Subscriber-Led Growth Metrics

Customer Lifetime Value

Companies measure customer lifetime value (CLV) when they want to know the potential value of a customer over the whole time they remain subscribed.

CLV is usually calculated automatically in CRM and RevOps software. It’s calculated by taking the average revenue generated per customer over the average subscription length. Most companies get a bit more granular by also looking at CLV per customer segment.

Retention Rates

There are two types of retention organizations measure:

• Customer retention — How many subscribers renew or continue their subscription from one month/quarter/year to the next
• Revenue retention — How much revenue is retained from existing subscribers

Customer retention is helpful for understanding product success. A low customer retention rate (under 80%) indicates a significant level of dissatisfaction.

Revenue retention adds context to customer retention. Gross revenue retention (GRR) tells you the real value of your customer loss (which is usually more or less significant than the actual percentage of customers you lose).

Net revenue retention (NRR) includes expansion revenue. For a company with product-market fit, NRR should be above 100%. When that’s the case, revenue growth happens regardless of customer churn and acquisition — solely from existing subscribers.

Expansion Revenue

Expansion revenue is any additional amount a customer spends exceeding their original subscription price. Realistically, most of a company’s revenue growth comes from existing subscribers. And the conversion rate for existing customers is 60% to 70% (compared to ~5% to 25% for new ones).

That’s a good thing, though. Successfully selling to existing customers (or allowing them to upgrade themselves) means higher revenue without spending anything on customer acquisition. Lower customer acquisition costs and higher conversion rates — that’s what subscriber-led growth is all about.

Annual Recurring Revenue (ARR)

ARR also gives companies an indication of how much cash they’ll have on hand for a given year (minus expenses, of course). It’s used by investors and lenders as a benchmark when evaluating the success of subscription businesses.

Companies need to measure annual recurring revenue because it helps them assess their growth rate and track revenue goals. ARR — or MRR multiplied by 12 — gives a better understanding of the company’s overall revenue potential than MRR alone. This is particularly true if there’s a seasonal component to the business or some sort of short-term anomaly.

Average Revenue Per User (ARPU)

ARPU is similar to CLV in the sense that it describes the amount of revenue a customer is expected to bring in. The main difference is that the average revenue per user could be calculated over:

• a month
• a quarter
• a year
• several years
• the subscriber’s lifetime

For subscriber-led growth to work, companies need to break down ARPU into smaller timeframes like this to identify growth opportunities. The shorter the timeframe, the more granular their insights will be — and the easier it is to adjust their strategy and see incremental results.

Ways to Increase Revenue from Subscribers

Really, there are an infinite number of ways to grow revenue. Every company’s subscriber-led growth initiative will include a unique mix of sales, marketing, product development, and customer success tactics that work together to hit the same goal.

There are, however, a few key strategies all companies should consider as part of subscriber-led growth.

Map Subscriber Journey

To get SLG down, the first thing you have to do is treat your product as an entire experience.

1. Online research — Most product research happens online. Develop a content marketing strategy that makes it easy to find the most important pieces of information about your product. Then, optimize it for search engines to make your content even easier to find.
2. The sales process — Create a frictionless buying experience from start to finish. Cut out unnecessary approvals and feedback mechanisms, and use CPQ software to automate the quoting and proposal process.
3. Implementation and onboarding — Offer a mix of digital, in-app, and hands-on onboarding collateral (depending on the level of customer support your product requires). Measure and benchmark time to first value (TTFV) to gauge improvement over time.
4. Customer support — Use helpdesk software to keep customer support organized and efficient. Develop a knowledge base to help customers solve issues independently. Use email automation to keep them informed of updates, product changes, and industry trends.
5. Expansion — Consider ways to upsell or cross-sell within the product (and have software do it for you) to increase ARPU. Turn existing customers into promoters, and create loyalty programs or refer-a-friend campaigns to reward them for spreading the word about your company.
6. Renewal or churn — Automate the renewal process with subscription management software. Conduct exit interviews and send surveys to customers who don’t want to stick around.

Focus on Increasing Customer Lifetime Value

The most direct way to increase SLG is to increase customer lifetime value. This means making sure your product solves an ongoing problem for customers and that they’re getting the most out of it.

Consider these strategies for increasing CLV:

• Product roadmap — Make sure your product roadmap is customer-centric. Prioritize features and updates based on what customers need and/or want most, not necessarily what’s easiest or fastest for you to build.
• Data analysis — Use a customer data platform to pinpoint areas where customers stop using the product or get stuck. Use that information to improve the customer experience and ensure they can get more value from your product.
• Customer intelligence — Survey customers regularly and use customer segmentation to gain insights into different user types, needs, and behaviors.
• Subscription tiers — Develop tiered subscription plans that give customers more value as they upgrade. Make sure the plans are clearly structured and easy to understand. Ideally, only use three or four tiers.
• Add-ons or upsells — Offer related products and services as add-ons or upsells. This could be anything from premium features to a la carte services (e.g., consulting, custom integrations, or implementation support).

Track Subscription Metrics

Subscription analytics are the main drivers of subscriber-led growth. Companies should track the abovementioned metrics (ARR, CLV, etc.) to gauge success and identify improvement areas. They should also pay attention to metrics like NPS to understand customer satisfaction and loyalty.

Improve Subscriber Experience

At the end of the day, subscriber-led growth comes down to the customer experience. Companies should use data from analytics and surveys to develop a better understanding of their customers, and then create personalization strategies that make it easy for them to find value in the product.

Ultimately, this means a few things:

• Consistency — Deliver consistent, relevant experiences across web, mobile, social media, email, and in-product messaging touchpoints.
• Personalization — Without this, you won’t be able to offer the same tailored experiences your customers expect. You should use customer intelligence and segmentation to target different users with relevant content, messages, and offers.
• Simplicity — Simplifying processes like sign-up, onboarding, and billing will get customers up and running quickly, increasing conversion rates and reducing churn.
• Self-service — Customers should find it easy to upgrade on their own. If they have to talk to sales every time they want to buy something, they simply won’t buy it.

Adjust Pricing, Products, and Contracts to Customer Needs

Price optimization is a tricky equation because businesses can’t constantly change their prices. They can’t set them and forget them, either.

The best approach is to use a combination of competitive pricing, usage-based pricing, and tiered pricing to ensure customers get the most value from your product. Over time, review the pricing structure and see how customers seem to feel about it (e.g., through surveys and interviews).

Reduce Involuntary Churn

Sometimes, churn is inevitable. There will always be customers who decide to move on for various reasons. But a huge proportion of your churn rate is probably involuntary churn. For SaaS companies, it’s typically somewhere between 20% and 40% of overall churn.

There are several causes of involuntary churn:

• Credit card expirations
• Payment declines due to insufficient funds
• Incorrect payment details
• Subscriber account inactivity
• Technical issues with billing or payment processing

The best (and easiest) way to reduce the risk of these problems is to automate the billing and renewal process using subscription management/billing software.

Optimize Billing and Payment Processes

Billing and payment processing issues account for more dissatisfaction and churn than you think (as mentioned above). Your payment and billing processes need to be straightforward and automated to keep customers happy.

Your payment gateway should offer:

• Support for multiple payment methods and currencies
• Robust security to protect customer data
• Easy setup process for customers (e.g., ability to save card details)
• Flexibility to support your pricing structure and varied individual billing cycles

Experiment with Flexible Pricing Models

Examples of flexible pricing include:

• User-based pricing, which allows smaller companies to subscribe to your product at a fairer rate
• Custom (negotiable) pricing for enterprise contracts
• Dynamic pricing that accounts for price sensitivity and value perception
• Usage-based pricing, which allows customers to pay for the amount of usage they get from your product

Not every subscription business can use these pricing models. A streaming service, for example, is far more simple and nonnegotiable than, say, an enterprise SaaS. For models that make sense, it’s worth seeing how customers respond to them.

How Subscription Management and Billing Solutions are Essential to Subscriber-Led Growth

When we think of subscriber-led growth, the first thing that comes to mind is customer intelligence. But what about the technology behind it? How do companies manage subscriptions and payments?

Impact of Subscription Management Software

An effective subscriber-led growth strategy requires businesses to:

• keep track of their subscriber data
• automate billing processes
• manage payments and invoices
• account for payments and recognize revenue
• get instant insights into user behavior
• react to those insights

Without subscription management/billing software, companies cannot do any of the above. They would have to manually manage all their customer data and processes, which is impossible given the sheer amount of data points customers create.

Impact of Subscription Billing Solutions

Subscription billing is the most essential feature of subscription management software. It’s the engine that powers subscription businesses. This is where all the different pricing and payment models come together to provide a seamless customer experience.

Subscription billing solutions offer features like:

• Automated invoicing, payments, and revenue recognition
• Dynamic billing
• Flexible payment options for customers
• Enhanced security with PCI compliance
• Integration with other systems (e.g., CRM, ERP)
• Real-time analytics and insights
• Pricing analytics (and optimization)

Subscription billing software also provides tools to help businesses manage their customers more effectively — for instance, by offering custom subscription deals based on customer segments or usage patterns. In that sense, subscriber-led growth wouldn’t be possible without subscription billing.

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