What if I told you there was a proven system to double the revenue of your SaaS company? Imagine for a moment that you had the power to impact your SaaS growth with just a few simple tweaks in your business. Would you think it was a pipe dream, or would you lean in wanting to know more?
I know what you’re probably thinking - it takes a lot of time and energy to double your revenue.
First, you have to find growth opportunities. Then, you have to validate your growth opportunity, collect data, check it for accuracy, get your team on board, and determine the best methods of targeting new clients so you get the best return on investment.
It can be overwhelming, and nerve-wracking to say the least!
However, with one simple rule, it can happen faster and easier than you may initially realize. We’ve seen it happen with our clients, and we want to help make it a reality for your SaaS company as well.
What is that rule? It’s the rule of 72, and it’s a simple rule of thumb used in business to quickly figure out how many years it would take you to double your money on an investment, given the annual rate of return.
72 ÷ interest rate = Years required to double investment
Assuming your rate of return is 12% year over year, your number would be 72 divided by 12, which equals 6 years. Quite a bit of time, eh? But since we aren’t looking at an investment like a Venture Capitalist would, we need to modify this rule to make it work for the growth of a SaaS business.
How to Apply the Rule of 72 for a SaaS Conversion Funnel
To use the Rule of 72 to growth-hack a SaaS conversion funnel, first, we need to change the name of some of the variables in the equation. Instead of looking at the interest rate, we will be looking at the growth rate and instead of looking at years required to double the investment, we will be looking at the number of steps in a customer’s journey.
The equation evolves into this:
72 ÷ growth rate = Number of steps in a customer’s journey
Once we have our new equation, we determine the number of steps on a customer’s journey and solve for the growth rate. The number of steps in the journey of your customers will always depend on your SaaS business.
In this article, we will use an example customer journey of a SaaS business to illustrate the technique. To have this work properly for your business, the equation needs to be adapted to fit your specific business model and customer acquisition strategy.
For our example, we will map out the customer journey of a software product with a free trial customer acquisition strategy.
Please note that this strategy will would work for any product with any customer acquisition strategy, and particularly for this example, with a trial period that is at least 7 days or more. So the most common 14-day or 30-day free trial would work just fine.
After going through and defining the customer’s journey, we’ve identified the steps that a visitor goes through from the moment of discovery to the moment of generating recurring revenue:
Step 1: Visits - From Stranger to Visitor
Step 2: Creates Account - From Visitor to Sign-up
Step 3: Get Onboarded - From Sign-up to Onboarded User
Step 4: Comes back to the product within 1 week - From Onboarded User to Returning User
Step 5: Upgrades into a Paid Plan - From Returning User to Paying Customer
Pro tip: 1st-week retention is crucial for any trial period, probably even more for free trials that last longer time frames because the metric serves as a leading indicator of the probability of a user upgrading into a paid plan, while still having a chance to do something about it before the trial ends.
Considering a journey of 5 steps before a user generates revenue, we can solve for the growth rate on our modified equation.
72 ÷ growth rate = 5
growth rate = 72 / 5
growth rate = 14.4%
For the sake of the example, and to keep things simple, let’s round up from 14.4% to 15%. What does a growth rate of 15% mean then? According to our modified rule of 72, it means that if you improve the conversion rate between each of the steps by a mere 15%, the results will compound and double the revenue of your business.
Let us illustrate what we mean with this example funnel, you can follow along with our example using this calculator.
First, we will look at the initial funnel, then we will apply our improvement of 15% to each conversion rate and in the end, we will look at how the compounded improvements of all steps result in doubling the revenue of the SaaS business.
Example Conversion Funnel for Doubling Revenue with The Rule of 72
Starting Conversion Funnel
Stranger (Assuming all visits are strangers)
-% conversion rate
5% conversion rate
500 accounts created
20% conversion rate
50% conversion rate
50 retained in 1st week
30% conversion rate
Double Revenue Conversion Funnel with 15% Increases
15% conversion rate
5.75% conversion rate
661 accounts created
23% conversion rate
57.5% conversion rate
87 retained in 1st week
34.5% conversion rate
Conversion Funnel Increases
+161 accounts created
+37 retained in 1st week
Doubling revenue can be an extremely difficult task to consider, but if you break it down and look at it as optimizing each separate step by a mere 15%, it becomes much more tangible and actionable.
For example, after improving our visits, we can simply improve the conversion rate of the second step by 15%, between strangers and accounts created (from 5% to 5.75%), to see an increase of 161 additional accounts.
If we continue to do this same small improvement with the rest of the steps we can double the revenue of our business!
Tiny changes compound and lead to big results, we’ve seen it happen with several SaaS products and it’s possible for your product too.
To do this, you’ll first need to examine the behavioral analytics of your users with a fine-toothed comb. We’ve learned from experience just how complicated this gets, so we want to extend a helping hand.
We’ve developed a software product that makes behavioral analytics way easier.
InnerTrends lets anyone get deep insights into how their users behave. Our product answers the most important behavioral analytics questions of your business and points you in the right direction for growth, all without having to be a data expert yourself. If you’re interested in seeing how our read-only product analytics platform cuts through the noise in your data, feel free to schedule a demo with us by clicking here.
Once you completely understand the behavioral analytics of your product, you’ll have a baseline of where your current bottlenecks are in the customer journey. From there you will be able to devise a plan for increasing the conversion rate of each of the steps in the customer’s journey by 15%.