Lessons from consumer SaaS

Up: § 2023 Shareholder Letter Index

To serve the down market segment of creators, entrepreneurs, and small businesses successfully, we’ve leaned into seeking lessons from consumer SaaS rather than purely the widespread enterprise SaaS playbooks.

In enterprise SaaS, reducing churn is a top priority, and significantly growing average revenue per user (ARPU) is a focus. If we take that approach, we will not serve our customers well, and we will also lose our bigger opportunity to be a more widespread and ubiquitous tool in the market. Our monthly customer churn rate hovered a little above 5% for most of 2023, which would be considered too high for many SaaS businesses. Yet, when serving small businesses, you need to live with an inherently high churn rate. As Ben Chestnut, the Founder CEO of Mailchimp, famously said, “when you serve small business, the churn rate is awful”.

The way we will win when it comes to growth is combining lessons from consumer SaaS with the opportunities we have for standard SaaS growth strategies. A useful metric I came across in the last couple of years is carrying capacity, which is calculated as the number of new paying customers per month divided by the customer churn rate per month. This number gives you the number of paying customers, at which point you will cease to grow because the customers you gain will be equal to the customers you lose. This isn’t a perfect metric for us, as we do indeed get some growth from expansion and increase in ARPU, however, it highlights the impact of growing the number of paying customers versus decreasing churn rate.

I have asserted many times to the team in the past couple of years that there will always be a ceiling to how much we can reduce churn, however, there is no ceiling to how many new users and customers we can find who will gain value from Buffer. This has led us to put focus on new user signups, activation, and retention, and we are starting to see that we can see growth while focusing on this segment.