Every software as a service (SaaS) business that wants to make its mark on the world must have a plan to hit $100M in annual revenue. Creating a runway to this target is difficult, but businesses will dramatically increase their chances of success by planning for it.
In reality there’s only three ways to hit this milestone. Businesses can reach $100M in annual revenue by having:
- 100K customers worth $1K each per year
- 10K customers worth $10K each per year
- 1K customers worth $100K each per year
Most SaaS businesses fit into one of these categories, and they are essentially a proxy for the segment being targeted, namely small business, mid-sized and enterprise clients.
The segment you target has many important implications. Each has a different total addressable market (TAM), which subsequently impacts everything from how much you charge to product functionality to levels of support you can provide. A customer paying $1K per year will have vastly different expectations to one that is paying $100K.
Businesses don’t necessarily need to be billing customers at these levels today, especially if they’re still finding product/market fit, but it is important to look at and plan for how many customers they want to acquire and the revenue that those customers are expected to generate each year.
Take a look at the descriptions below and decide which best describes the SaaS business you have today or want for tomorrow. There’s naturally some overlap between segments, but focussing on serving just one is the best way to make your revenue aspirations a reality:
100K customers worth $1K each per year
This is the small business segment and is characterised by a large TAM, low touch or self-serve sales process and low sale price. The customer acquisition cost for the business is low, but they need to sell a high number of products to be profitable. Customer support and onboarding is limited or self-serve and product customisation is rarely available (although third-party integrations are often available).
Examples of businesses that serve this segment include MailChimp, Intuit and Shopify.
10K customers worth $10K each per year
The mid-sized business segment has a large TAM (although smaller than small business), a higher touch sales process and mid-level pricing. The cost to acquire customers is typically moderate and they must to sell a mid to high range number of products to be profitable. Customer support and onboarding is often provided and some product customisation is expected.
Businesses that sell into the mid-market segment include HubSpot, Zendesk and Yesware.
1K customers worth $100K each per year
Companies selling at this price point focus on the enterprise business segment, which is characterised by a small TAM, very high touch sales process and high sale price. The customer acquisition cost is high, but the business often only needs to sell a small number of products to be profitable. Dedicated one-to-one customer support and onboarding is provided and full product customisation is expected.
Companies selling into the enterprise segment include Eloqua, Marketo and Workday.
There’s also businesses that have one million customers that are worth $100 each per year and some with 100 customers worth $1M each per year, but these are the outliers. Creating a successful business aimed at these segments is difficult. With one million customers you’re likely to be dealing with the consumer segment, such as Netflix and Spotify and at the other end, creating, launching and marketing a product that is worth $1M is likely to have high entry costs and barriers to entry.
One more important point to clarify. While it’s important to have a clear focus, you also want to make it easy for people to buy more from you and upgrade. You can and should do this (most SaaS companies offer two or three versions of their product), but it should not detract from your core focus. Many of the smartest businesses offer free or freemium versions of products with reduced functionality. This helps create a flow of future customers, which upgrade once they have outgrown the free or freemium solution.
Mapping out how you can see your business attracting $100M in annual revenue is a simple, but valuable exercise that will impact how you think about best fit customers, sales process, product positioning and customer service. Completing it will help you understand which segment, whether it be small, medium or enterprise sized businesses you need to target in order to realise your growth ambitions.
Hitting $100M in annual revenue starts with having a clear focus on the right segment to target.