The Profit Plan
The real test for SaaS companies comes in maintaining an accelerated growth rate as you hit scale, and in balancing growth and profitability. That’s where the Profit Plan comes in.
Who's it for?
- CEOs who want to pay-as-you-go and pay-for-performance
- SaaS companies with changing marketing needs
- SaaS companies optimizing their global marketing organizations
What's it for?
- Getting to profitability while sustaining a healthy growth rate
- Optimizing the marketing team for a diverse set of growth needs
- Getting on the PE/IPO radar
- Getting to late majority, broad market adoption
- Profitable ARR: To get to 40% and stay there, you need to start making a profit
- LTV (Customer Lifetime Value): The combination of continued ARPU with low churn
- CTS (Cost to Service): Now that you are doing everything at scale, you need to get your cost under control: sales, marketing, support, operations, and retention.
The Rule of 40%
Private equity firms and later state investors have accepted that SaaS companies can compensate profitability with subscriber and ARR growth. The “40% Rule” is a method to make sure these are in a healthy balance.
The rule states that your growth rate plus your profit should add up to 40%. So if you’re growing at 30%, you should be generating a profit of 10%. If you’re growing at 40%, your profits could be as low as 0%. If you’re doing better than 40% total, that’s awesome.
Think of 40% as a magic number to get serious interest from private equity financing firms and might even land you an IPO.
Your marketing leadership needs will keep changing in this growth stage. You now need to go after the “late majority” of the market, which included specialization in specific market segments or industries. Here are some examples:
- Open international subsidiaries
- Expansion (segments & verticals)
- Consideration of inorganic growth (M&A) to speed up market entry or solution completion
- Develop a distributed marketing team across countries or segments
- Diversify your channel marketing across resellers, distributors, OEMs, etc.
- Develop products for specific industries or verticals
- Prepare an IPO (initial public offering)
- Develop a plan to monetize your intellectual property
- Evolve legal agreements as they support or inhibit marketing
- Address potential competition with yourself (older products/plans)
- Grandfathering early adopters (customer) into new pricing plans
As your company grows, the marketing team will get bigger and the scope of potential work they can do is growing faster. The challenge is that some CMOs are more experienced in the art of marketing, others in science. To scale you need both.
As your company moves through its growth phases, your CMO will bring in other CMOs with unique expertise (e.g., move from B2C to B2B or adding a channel model). If the needs of our CMO leadership role change significantly, you can change your primary CMO.
The same flexibility offered with the SCALE Plan (bringing in CMOs with different types of expertise as the needs of your company change) applies to the PROFIT program. This service is optimized to give you the right SaaS CMO expertise to address all the challenges you’ll encounter.
Pay for Performance
At this stage, your CMO is “paid for performance” by applying the 40% rule. 20% of the CMO-as-a-Service retainer will be dependent on achieving and sustaining the 40% combined growth and profit performance.
We’re confident that we will be able to achieve not only our 2015 goals, but also those that we have established three years out—the arc of the hockey stick.