What to do when growth tapers off

Every company hits a frustrating point where growth starts to taper off, or levels off, or even declines.

It happens whether you’re the most popular “viral” social media company in history…

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…or one of the most-respected bootstrapped, transparent, customer- and employee-first companies in history…

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…or a programming language used by millions of people…

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…or people switching to mobile devices…

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The founder protests! Why is this happening!?

• The product is better than ever (more features, fewer bugs)
• The market is bigger than ever (more potential customers, more money being spent)
• Our brand is stronger than ever (more customers, more presence, more time)
• We’re smarter than ever (we now have years of experience in this space)

How do you fix it?

What definitely won’t work, is doing more of the same things that got you here. Nor doing incremental things, because this is not an incremental problem.

Rather, you need to diagnose the most significant force causing the asymptote, and attack it with non-incremental effort. 

Maybe to beat the plateau we have to do things that we had previously considered out of bounds.
—Laura Roeder

While it’s wrong to suggest such a complex puzzle can be resolved with a simple formula, I use the following framework to diagnose the underlying issues, whether it’s for one product-line inside WP Engine, or for top-line revenue at another startup.

I ask the following questions, in this order. I stop at the first question that identifies a problem, because these are ordered such that if one is broken, solving subsequent ones will not help.

Q1. Logo Churn: Are customers leaving?

“Logo churn” is the fancy way of saying “churn by number of customers.” Not by MRR, not worrying about upgrades, just the rate at which customers are leaving.

Sidebar: Calculating “rate”
A typical rate is “customers lost per month,” which at its simplest is \(\frac{c}{s}\) where \(c\) is the number of customers who cancelled during that month and \(s\) is the number of customers at the start of the month. However this doesn’t properly handle customers who signed up but then cancelled within the month, therefore it’s better to include sign-ups inside the both using \(\frac{c}{s+n}\) where \(n\) is the number of new customers added during the month, or to ignore those in/out customers, tracking that quantity separately (because you probably want to do something about it!), and calculating \(c_s/s\) where \(c_s\) is number of customers who were present at the start of the month who cancelled within that month.

Logo churn is the worst, because almost nothing else you do will make up for it. The customer is gone, so there’s no chance for recovery.

They often take a bad taste in their mouth as they leave, which comes out in negative reviews and negative social proof, e.g. when someone on Twitter asks what tool they should buy, they might show up in the negative.

The very worst part is that customers are saying: “We don’t want this.” That’s a fundamental problem that transcends “metrics” and “business model” and goes to the very heart of what you’re doing and why. If customers don’t want the product, nothing else you do matters.

Dangerously high logo churn rates are:

• B2C: 5%/mo
• B2B, Small Business: 3%/mo
• B2B, Mid-sized Business: 2%/mo
• B2B, Enterprise: 0.8%/mo

Small business owners love to push back on this, insisting that their 7%/mo churn rate is “normal for the industry” and “fine because we’re a small company” and “hasn’t been a problem so far.”

And then they run into the growth ceiling. And, because they refuse to believe that 7% churn is high, they don’t know what the problem is.

The math is simple. To see exactly why this is wrong, see the “High Cancellation” section of this article for an analysis of the specific case of Buffer (above), and why high cancellation (5%, in their case) is the one and only cause of their revenue ceiling. Here’s the summary:

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The math is undeniable, as is the issue that not enough customers are seeing value in the product, at least not for long enough. This is a fundamental product problem that must be solved.

How?

You’d think the answer is: Ask people who have churned, or are churning now. Unfortuantely, they typically don’t want to talk to you—they don’t want to invest more time with you, and might even be unhappy or otherwise emotional. Even when you do—whether live or by survey—they often say something that’s easier rather than the root issue, like “Not enough value” or “Too expensive.”

To see why those aren’t useful, consider “Too expensive.” Remember, they signed up for the product, at this price. It wasn’t “too expensive” then. Which means that’s not the reason. It means there was some expectation that wasn’t met—some expectation where it wouldn’t have been too expensive. Because the product didn’t work the way they thought? Because the product didn’t do what it promised? Because they used it wrong? Because they were never the right customer for it? Because their business changed? Because it didn’t fit into a workflow? Or other reasons—you don’t know.

At minimum, you need careful interrogation that gets to the root of the issue.

Better: Look for signals that a customer is not being successful before they cancel, so you can reach out while they’re still ready to talk. That means understanding what is correlated with cancellation, and what is anti-correlated with retention (because often all customers have similar behaviors). This is difficult, but worth the effort.

Q2: Are existing customers growing?

The next step is to examine net churn, which considers both cancellations and internal growth—how much revenue you’re generating from existing customers through upgrades and add-ons. Many small companies overlook the importance of this internal growth, yet it’s crucial because it scales with your existing customer base.

Your goal is a net revenue retention (NRR) rate above 100%. This means you’re not just compensating for churn, but growing even if you never added another new customer. Your “new customer” acquisition will never scale with the size of your customer base, but NRR does.

For instance, Dropbox saw significant growth by introducing tiered pricing and premium features that encouraged existing users to upgrade. This approach boosted their NRR and propelled their growth, even when new customer acquisition slowed. For many at-scale companies, NRR growth is greater than new-customer growth (Fastly, for example).

Often the problem is that you don’t have a pricing mechanism for upgrades. The classic “best” way for a SaaS companies is to price along two dimensions:

1. Usage (e.g. number of users, amount of data, tickets/month)
2. Functionality (e.g. “tiers” that include more features, integrations, service, governance)

The rule is that customers ought to pay more only if they’re getting more value. Then it’s “fair” and sensible, at least Utility and not contrary to Love, and certainly not Coercion from my WTP framework. So for example it makes sense for Support Ticket Desk Software to charge more if more reps are using it, or if they want additional features like AI responses.

Q3: Is your pricing correct?

The answer is almost always: No.

But also, the problem is almost always: It’s really hard to know.

This is an extension of the previous point: Pricing structure affects growth. Indeed, you can’t change it too much, or else it’s not the same business anymore.

But even small changes in pricing can instantaniously increase revenue without changing how many people sign up every day, or how many people cancel every month.

For example:

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The obvious action is: Experiment. There are more systematic ways, but they’re difficult to execute, and in my experience, even with expert assistence, half the time you get it wrong.

Yes, pricing is art as much as science. It’s also one of the most important levers you have.

Q4: Are acquisition channels saturated?

With positive NRR, you can turn back to the question of new customers. If the rate of new customers arriving has stalled—or even sagged—you’ll want to address that.

Marketing campaigns naturally do this: Reach a threshold, then start to sag. I have covered this in detail, with realistic models and many real-world examples, and the explaination for why it happens, in this article about exponential growth.

One thing you can do is accept a lower ROI. Of course we don’t like over-paying for new customers, but in the long run it can be worthwhile spending more to grow. This is especially true with positive NRR, because customers will grow over time, which means you can spend more up-front. This can create a cash-flow problem, but sometimes that can be counter-acted with annual plans.

The next obvious thing to do is: Find more channels. If you have only one, this makes sense. If you’re at scale, and already have multiple, it is still worth experimenting to find another, but it’s likely you have reached total saturation.

More likely, you’ll need to find something completely new.

For example, Hubspot hit a growth plateau when selling directly to customers (through multiple channels). The way they solved it was with a dramatically different channel: Reselling through agencies. It took years before that effort was making a material impact on growth rate, but then it became fully ½ of their total growth:

Quickbooks was similar; they sold their accounting software directly to small businesses through stores (before the Internet!), but most growth was through selling software to accountants, where the easiest path for the accountant was to get their clients to buy Quickbooks, because then the data flowed perfectly into their own tools.

Q5: Is the market saturated?

Markets are not infinite. Especially when you consider the subset of the market for which your product is “perfect,” i.e. the one surrounding your ICP (Ideal Customer Profile). Perhaps you are reaching everyone who you can reach, or at least at the natural limit of the rate at which you can reach more.

Now it’s time to expand the market. But in which direction? What is most lucrative? What is least risky? What makes sense for you and your company?

See this article on expanding into adjacent markets for details on how to identify this and make the decision.

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Q6: Do you even need to grow revenue?

“If you’re not growing, you’re dying” as the saying goes.

Your knee-jerk reaction to that might be: That’s what money-grubbing investors say! It doesn’t apply to me! But, this was a phrase I’ve heard my whole career, including when I was at bootstrapped companies (both those I founded and those I worked at), where the founders hated VCs. It’s not necessarily wrong.

Still, it’s not necessarily right. What is right?

You must decide what is important to you. Maybe you want to maximize profit instead (but not at the expense of what’s fair to customers or what you would be proud of doing). Maybe you want to minimize how much time you spend on work that you dislike. There are many more choices; the only wrong choice, is to avoid making a clear choice, because then you can’t aim the company at that choice.

It also might be time to sell. No one can make that choice for you, but perhaps others would have the energy and motivation to take it to the next stage. Maybe you simply want to do something else, now that you’re older and have dramatically more money. Maybe this maximizes money in your bank account, because if you wait another three years as revenue sags, your sale price will be dramatically lower.

Congratulations on building a fantastic business! Now honestly diagnose what’s holding you back.

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