Increasing Revenue in a Down Market

When asked by a first time CEO how to run a company differently in today’s down market, I started with an immediate list of where you’re spending cash and recommended a few out of the box ways to conserve while you make more complex strategic changes. 

The next part of my answer is shifting your focus to continue to grow revenue.  Just because you’re in a down market doesn’t mean you can stop growing revenue.  Investors will, and should, have the expectation that you continue to grow the company….but it may happen in different ways and at a different speed than when things are flush.

Losing revenue in a down market is more of a gut punch than not getting a new logo.  So don’t lose that revenue.

In a down market, the easiest area to increase revenue is to focus on the customers that you already have.  This is a combination of both lowering churn and increasing expansion from those same customers.  It sounds strange to think that a macro downturn can provide a positive opportunity for your business but it can if you use it correctly.

What generally happens when there is a macro-downturn?  We all try to tighten our belts and the mandate comes down from above that there will be a freeze on new spending (read “no new vendors”) and that the list of current vendors needs to be trimmed and consolidated.  

As one of those SaaS vendors, should you put the majority of your resources flying into that headwind still trying to get new logos, or should you adjust to make sure that you’re one of those vendors that survives and maybe even takes some share from some of the other vendors who are going to get cut?

This isn’t abandoning one for the other.  It’s simply shifting resources and priorities.  Losing revenue in a down market is more of a gut punch than not getting a new logo.  So don’t lose that revenue.

One, consider taking some of that capital spent on acquiring new logos and increasing the size and sophistication of your Customer Success team.  Your current customers certainly aren’t going to complain about it.  

Two, consider a similar shift with your marketing efforts.  If you’re not doing as much outbound new logo marketing, can you redirect those same resources to existing customer communication?  Do they know about your latest features?  Are they using the product to the full capacity?  Are you building customer success stories?

Three, consider shifting your engineering roadmap to include more features for current customers than new customers.  Even in normal times, we have to play the balancing act of features that attract new customers vs those that make current customers happy.  This is a time to bank some customer goodwill.  Again, your customers will appreciate it.  

Does this really pay off in dollars and not just goodwill?  Most of the healthy SaaS companies that I see have churn (retention) in the 85% range and NDR around 100% and greater.  The industry would label these as being “in the range of normal”.  Lowering that churn by 5% has a far greater impact on the business than simply not losing that 5% of revenue.  Sales doesn’t have to replace that revenue.  Customers are more satisfied and your NPS is going to be higher.  Empirically, happy customers expand faster than unhappy customers and increases NDR.  So don’t think that the impact of 5% less churn is only 5% to your bottom line.  It is far greater than that, and even more so when new logo acquisition is down.

When you eventually come out of this downturn, your brand is actually going to be better.  Customers are happier, which makes new logo acquisition slightly less difficult (never easy).  The pendulum will need to swing back to acquiring new logos.  So what did you do during that downturn time to make it easier to acquire new logos once the market improves?  If you’ve made existing customers happier and more successful with your product, you’re off to a solid start.

Jonathan Niednagel
Jonathan Niednagel
Jonathan is a multi-time CEO, former venture capitalist and a founding member of the Arena Partners team.