SaaS

PLG = users try the product free first (freemium/trial), land free, expand via self-service. Examples: Slack, Figma, Notion. CAC is lower, sales team is small, retention is critical. SLG = sales team drives deals, often enterprise deals with long sales cycles. Examples: Salesforce, Workday. CAC is higher, but deal sizes are large, ACV matters more than user churn. Hybrid (sales-assisted PLG) is increasingly common: free tier gets users in, sales accelerates expansion deals. No single 'best' model — it depends on your ICP (ideal customer profile) and price point. PLG works for <$300/mo products with broad audiences; SLG works for >$10k/mo products targeting specific industries.

NRR = (Revenue from existing customers this month - (lost revenue from churn + downgrades) + expansion revenue) / Revenue from same cohort last month. If NRR = 120%, you're growing revenue from your existing customer base without new logos. NRR >100% = your product is so sticky that existing customers expand faster than they churn. This is the hallmark of healthy SaaS. NRR <100% = you're shrinking from within, even if you're adding new customers (churn + downgrades outpace upsells). Rule: NRR >120% + 30% growth = Rule of 40 achieved. Most public SaaS companies report NRR in earnings calls — it's often more important than new customer count.

Flat-rate: simple (one price for all), high CAC (no 'starter' wedge), high LTV predictability. Works for simple products (e.g., $99/mo unlimited). Tiered: multiple price points (Starter/$50, Pro/$150, Enterprise/$500+), captures different customer segments, easier sales expansion (move up tiers). Works for most SaaS. Usage-based: charge per unit consumed (API calls, MB stored, users created). Aligns cost with value, grows with customer success, requires metering/billing infrastructure. Works for infrastructure (Stripe, AWS, Twilio). Hybrid (flat + overages) is increasingly popular: $99/mo base + $0.10 per unit over 1M. Consider: (1) Can you measure usage easily? (2) Is usage tied to customer value? (3) Are customers price-sensitive? (4) Does your market expect usage-based? Then pick hybrid or usage-based. Otherwise, tiered is the safest default.

T2D3 = a shorthand for SaaS growth: year 1 (Triple revenue), years 2-5 (Double revenue each year). If you start at $1M ARR: Year 1: $3M (3x), Year 2: $6M (2x), Year 3: $12M, Year 4: $24M, Year 5: $48M. Reaching T2D3 typically = $10M+ ARR at scale. It's not a law (many SaaS don't hit it), but VCs use it as a benchmark for a 'good' trajectory. Key insights: (1) Tripling is hard, but doable with strong PLG or sales motion. (2) Doubling becomes routine at scale (you just need 40% growth + 0% churn). (3) Hitting T2D3 = you're likely venture-scale (Series B+). For bootstrapped SaaS, steady 30-50% YoY growth is healthy, even if it's not T2D3.

CAC = (Total sales + marketing spend in period) / (New customers acquired in same period). If you spend $100k on sales+marketing in month and acquire 50 customers, CAC = $2k per customer. Critical: (1) CAC payback = CAC / (monthly gross margin per customer). If CAC $2k + monthly margin $500, payback = 4 months. Healthy payback <12 months (strong <6 months). (2) LTV:CAC ratio = if LTV is $24k and CAC is $2k, ratio = 12x (excellent, means $11 margin per $1 spent). Most VCs expect 3:1 minimum. (3) Reduce CAC: improve organic/referral, self-serve onboarding, product-led virality (sharing, integrations), or target higher-intent users (intent-rich keywords, ABM). (4) Improve margin: raise pricing, focus on high-margin segments, or lower support cost per customer.

Churn = % of customers who cancel in a period. Monthly churn (MChurn) is most common: if you start with 100 customers and 5 cancel, MChurn = 5%. Annual churn (AChurn) is often quoted: 5% MChurn ≈ 50% AChurn. Healthy baselines: B2B SaaS <5% MChurn (e.g., Salesforce, Zendesk), B2C SaaS <2-3% MChurn (e.g., Slack). High-touch enterprise often <2% MChurn because deals are large and sticky. Churn-reducing tactics: (1) Onboarding — 80% of churn happens in month 1 (bad onboarding = instant cancel). (2) Usage monitoring — trigger outreach if usage drops (they're at risk). (3) Success/support — proactive check-ins, training, demos. (4) Pricing — is your price fair for the value? Overpriced products churn faster. (5) Product — missing features, bugs, or unmet use cases drive churn. Expansion revenue must outpace churn (NRR >100%) to be healthy.

Vertical SaaS = focused on one industry (healthcare clinic software, legal firm billing, contractor invoicing). Horizontal = works across industries (Slack, Google Drive, Airtable). Vertical pros: (1) Deeper domain expertise (built-in compliance, workflows, terminology). (2) Higher switching costs (integrated into business processes). (3) Can charge premium pricing (industry-specific features command 2-3x higher prices). (4) Faster sales (domain expertise builds trust). Vertical cons: (1) Smaller TAM (e.g., US dentistry = ~200k practices, smaller than 'all office workers'). (2) Consolidation risk (one competitor buys industry and scales). (3) Harder to expand to other verticals later. Horizontal pros: (1) Massive TAM (billions of potential users). (2) Network effects (every user is a potential advocate). (3) Easy to expand. Horizontal cons: (1) Feature bloat (trying to serve everyone). (2) High CAC (competing globally). (3) Low pricing power (commodity features). Rule of thumb: If you're underfunded, build vertical (defensible, higher margin). If you're well-funded, build horizontal (bigger exit, faster growth).