How a PLG Driven SaaS Businesses Can Increase EBITDA by up to 30%?

Read time: 3 minutes.

Welcome to the 29th edition of The Growth Elements Newsletter. Every Monday, I write an essay on growth metrics & experiments and business case studies.

Today’s piece is going to 5100+ founders and leaders from businesses like Shopify, Google, Sage, Hubspot, Servcorp, Zoho, Apollo & more.

Happy Monday!

In this essay, we will delve into a small yet strategic improvement that PLG driven SaaS businesses can make in their onboarding conversion rates, specifically through:

1. Faster onboarding flow.

2. Reward mechanisms.

3. Drop off coupon strategy.

It can dramatically enhance the financial health of a SaaS business, potentially increasing EBITDA.

High Speed and Frictionless App Flow

[1] Faster Onboarding Flow

• A fast-loading SaaS platform is essential for user retention and acquiring and activating new users.

• When using the PLG route - quick, efficient websites and frictionless onboarding flow lead to higher user satisfaction and conversion rates.

[2] Reward Mechanisms

• Gamification and engaged flow tend to give higher conversion rates.

• It hooks users and motivates them to take the next step in the flow.

For example, Completing A, B, and C rewards you with free credits or an extended trial.

[3] Drop off Coupon Strategy

Like e-commerce checkout, a proactive discount strategy must be used to incentivise and push to complete the onboarding flow if users drop off.

Example: Exit intent giving 30-50% off coupon and triggering Abandonment email automation sequence.

Financial Impact of Conversion Rate Improvements in SaaS

[1] Increased Revenue

• SaaS businesses rely on subscriptions for revenue.

• 1% increase in conversion rates can result in a substantial uptick in subscriber numbers, MRR and ARR.

[2] Enhanced Cost Efficiency

• Improved conversion rates mean acquiring more customers without a corresponding increase in marketing spend.

• It is positively impacting the company’s EBITDA.

[3] Long-Term Customer Value

• The SaaS model thrives on customer loyalty.

• A better-performing app contributes to higher retention rates, increasing the LTV.

Understanding the EBITDA Increase in SaaS

[1] Revenue and Profitability

• Given the recurring revenue model, a minor boost in conversion rates can significantly:

  1. Increase MRR and ARR.

  2. Directly influencing EBITDA.

[2] Leveraging Fixed Costs

• SaaS companies generally have high fixed operational costs.

• The additional revenue generated from increased conversions significantly impacts:

  1. Profit margins.

  2. Substantial rise in EBITDA.

[3] Strategic Financial Planning

• Link app and onboarding flow performance improvements to financial models.

• Businesses can directly correlate enhancements with an increase in overall enterprise value.

Takeaways

1. For SaaS businesses that are mainly PLG-driven, optimising app performance and onboarding flow is critical.

2. It's a crucial strategic decision with direct implications for financial performance.

3. A slight improvement in conversion rates, facilitated by faster and frictionless flow, can significantly boost a company's EBITDA.

4. This understanding is vital for SaaS businesses aiming to maximise profitability.

5. By focusing on digital optimisation, SaaS startups/businesses can unlock new levels of growth and efficiency.

That's it for today's article! I hope you found this essay insightful.

Wishing you a productive week ahead!

I always appreciate you reading.

Thanks,
Chintan Maisuria