Revenue Rot Risk: When Winning More Deals Is Making You Lose

In partnership with

Read time: 5 minutes.

Welcome to the 147th edition of The Growth Elements Newsletter. Every Monday and sometimes on Thursday, I write an essay on growth metrics & experiments and business case studies.

Today’s piece is for 8,000+ founders, operators, and leaders from businesses such as Shopify, Google, Hubspot, Zoho, Freshworks, Servcorp, Zomato, Razorpay and Zoom.

Today’s The Growth Elements (TGE) is brought to you by:

Business news as it should be.

Join 4M+ professionals who start their day with Morning Brew—the free newsletter that makes business news quick, clear, and actually enjoyable.

Each morning, it breaks down the biggest stories in business, tech, and finance with a touch of wit to keep things smart and interesting.

Try it yourself (for free)

Former Zillow exec targets $1.3T market

The wealthiest companies tend to target the biggest markets. For example, NVIDIA skyrocketed nearly 200% higher in the last year with the $214B AI market’s tailwind.

That’s why investors are so excited about Pacaso.

Created by a former Zillow exec, Pacaso brings co-ownership to a $1.3 trillion real estate market. And by handing keys to 2,000+ happy homeowners, they’ve made $110M+ in gross profit to date. They even reserved the Nasdaq ticker PCSO.

No wonder the same VCs behind Uber, Venmo, and eBay also invested in Pacaso. And for just $2.90/share, you can join them as an early-stage Pacaso investor today.

Invest for $2.90/Share

_{Paid advertisement for Pacaso’s Regulation A offering. Read the offering circular at invest.pacaso.com. Reserving a ticker symbol is not a guarantee that the company will go public. Listing on the NASDAQ is subject to approvals.}

^{Thank you for supporting our sponsors, who keep this newsletter free.}

Most SaaS founders get excited about revenue growth.

But they're not asking the right question: Are we winning the right customers?

Here's the problem: 40% of fast-growing SaaS companies are signing customers who will destroy their business.

I call this Revenue Rot.

[1] What Is Revenue Rot?

Revenue rot happens when you optimise for deal volume instead of deal quality.

You end up with customers who:

• Cancel within 12-18 months

• Need constant hand-holding from your support team

• Never buy more than their initial purchase

• Cost more to serve than they pay you

The scary part: Your revenue goes up, but your business gets weaker.

Your monthly recurring revenue climbs 20%, but your customer retention drops from 110% to 95%. Your support team doubles in size while expansion revenue stays flat.

You're winning deals that are killing your company.

[2] Three Ways You Accumulate Bad Revenue

1. Wrong Messaging: Your website and marketing attract people who expect a different product than what you actually sell.

Example: You sell a simple project management tool, but your marketing says "enterprise workflow automation." Fortune 500 companies sign up expecting something like Salesforce. They leave disappointed.

2. Desperate Sales: Your sales team promises anything to close deals before quarter-end.

Example: "Yes, we offer 24/7 phone support!" (You don't.) "Yes, we can customise anything!" (You can't.)

3. Wrong Pricing: Your pricing attracts customers who use your product in ways that lose you money.

Example: You charge based on usage, but attract people who use tons of your resources while paying very little.

[3] Customer Quality Framework

Think of your customers in three buckets:

Bucket 1: The Goldilocks Customers (Target: 70%)

• Start getting value within 90 days

• Tell their friends about you

• Need minimal support

• Pay early and upgrade often

Bucket 2: The Steady Customers (Target: 25%)

• Use your product consistently

• Renew their contracts reliably

• Don't cause problems

Bucket 3: The Problem Customers (Target: Under 5%)

• Consume tons of support time

• Always ask for custom features you'll never build

• Likely to cancel within 18 months

• Make your team miserable

[4] How to Measure Revenue Quality

Every Month, Track:

• How long does it take new customers to get value

• Support tickets per dollar of revenue

• Which customers are expanding their usage

Every Quarter, Track:

• Customer retention by where they came from (Google ads vs. referrals vs. cold outreach)

• How much does it cost to support different customer segments

• Which deal types lead to the most expansion revenue

[5] 3 Week Revenue Quality Audit

Week 1: Sort all your customers by how much they pay, where they came from, and how they use your product. Calculate which segments make you the most money.

Week 2: Listen to sales calls with your best customers vs. your worst customers. What's different about how you sold to each group?

Week 3: Look at product usage data. What do successful customers do that unsuccessful customers don't?

[6] How to Fix Revenue Rot

Be More Specific in Your Marketing: Instead of trying to appeal to everyone, create content that attracts your goldilocks customers specifically.

Qualify Harder: Add more steps to your sales process that filter out problem customers before they can sign up.

Change Your Pricing: Structure your prices so that your ideal customers find them attractive while problem customers find them expensive.

Set Success Checkpoints: Within the first 90 days, help new customers hit specific milestones that predict long-term success.

[7] Warning Signs Your Revenue Is Rotting

Red flags you'll see every month:

• Your support team is growing faster than your customer count

• You're closing deals faster, but customers are cancelling sooner

• New customers aren't buying additional products or upgrades

Red flags you'll see every quarter:

• Customer retention is dropping even though revenue is growing

• It costs the same to acquire customers, but they're worth less over time

• Your sales team hits their activity goals but misses revenue targets

[8] Big Mindset Shift

Stop asking: "How do we close more deals?" Start asking: "How do we close more deals that will grow?"

Stop asking: "How do we get customers cheaper?" Start asking: "How do we get customers that are worth more?"

Stop asking: "How do we grow faster?" Start asking: "How do we build growth that lasts?"

[9] Bottom Line

Growing revenue with bad customers is like building a house on quicksand.

Every problem customer you sign today makes it harder to build a great business tomorrow.

The companies that win don't just grow revenue—they choose their revenue carefully.

Do this:

• Measure customer quality as much as customer quantity

• Design your sales process to filter for good fits, not just fast closes

• Focus on customers who will buy more over time, not just customers who will buy once

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,
Chintankumar Maisuria