Maturity Stage of Product Life Cycle: Three Strategies to Stay on Top
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Sooner or later, all businesses, even the most successful, run out of room to grow. Sales will eventually peak and then slow down, partly due to internal limits and partly because you start to bump up against the limits of the market you serve.
You hit the ceiling that is not necessarily the limit of your business, but a significant obstacle in reaching the new peak of growth. So, how can you keep your SaaS company growing? Below, we'll break the answer in more detail.
But first, look at the salmon.
It’s leaping hard in order not to be washed downstream. You should basically do the same.
Characteristics of Maturity Stage in Product Life Cycle
The product life cycle curve explains the common evolution of any successful product. Starting from the introduction stage of the product life cycle, early adopters provide the momentum behind uptake during the growth stage of the product life cycle. The followers swiftly catch up leading to the upward trend and finally, the curve flattens, as the increasing adoption leads to saturation. In broad terms, this is the definition of the maturity stage in the product life cycle.
You climb the curve as high as possible, and when you’re at point “A”, you take a leap to the new growth or getting ready to slide down to a decline stage of the product life cycle.
A quick check to see if you’re heading your point “A”. How many points from the list below describe your company’s situation?
- Customer acquisition is slowing since most people who need the product already have it.
- The lifetime value of new customers decline.
- Your focus moves from educating and building brand awareness toward winning customers from competitors.
- New entrants disrupt the market while weak companies can’t sustain competition.
If all that characteristics of the maturity stage of the product life cycle sound familiar to you, we’ve got some good and some bad news.
Good news: Neil Patel says that 90% of startups fail, and you definitely belong to the remaining 10%. You’ve reached a peak of market penetration, which means a peak in profits, which also means you have some resources to recover from your startup fight for survival.
Bad news: Growth will slow down, as you run up against either natural market-size or market-share limits of your core product. As Matthew S. Olson and Derek van Bever write in their book Stall Points, once a company runs up against a major stall in its growth, it has less than a 10% chance of ever fully recovering. The remaining 90% move from maturity to decline, so you step into the mature enterprises’ fight for survival.
The Strategies for Maturity Stage of Product Life Cycle
While every company’s circumstances are unique, there are three strategies that help to regain growth during the Maturity stage:
- Product Development: Activities such as creating new products and improving the existing products with improvements and developments.
- Market Development: Includes localization for different locations and selling to the new audience segments.
- Diversification: Can be made by entering a new market via acquisitions or development of brand new products for the new audience.
We’ll consider those strategies in practice. Slack and Zoom are the first two SaaS companies that come into mind as examples — they are reaching the maturity stage of the life cycle before our eyes because so many people already have their account (or their competitors’ account)
Both companies have shown stellar growth based driven by the freemium pricing model. Since they make software for remote work, they have been helped rather than harmed by the pandemic. Both compete with giants — Google and Microsoft build video and communication capabilities.
Let’s watch what maturity-stage challenges both companies faced and what moves they did to cope with them within product development, market development and diversification strategies.
Product Development Strategy for Mature SaaS
The key idea here is to update the product to keep up with its expanding user base, deal with emerging issues, and new requests. It allows you to hold the current market share and prolong the maturity stage.
Security issues became one of the main concerns for Zoom in 2020. A series of high-profile security mishaps — including Zoombombing, a vulnerability that led to cameras hijacking, and routing calls through China — resulted in a great loss of credibility.
Zoom maneuvered quickly to address privacy concerns:
- On April 1, Zoom CEO Eric Yuan announced a 90-day plan to channel all engineering resources into fixing safety and privacy issues.
- Acquisition of Keybase, a startup that specializes in end-to-end security.
- Recruitment of Alex Stamos, former Facebook security executive, and adding the end-to-end encryption.
- Two-factor authentication as an additional security level.
In the year 2020, Slack was forced to figure out ways to rapidly scale its infrastructure instead of refining its product and building out the features that users wanted. However, there was at least one long-awaited update.
Mashable welcomed an updated app with the headline “Slack's redesigned mobile apps are less likely to make you bang your head against a wall”, and I couldn't agree more with that wording. Don’t get me wrong, Slack is a great app, but it should have gone more mobile-friendly long ago.
Don't be like Slack. We at Eleken can help you create a mobile app that attracts potential users and doesn't scare them away.
Learn more on how we work – read our case study on designing a mobile app that helps people track their habits and improve their quality of life for HabitSpace.
Market Development Strategy for Mature SaaS
With a market development strategy, you expand your existing product into new customer segments or geographies. The lockdown helped both our objects to accelerate the global adoption that was finally slowed down due to the tough competition in the maturity stage.
Thanks to its freemium model, Zoom has acquired a large audience among individual users and small/medium-sized businesses. Though, being popular with the masses doesn’t necessarily lead to more income — the largest revenue segment comes from large enterprises.
Corporate users not only tend to pay more — they’re less likely to cancel the service when thanks to vaccine in-person meetings become possible again. And looks like Zoom has lost that solvent customer segment.
A number of prominent companies, including Ericsson, Bank of America, and Tesla, decided to avoid the service over security concerns. Microsoft Teams and Cisco’s Webex took advantage of the situation and started the fight for the enterprise segment with one another.
Slack started out as a favored tool among quite a narrow segment of developers and corporate IT departments. Its market expansion strategy was in building a brand head and shoulders above the competitors’ so that employees evangelized Slack within their organizations demanding management to buy the app.
Over the last years, Slack was working to gain traction with a wider, more general business customer base beyond IT in verticals such as education, customer support, and human relations. Here, with more hierarchical companies, the viral bottom-up adoption turned out to be unable to compete with the massive distribution system of Microsoft Teams, for instance.
Diversification Strategy for Mature SaaS
To jump-start a new cycle of growth after reaching maturity, companies enter a new market with a new product. Within this strategy, our two objects took the opposite courses.
For Zoom, the greatest danger that pushes the company into diversification is the overblown market of video conferencing. It out and will inevitably deflate to a greater or lesser extent as soon as the pandemic gets left behind. The company’s stock dropped nearly 20 percent in November after the positive vaccine news.
So Zoom builds new products around its core tool to jump from the maturity into the new growth curve as a remote communication ecosystem. The potential revenue streams lie in new webinar capabilities, Zoom Rooms for business and cloud-calling Zoom Phone solution. The beta release is running for OnZoom, a marketplace for video events that enables selling tickets.
Slack's life as a Silicon Valley underdog ended in 2016, when Microsoft Teams entered the game by copy-pasting Slack’s basic design. While Slack was fighting for each newcomer, Microsoft played dirty including Teams to its huge 365 bundle without increasing the price — it took Teams from zero to 115 million users in no time. The integration is seamless since most enterprises are already paying for that bundle, like, forever.
Slack’s biggest downside in its maturity stage is that it’s a standalone collaboration tool is competing with an enterprise collaboration platform. Consequently, companies using Slack need to pay extra for other tools if they want to make prezzies or send emails or work with spreadsheets.
Unlike Zoom that builds supporting tools around the core one, Slack attempted to join an external suite of business solutions, and offer their own bundle similar to Microsoft Office.
In 2018 the company partnered with Atlassian, which owns a project management software ecosystem that includes Jira, Trello, Bitbucket, Confluence and a number of other tech solutions. Nowadays, being acquired by Salesforce, Slack has a new chance to fight back against something as significant as Microsoft Teams. So, place your bets.
Wrapping Up the Maturity Stage in Business Life Cycle
What is the maturity stage of the product life cycle? It’s a part of the life cycle when sales growth starts to slow down as the product reaches widespread acceptance in the market.
There are no universal answers on how to beat the growth cycle, get on top, and stay there, otherwise we’d have 100% of ever-successful businesses. As we can see in the examples of Zoom and Slack, even superstars can’t rest on their laurels.
What is certain is that winning once is not enough. You have to rack up repeated improvements and innovations in the market, one after the other to jump into new growth cycles that can be found along the lines of product development, market development and diversification.
Product Owner vs Product Manager vs Project Manager: Who Do You Need to Build a SaaS Product?
Whenever people start learning about different roles in the product team, a question comes inevitably:
Is product owner same as project manager?
Is product owner higher than project manager?
You wouldn’t ask whether product designers and sales managers are the same person, but with a product owner (PO) and project manager (PM), the situation is more confusing. So, why is there such a mess?
Product owners only exist in the Scrum framework. At the same time, companies working with Scrum also can have product managers and some of them may have project managers as well (though project managers are avoided in canonic Scrum teams). All of it creates the need for articles like this one.
When I started getting familiar with Agile and Scrum, I wondered why there was a need to invent a new job, product owner, when a product manager job already existed? I bet I was not the only one asking myself that.
Why do they invent a new role instead of using the existing one?
You may think that it was just a way of separating from previously existing management systems to mark the revolutionary framework. This explanation makes sense. What many people don’t know, however, is that when Scrum was invented, product owners didn’t exist. Product managers were supposed to change their work habits to adjust to the new system.
This role of product owner was introduced later, and one of the reasons for that was the need to differentiate their role in Scrum from other frameworks. Mind that product managers back then were different from what they are now. That is why it makes sense to talk about the differences between the two roles: it was intentional.
Key differences between product manager, product owner, and project manager
Product managers and project managers have different scopes. Project manager’s goal is to execute a project from A to Z. Project does not equal product. In software development, a project can be about localization, or adapting the product for a new client, as it happens in complex B2B products. It includes managing stakeholders, teams, budgeting, planning, and reporting.
Shortly, the role of project manager can be described as “getting things done”, or “organizing the team so that it gets things done, meets the deadline and KPIs”.
Product managers are responsible for the product as a whole, from the ideation to the launch and afterward. They have to go beyond the product team, talk to all the internal and external stakeholders, and know well the market and the customers.
Product manager role is not to just organize the work of the product team to make it most efficient — they have to make sure that what they are creating is the right product.
Product owner's role can be quite different from one company to another. In some cases, product owner has more strategic tasks, and thus gets closer to the product manager. In other companies, they act only on a tactical level, setting tasks and controlling the development process.
Product owners often continue their career path as product managers, and project managers can switch to PO or PM at some point, too.
Does product manowner exist?
Product manowner is not an official job term (yet). This funny word was invented by Rebecca Calogeris, vice president of marketing at Pragmatic institute, when discussing product owners and product managers in the podcast.
It all comes to a question, can these two roles be combined into one? There are different opinions on that. Here is what her interlocutor, Kirsten Butzow, a Pragmatic Marketing instructor says:
If we have the product manager also acting as the product owner and they’re spending their time deep in the engineering organization, who is actually out there in the marketplace getting the fuel source to drive that Agile organization and create velocity and building the right product instead of just making the product fast?
Kirsten says that companies get to understand the importance of having both product manager and product owner more and more. Working together, they can get the best result.
On the other hand, Marty Cagan, the author of the book "Inspired: How to Create Tech Products Customers Love", says that in product companies, a product manager has to be the product owner, as PO responsibilities are a small sub-set of PM responsibilities.
According to Cagan, having both roles on the team would only lead to confusion. Roman Pichler, product management consultant, agrees with that and suggests having junior/senior positions instead. At the same time, other experts think that having senior and junior product owners violates the principles of Scrum…
Well, this is just a sign that the roles are flexible, and there are many contrasting opinions. This article is just highlighting some of the key differences, but don’t be surprised if you see a contradicting opinion elsewhere (or even in this blog).
In the end, all we care about is that each one knows their job and manages to collaborate all together for the sake of the product. If you are struggling with defining the best work model, you may find our article "Product Management Organization Structure: Which One to Choose?" quite helpful.
Project manager responsibilities
- Planning (timeline, budget, KPIs, and so on). The key to successful and timely project completion is the right plan. The most hard-working team will fail if the plan is not viable.
- Leading and team coordination. When the plan is ready, they have to make sure that team is following the schedule and the deadlines are met.
- Handling documentation. Project manager has to deal with various documents, from budgets to reports.
- Problem-solving. However vague it may sound, this is exactly what project managers dedicate most of their time to: solve problems, including the ones that other team members face.
Product manager responsibilities
- Defining product roadmap and vision and coordinating the work of the team in accordance with it.
- Analyzing market and business to align product strategy with the market needs
- Conducting testing to monitor product performance and define changes that have to be made.
- Communicating with customers and stakeholders and ensuring that their interests are reflected in the product.
Product owner responsibilities
As previously said, the level of responsibilities of the product owner is more tactical than strategical. Here are the main ones:
- Managing the backlog: tracking tasks performance, helping the team to follow the rules of Scrum.
- Defining user stories, based on product vision and overall strategy. User story is a product feature as seen by the user, and it is used to guide the development team.
- Prioritizing tasks in the backlog in order to deliver the product fast and efficiently.
- Connecting the team and the stakeholders, syncing with marketing, sales, and other teams to help product team stay on track with the rest of the company.
This is a general overview of an imaginary product owner. In reality, they often have to take on tasks that go beyond a perfect Agile framework. To give a more tangible image of the role, we plan to publish an interview with a product owner and ask what their day looks like.
Now that we've had a closer look at the responsibilities of each, we can say that all these roles are essentially managerial. So, does it mean that the same candidate can fit in any role?
Well, yes and no. A talented person can fit in any role. However, each needs a different skill set.
Product manager has the widest range of competencies. They have to speak the same language with sales, marketing, designers, and developers. Product manager skills include market and user research, data analysis, and strong communication and writing skills. To learn more about PM superpowers, read our article on what makes a good product manager.
There is a common misbelief that it is essential for a product manager to have tech background. However, real PMs prove it wrong. In the article how to become a product manager, we looked through some of the most common non-tech backgrounds: marketing, design, project management, journalism, and even teaching, to prove we're right.
Project manager needs advanced knowledge of management tools, budgeting, planning, and excellent time management. However, the most important things come with experience. Project Management Professional (PMP) certification requires about 35 hours of training and at least 36 months of leading projects in the field. There is no doubt that project manager skills will be of great help for product owners and product managers as well.
Product owner skills are similar to the previously mentioned. You don't need a Ph.D. in product ownership, but you do need a good knowledge of Scrum (at least 16 hours), Agile certification (about a week-long course) and project management training are also a plus.
According to Payscale, the average salaries of product owners and project managers in IT are very close: $89,966 and $88,899. Product managers have higher average salaries: $100,733.
IT project managers have the lowest entry-level salaries, $65,000, and reach the median after the 5th year of working experience.
Fun fact: according to Payscale, product owners have almost perfect gender balance, whilst both product managers and project managers have more men than women (both around 54% vs 45%).
Can these three roles work together without having overlap in responsibilities?
Yes. When everybody understands their role clearly, their collaboration will benefit the product.
Can you have just one person instead of the three?
If you don’t see the need for hiring three persons, you don’t have to. Just define the list of tasks and responsibilities that are essential for the product and see if one person would be capable of doing all of that.
Which role is essential for an emerging SaaS team?
If you can’t afford to have extra people on the team, start with a product manager. PM is that universal soldier that is a team-forming role.
Can product manager cover design tasks, as well?
No. If you’re looking for a good product designer, text us.
SaaS Churn Rate: Essential Aspects Business Should Know
How many times you've heard: "Churn is bad for business"? Of course, it hurts when customers leave your product. But well, nothing remains unchanged, neither in life nor in business. No need to panic. Let's better make it clear how to deal with the churn and benefit from it.
What is churn rate?
In essence, the SaaS churn definition is pretty simple. It means the percentage of customers who left your product over a certain period. Customer churn is a crucial indicator to understand if your business faces problems that threaten its growth. Churn rate directly influences financial metrics, such as recurring revenue, lifetime value, and customer acquisition cost.
Let's see how these metrics are all connected.
Monthly recurring revenue (MRR): when customers leave, they take your income with them. In this metric, "recurring" is a key – a SaaS company needs to have a stable and predictable cash flow for constant business growth. We dedicated a separate article to MRR metric, so take a look to learn more.
Customer lifetime value (LTV): the longer a user stays with a company, the more money they can bring. Customer churn impacts LTV as it naturally decreases possible revenue that could have been earned.
Customer acquisition costs (CAC): if customers churn before you get back expenses spent on their acquisition, your loss will exceed the gain in the long perspective. By the way, if you want to know more about CAC, check CAC SaaS metric article on our blog.
OK, now we know the churn rate basics, so it's time to move to its calculation.
How to calculate churn rate
Here is the simplest way you can calculate the churn rate:
Number of churned users / Total number of users
In this SaaS churn rate formula, the number of churned users means how many people left your service within a certain period, whereas the total number of users implies all customers you had during this period.
At first glance, this exercise may seem as easy as pie. In reality, though, you need to consider lots of nuances making your calculation show a real picture.
Firstly, you need to define what you will take as the moment of churn.
It can be either:
- The moment a customer doesn't renew the subscription, or
- The moment of the cancellation (in this case, there is always a chance to get customers back before their subscription ends)
Also, before the analysis starts, it will be useful to decide:
- Exact time frames – a month, a quarter, or a year
- Sample size (so-called cohort) – it defines how representative and predictive the results will be
- Customer segment – low-tier and high-tier plan segments may have different churn numbers.
Thus, an aggregated figure will lack accuracy and lead you in the wrong direction.
Imagine, you did all the homework well. And now you're looking at the final churn rate number with a few questions on your mind: "What on earth does this percentage mean? Is it low, high, or normal? And what is a good churn rate for SaaS?"
Keep calm. The truly awesome story begins!
SaaS churn rate benchmarks
Though there are lots of opinions about the average churn rate for SaaS companies, most experts support the idea of the 5% - 7% range ANNUALLY as a benchmark. I will explain a bit later why the word "annually" is capitalized. Just note that this is important.
Whereas you can take this range as a reference, the churn rate "norm" depends much on a company's revenue growth.
Here is a graph to see the correlation between the churn rate and the revenue increase.
In this research, high growth companies are those that increase revenue by 75% year-to-year. Medium growth and low growth are businesses with 25% - 75% and less than 25% increase correspondently.
The percentage of each pie shows how many companies in a particular growth segment have a churn rate of less than 5%, from 5% to 10%, and greater than 10%. According to these graphs, the larger companies occur to be much closer to the desired 5% - 7% SaaS annual churn rate. This observation seems reasonable. Big SaaS companies usually focus more on enterprise customers with annual billings, high yearly contract value, and long-term contracts, making it more complicated to churn.
For the smaller businesses, the much higher rate is typical. Unlike the large companies, the earlier-stage companies target SMBs with monthly billings, shorter contacts, and, overall, lower contract value.
Do you remember I emphasized the word "annual" talking about the SaaS churn rate benchmarks?
You will get it right away.
Monthly vs. annual churn rate
The trickiest thing in the churn rate calculation is whether to stick to the annual or monthly churn rate numbers.
Let's see the difference in calculation.
For example, we assume that a startup has 1000 customers. A 5% annual churn will result in the loss of 50 customers within a year, which is not so dramatic, right? At least, this loss is easy to recoup with new customers.
But what's happening with a 5% monthly churn rate? Our startup will lose 460 customers in one year because the monthly churn compounds over time and reduces the number of customers by 5% every month. The loss of almost half of the customer base can be difficult to quickly compensate.
For early-stage SaaS companies or those primarily selling to SMBs, the expected churn rate will be closer to 3% - 5% monthly. However, the larger customers you target, the more your business matures, the closer you get to the "ideal" 5% - 7% annual churn rate.
Eventually, your progress should look like on this graph:
Why customers leave
Here are some possible reasons why customers decide to part ways with your product.
- Users have different expectations from your product
- Your product does not have the features or services they need
- You bring wrong customers on board (that's a question to sales and marketing teams)
- Poor onboarding and support
- Price offering doesn't fit the customers' budget
- Your product has critical bugs you fail to fix
Sometimes, everything is OK with your product and service, but the value is not fully uncovered, so customers don't comprehend why they should pay for it.
We will now get into one SaaS company churn analysis to see the real-life example.
Churn analysis example
The company is a SaaS startup that provides a subscription-based service mostly for SMB companies.
The data was gathered through a customer survey, covering recently churned users.
The graph below shows how much time the customers had spent with the company before they churned. "Fresh" customers, which were using the service less than a year, fall into the most considerable churn portion of 36,3%. Probably, they didn't feel the service satisfied their needs or didn't find the value they would be willing to pay for.
Another significant portion includes those who stayed with the company for more than two years. They had enough time to interact with the product and, chances are, were frustrated with bad customer service or switched to the competitors with a better price offering.
More than half of the churned customers - 57,2% - are small businesses with up to ten employees. As we already learned in the paragraphs above, monthly contracts, cash flow volatility, and low contract value, typical for SMBs, make it easy to churn.
Poor customer service is the top churn reason. Further go price, low service quality, sales, and implementation issues.
If we dig deeper into what poor customer service means, we see that sales process failure makes up a significant portion.
The SDRs inaccurately explained the functionality and failed to qualify the leads, which eventually led to churn. That's a widespread problem SaaS companies face. All marketing efforts and costs will be in vain if sales and support cannot qualify and retain customers.
How to reduce churn rate
To a certain extent, it is quite fair to claim that churn is inevitable. Indeed, you cannot appease everyone. However, to secure the company's profitability and revenue growth, your sacred duty is to minimize the churn rate, pursuing the target of 3% - 5% annually.
Here are a few tips to help you improve your churn rate.
Get to know your customers better
It may seem not obvious, but your "anti-churn" campaign starts long before you win a customer.
You have to know who your ideal customers are, how to reach them, what they need, and how much they are willing to pay for your product. The best way to see the total picture is by creating a customer persona based on users' characteristics such as demographics, industry, income, and jobs-to-be-done.
When your marketing team does this homework, the ball goes to sales.
Lead qualification is what your sales representatives must brilliantly perform. During a discovery call, SDRs should scan a lead and flawlessly determine if your company's service can fully satisfy a customer's needs. At every stage of the sales pipeline, you have to make sure your value proposition is exactly what the customer is looking for.
Starting from a free trial over the first six months, you should track customer engagement and make sure your product meets the customer's expectations. It is up to you whether you will build your in-house system to monitor and manage the engagement or leverage a third-party tool.
The paramount goal is to help users engage with your SaaS product by constant communication, active listening, gathering their feedback, and working on users' experience improvement. We gathered 11 user engagement strategies you can try implementing for your SaaS business.
Get user feedback
Customer feedback is the principal source of valuable information. Sometimes, it is not easy to get an honest response from a churned customer, but it is worth trying. Assign your best sales reps to contact those who left and get their feedback through specific questions.
You can also gather responses via in-built customer surveys, which answers you will later turn into actionable insights.
- Churn is inevitable, but you can control and improve it
- An average churn rate benchmark is 5% - 7% annually if you are a mature SaaS company
- You can expect around 5% monthly if your business is young or if you target SMBs
- Poor customer service, insufficient lead qualification, and bad user experience are among the reasons why clients leave your company
- Customer satisfaction based on monitoring and analysis will help reduce your churn rate
Also, we're more than sure that customer-oriented design and great customer experience can help reduce your SaaS churn rate.
Churn is only one of the essential metrics you should monitor to ensure your business growth.
In the Best Books on SaaS Metrics article, we selected the books that share priceless advice on how to run a successful startup.