The last decade was extraordinary for startup founders. Capital was ridiculously cheap, and growth at all costs was the name of the game. But at the end of Q1 2022, all this started to change. The most active VCs scaled back their investments, and layoffs started happening left and right.
Fast forward to today, efficient growth needs to be the #1 priority, and startups are going to have to re-prioritize where and how they spend their resources.
While there is plenty of advice out there today on how to focus on efficient growth, I want to walk you through why product integrations are one of the most effective ways to drive your business forward, and how you capitalize on the opportunity efficiently.
Growth efficiencies with integrations
As companies cut down on expenses and SaaS spending slows over the next 12-18 months, efficiency metrics like customer-acquisition-cost (CAC) payback and retention metrics like net revenue retention (NRR) need to be the priority for SaaS companies.
Acquiring a new customer will always cost you much more than retaining an existing one (technically ‘free’), so priority number one is preventing churn. Otherwise, you’ll be spending an outsized amount of your capital to acquire customers just to cover the ARR losses from customers who churn.
Once your churn is under control, focusing on ways to expand contracts within your existing customer base will be much more efficient than acquiring net new customers to reach that same ARR growth rate.
While increasing NRR is the most efficient mechanism for growth, it is still necessary to acquire new customers. However, with companies increasingly focused on extending their runway, it is no longer feasible to wait for years to recoup the cost of acquiring a customer from the revenue that the customer generates for the business.
Assuming your average contract value does not skyrocket, the most effective way to reduce your CAC payback is to simply lower the cost of acquisition, which can largely be influenced by your sales team’s win rate.
Now let’s see how scaling your integration roadmap can help you achieve outsized improvements in both of these key metrics.
How integrations drive NRR growth
HubSpot has continued to grow at nearly 40% YoY at their scale, despite the market conditions. Their secret? Focusing on NRR.
“NRR is the single north star metric for SaaS companies, beyond revenue growth. It means you're retaining your customers, and you are continuing to drive value so your customers expand what they're buying from you, while protecting yourself from downsells”
- Yamini Rangan, CEO of HubSpot, SaaStr Podcast Dec 2022
While growing NRR can be challenging, its component parts are simple:
- Prevent customer churn
- Drive customer expansion
Preventing customer churn
The tightening macroeconomic environment will drive your customers to be much more critical around their decisions around their tech stack, and many will cancel SaaS subscriptions to products that they deem to be non-essential. It’s no surprise that SaaS spend management has become a hot category recently, with companies like Zylo still raising strong rounds in Q4 2022.
You need to make sure your product is delivering outsized value, and here are a few concepts to consider.
Integrations drive usage
If a product isn’t being used frequently, it’s generally not perceived as valuable. It doesn’t matter how good your product is; if it’s not being used, the value is not being delivered.
Side note: In the context of SaaS, usage should be defined not only by how many times a customer has logged into your app, but also the usage of your app’s data in their other tools.
Whether you’re bringing data into your app or pushing data out to their core tools (such as CRMs, ERPs, HRIS, etc.), integrations make it much easier for your customers to consistently take action on that shared data, which directly translates to value generated by your product.
On the flip side, the more siloed your product is, the more disjointed your customers’ experiences will be when trying to fit your app into their workflow. Over time, this can lead to lower usage and decreased realization of the value your product offers.
Integrations build dependencies
Once your customers begin to use the integrations you’ve built, they will begin to redesign their operations and standard operating procedures (SOP) around your product, which creates dependencies. At that point, removing your product from their stack becomes a much harder decision to make, as it can break business-critical processes that depend on your product to run.
I’ve seen this first hand in a previous role. My client Marketerhire wanted to stop using Typeform as their solution for collecting demo requests due to feature limitations such as conditional routing, design constraints and subpar analytics.
However, today, more than 3 years later, they are still using Typeform on their website.
Why? Because their entire sales operations playbook was built around the Webflow, HubSpot, Chilipiper, and Google Analytics integrations that Typeform offers out of the box.
To switch away from Typeform would require Marketerhire’s team to:
- Redesign how data flows between their tools to accommodate the gap that churning your product will leave
- Rebuild data integrations and automations to ensure data continues to flow properly across their stack
- Rewrite processes and SOPs based on the updated data flow
- Retrain teams who rely on the data that flows to and from your product
- Deal with a painful transition period as the new processes will require time to implement and adopt
Think of how you can leverage integrations to create this level of stickiness (and subsequent value) for your customers. It will not only prevent churn in the short term, it will also buy your team time to continue developing your core product features in order to drive 10x the value for your customers.
Integrations = Value Multiplier
Every new application of your product’s data can be perceived as an additional multiplier of the value you provide. For instance, if your product is a CRM and the customer data that it stores is used by your customers’ sales teams to keep track of their prospects, that can be considered a single unit of value.
But if that same customer data is also used by your customers’ marketing teams through an integration with their marketing automation tool, that translates to two units of value. Find a third use case for your data through a third integration, and you just 3x’d the value of your product without any new core product features.
Driving customer expansion
We’ve shown that customers are unlikely to churn if you integrate with enough tools in their tech stacks. But simply avoiding churn isn’t in itself enough to get your NRR where it needs to be. You’ll need to look into ways to grow your existing customer accounts, and integrations can be one of your most powerful drivers of expansion. In fact, this is a strategy many of our customers use, with some leveraging specific integrations to 10x their deal sizes.
As long as you approach your integrations in the same way that you would a core product feature – and price according to the value it delivers to your customers – you’ll be able to easily drive upsells with specific integrations.
I won’t get into it in this article, but you can find our pricing framework that can maximize the expansion opportunities your integrations can create here.
Keeping CAC down
While NRR should be one of your north star metrics as a SaaS business, you also need to find ways to lower the cost of acquiring new customers. So how can integrations help you lower your cost of acquisition?
By improving your close rates.
Integrations are often a large part of your customers’ buying decisions, which is why providing the critical integrations your customers need will raise the odds of a prospect choosing your product over a competitor.
In a study we conducted in Q3 2022, 96% of respondents shared that integrations influenced their decision, with 72% sharing that integrations are often a dealbreaker.
This means that there’s a high likelihood your prospects are evaluating what integrations you offer against your competitors, and the more coverage you have with the rest of their tech stack, the more you can tip the odds in your favor in the sales cycle.
If you’re not doing this already, analyze your own CRM to identify the deals that you’ve lost due to the lack of specific integrations. It will give you insight on the MRR opportunity that you are missing out on as a result of backlogging those integrations.
All in all, native integrations can provide a lift in performance across your go to market from improving retention, creating expansion opportunities, and improving win rates.
However, accelerating the development of your product’s integrations is easier said than done, and immensely expensive in most cases.
Accelerating engineering efficiency
Unless you’re able to keep up the aggressive hiring on the engineering front, you need to be more diligent than ever when it comes to determining what projects your engineering team should be. Most engineering teams are now laser focused on:
- Solving the hard engineering challenges that come with building unique and differentiating features for your product
- Keeping tech debt to a minimum to prevent roadmap delays in future quarters
Building and maintaining integrations and the infrastructure required to support it simply doesn’t make sense given those priorities.
On average, building a barebones MVP version of an integration takes six to eight weeks of dedicated engineering, and there aren’t economies of scale as you build additional integrations.
And even then, building a simple integration for a handful of users is more time consuming than it is difficult.
What’s truly difficult is building an integration infrastructure that can scale to handling millions, if not billions, of requests a day as your company grows (a problem we’ve spent millions of dollars on engineering to solve).
When your infrastructure starts struggling with the scale of requests it needs to process, outages will occur, problems will spiral out of control and you’ll be forced to pause feature development just to refactor the underlying infrastructure for your integrations.
That’s where picking the right external tooling can become an operational advantage.
Equipping your team with the right tools
It’s no longer a question of whether you can build a feature or tool in-house, but whether or not you should.
When it comes to scaling your integration roadmap, you need to consider equipping your engineers with an embedded iPaaS solution like Paragon. It will allow your team to:
- Completely offloading authentication for your integrations with 3rd party SaaS services (incl. token refresh management)
- Save weeks per integration on reading 3rd party API documentation with 3rd party API abstractions
- Rely on a workflow engine and infrastructure that scales as you grow your customer base (no tech debt from trying to build your own infrastructure)
- Streamline event streaming, debugging, user management, and getting insights from integration activity with a robust set of monitoring tools that comes out of the box
Having these tools can enable a single engineer on your team to ship integrations at the pace of an entire integrations team, and the implications are massive.
Being able to ship integrations 5x faster without the associated tech debt leads to:
- Revenue acceleration (Grow ARR and NRR by shipping critical integrations)
- Time savings (To build, maintain, and refactor integrations)
If you want to learn more about how Paragon can help you scale your integration roadmap with fewer engineers, feel free to chat with our team here.
The next two, possibly three years will be tough for all of us, which is why it’s more critical than it has ever been in this past decade to focus on the right initiatives and optimize where you invest your resources and efforts.
However, I’m also extremely optimistic, because tightening macroeconomic environments can create unique opportunities for the most resilient companies.
If you are laser focused on creating the levers that enable your company to grow efficiently, you can leapfrog your competitors while they’re still scrambling to figure out their next move.
Integrations are a proven, efficient growth lever that you need to include in your product strategy, and we’re here to help you turn that into a competitive advantage.