Product-led Growth

SaaS onboarding process: the commercialization of onboarding

Published November 24th, 2021

Onboarding, specifically user onboarding, has turned into big business for product-led growth (PLG) companies.

Elise Bentley

Sr. Director of Marketing at Tiny

According to a recent report, the market size of global customer success platforms is expected to grow from USD 1.0 billion in 2020 to USD 2.5 billion by 2025, at a Compound Annual Growth Rate (CAGR) of 20.4%. Given those figures, it’s safe to say the market for software that’s designed to support, improve and assist your users in being successful with your product, is growing.

A core component of your users’ overall brand and product experience, is your ability to onboard them into your product and get them using it as quickly as possible.

This a three-part series on SaaS user onboarding, covers how it can be used as a tool to facilitate product-led growth:

Part 1 – The who, what, when, where, why
Part 2 – The commercialization of onboarding
Part 3 – Iterative testing and ongoing investment

The cost of building an onboarding program

We touched on this in Part 1 - The who, what, when, where, why, and noted that an automated SaaS onboarding process isn’t cheap. In fact, there’s a calculator to help you estimate how much it will cost in Product, Design and Engineering time, to develop one. [Note: we’re not recommending this calculator, nor have ever used or investigated it, but it was useful for this article’s base estimations.]

With the cost of developing a simple onboarding process estimated at about $55,000 a year, plus an additional $26,000 a year in ongoing costs, developing one isn’t a quick-decision project. This is particularly the case, when there are other priorities also competing for attention and budget.

The real question: is it really worth building an onboarding program yourself?

There are a lot of options available, where you can purchase a solution and be up and running much faster than hand coding and delivering your own experience. So, if budget and speed are key factors, then it’s worth investigating what’s on the market.

PRO TIP

Use a calculator to help you estimate how much an automated SaaS onboarding process will cost in Product, Design and Engineering time

Here at Tiny, we decided to build and maintain our own custom onboarding experience, for three reasons:

Having complete control and integration with our cloud services and other tools

Having complete control of the onboarding process and system – so we can guarantee security and uptime

We believe the ability to onboard users in both our paid and open source solutions, is a core competency – something we don’t want to outsource to another provider.

That said, each case is different so it’s worth completing an internal audit with your stakeholders, to determine if it’s something that you really want to build yourself or outsource.

But, once you’ve made the decision, it doesn’t mean you’re locked into it forever. You can change your mind!

The cost of not building a SaaS onboarding process

We’ve spoken about the cost in financial terms, but what about the other costs you’re carrying, by not building a user onboarding program. This topic doesn’t often get as much airtime – mainly because it isn’t as fun as talking about customer onboarding ideas. But, it is something that should be explored.

I’m a very numbers focused person, so I like to attach a numerical term to things when deciding whether to proceed with a project. Here’s some quick napkin maths I put together.

Pre-onboarding status = current situation

This is the situation before you invest in either improving or creating a supportive and conversion-oriented onboarding process:

Let’s say you have 1,000 users signing-up p/month, on your website for your free trial.

With your current process 2% of those 1,000 users, convert to paid subscriptions.

Your average new subscription size deal is $250 p.a.

Therefore, with no onboarding program, you’re signing up 240 customers p/year, for a total new revenue of $60,000.

Customers p/year

240

New revenue

$60,000

Post-onboarding implementation = modest conversion rate growth

This calculation is done after you’ve taken the time to build a brand new onboarding process for your users:

You have the same 1,000 customers signing up p/month, for the free trial.

Your new onboarding program secures a 4% conversion rate, to paid subscriptions.

Your average new deal size remains the same at $250 p.a.

With an onboarding program, you’re now signing up 480 customers p/year, for a total new revenue of $120,000.

Keep in mind that the above figure of 4% conversion is ultra-conservative, because a 15% conversion rate from free trial to paid is considered usual, for opt-in trials.

Customers p/year

480

New revenue

$120,000

How much more revenue can you expect?

This simple napkin maths, shows that the estimated upfront investment ($55K) is recouped within a year. Then there’s the power of compounding returns – securing that additional $60K p/year, every year.

On top of that compound growth, if your marketing team is working to grow the top of the funnel and you’re annually growing those 12,000 sign-ups to 14,000 then 16,000 ongoing (as well as that increased conversion rate) your numbers will substantially increase.

So let’s extrapolate that, with more napkin maths using the same example.

Pre-onboarding status = with 5% annualised growth & 2% conversion

Your sign-ups grow at 5% every year.

Year 1

Total Sign-ups = 12,000

New customers = 240

New revenue = $60,000

Year 2

Total Sign-ups = 12,600

New Customers = 252

New revenue = $63,000

Year 3

Total Sign-ups = 13,230

New Customers = 265

New revenue = $65,250

Over the 3-year, you’re looking to generate a total of $188,250 in new revenue. Then, you need to apply churn rates, deduct costs etc. and that number likely ends up being a net ARR of around $147K.

Net ARR

$147,000

Post-onboarding implementation = with 5% annualised growth & 4% conversion

Your sign-ups are still growing at 5% every year, but you double that conversion rate.

Year 1

Total Sign-ups = 12,000

New customers = 480

New revenue = $120,000

Year 2

Total Sign-ups = 12,600

New Customers = 504

New revenue = $126,000

Year 3

Total Sign-ups = 13,230

New Customers = 530

New revenue = $132,250

In this 3-year period, you’re looking to generate a total of $378,250 in new revenue. Then, apply churn rates, and costs etc. and that number likely ends up being a net ARR of around $295K.

In this 3-year, 5% annualised growth example you’re about $150K better off for having invested in your onboarding process. And better still, if you managed to do even just half of that best practice 15% and instead came in at 7.5% conversion, you’d be roughly $407K better off after churn and costs, etc.

So the real question is: can you really afford not to invest in improving your user onboarding program?

Net ARR

$295,000

Look at your opportunity cost

When you’re looking at generating hundreds of thousands extra a year, it almost seems a no brainer to go ahead and invest in that onboarding process. But, there’s also another aspect to take into consideration – your opportunity cost.

Not all investment opportunities are the same, they don’t all carry the same level of risk. Particularly when you’re strapped for cash and trying to get things off the ground with limited resources. In those cases, you need to look at what investing in an onboarding program will cost you – but not in terms of dollars spent, but in terms of money not made by doing something else.

Again, let’s use the above example.

Initial basic numbers

1,000

sign-up p/month for free trial

conversion from website visit to trial

conversion rate from free trial to paid

$250 p.a.

new deal size

Total new revenue p/year $60,000

Add a major website redevelopment project

What if…

Instead of sending your Product, Marketing and Engineering teams to build an SaaS onboarding process, you instead deployed them to rebuild the website – to modernize and reposition you within the market.

$60,000

Total cost for redevelopment

Expected conversion from website visit to free trial

Expected conversion from free trial to paid

$250 p.a.

deal size

Total revenue per annum = $120,000

It may seem unreasonable to double your website conversion rate through a project such as this, but following the redevelopment of the Tiny brand and website some of our key conversion metrics saw exactly those results.

How do you choose where to invest?

Now there are two projects that cost the same, use the same resources and have the same results – and it’s very unlikely this situation has (or will) happen to you in real-life. Which one do you pick?

It comes down to a few factors:

Long-term, what delivers more value?
Which one, in terms of brand and loyalty, delivers more value?
Does shifting the brand and positioning increase value more than investing in onboarding?
Does investing in the first option remove debt, or improve your technology stack to make future development easier?
Does this deliver return on investment (ROI) faster than other initiatives?

Questions like these are incredibly hard to answer.

But the company that finally cracks the code on accurately predicting what improving the brand does for the bottom line, is set to easily make a billion dollars.

Frequently, it’s these subjective questions that make the decision more complex, because it’s harder to determine the right move. Another complicating factor is when departments and executives have different experiences and insights that cloud their judgement. For example, where you have a very strong Product team but weaker Marketing team, it may push the onboarding over the edge – or if Marketing is stronger the redevelopment likely wins the day.

It takes 20 Years to build a reputation and 5 minutes to ruin it. If you think about that, you do things differently.

Warren Buffet

CEO of Berkshire Hathaway

Adding a new product feature

Now let’s look at the investment in terms of yet another, different project – one that’s also competing for priority status – a brand new feature for your product.

New feature creation and release costs = $50,000

Ongoing maintenance = $26,000 p.a.

Price increase = $30 p.a.

$50,000

New feature creation and release costs

$26,000 p.a.

Ongoing maintenance

$30 p.a.

Price increase

Remember you also have the estimated $26K ongoing maintenance for the onboarding process. However, the new feature allows your marketing team to reassess the market elasticity and they’ve determined that a $30 p/year price increase can be justified for new and existing customers. Therefore:

Year 1

New customers = 240

Deal size = $280

New revenue = $67,200

Year 2

New Customers = 252

Deal size = $280

New revenue = $70,560

Year 3

New Customers = 265

Deal size = $280

New revenue = $74,200

Existing customer base

Total number of existing customers = 400

New deal size = $280

New Revenue = $112,000

Old revenue = $100,000

In this example, the uptick in revenue from the $30 p/year price increase is less than $60,000 – coming in at $35,710. However, the expected increase in customer numbers that may be driven toward your business, by the new feature, have yet to be factored.

If it’s a game-changer of a new feature, ask yourself and investigate these four questions:

Does it increase the number of people wanting to try/use your product?
Does it increase demand?
Does it better position your product within the market, to become a market leader?
Does it enhance your product’s brand?

In this case, it does look a little easier to make the decision. Especially if you’ve only got the one team to invest in the onboarding program – the return on investment comes much earlier.

But long-term, which option sets up the business to be in a better position?

If the new feature lifts you to become an absolute killer product in the market and allows you to more rapidly grow... then it may win out. For example, if it increased demand for your product by 10% (on top of the 5% natural growth) you get the following results:

47,921

Total new trials over a 3-year period

Conversion to paid

958

Total new customers

$280

Deal size

$268,240

Revenue

You’ve now got a situation where after churn and costs, you’ve generated $209K in revenue. That’s a net of about $62K from our pre-onboarding numbers, but is still below the post-onboarding implementation of $295K.

It still falls behind with respect to investing in an SaaS onboarding process, but you’ve now done the math and investigated the options – which helps support your decision on investing in onboarding (or not) over investing in the new feature.

Doing the numbers aids the decision

This approach helps you decide between investment areas, and it’s something we frequently do when assessing where to invest marketing funds.

If you’re able to get the resources together and invest into both the new feature and the onboarding process, you’d be looking at these sorts of changes.

Your sign-ups are still growing at 15% p/year, thanks to both marketing efforts and the new feature release. Your new onboarding program means you now have a trial to paid rate of 4%.

Year 1

Total Sign-ups = 12,000

New customers = 480

Deal size = $280

New revenue = $134,400

Year 2

Total Sign-ups = 13,800

New Customers = 552

Deal size = $280

New revenue = $154,560

Year 3

Total Sign-ups = 15,870

New Customers = 635

Deal size = $280

New revenue = $177,800

In terms of new customers, you’re now generating $466K in new revenue or $365K after costs and churn. That equates to a $70K improvement from having only invested in the onboarding process and you’re now compounding both your activities and work – to complement each other.

However, I want to mention this is all napkin maths. It doesn’t mean it all occurs as I’ve suggested and shouldn’t be taken as fact.

New Revenue

$466,000

Net ARR

$365,000

Where to from here?

Onboarding isn’t the magic silver bullet for your product’s growth.

It is, however, a complementary tactic that can help accelerate your SaaS growth. It can also expedite the speed of adoption of your product – so it’s important to iteratively test and further invest in your onboarding program to ensure you’re getting the best return on investment. Find out more about that… in our next article.

This is part two of a three part series on user onboarding and how it can be used as a tool to grow your product-led business. Read the other parts of the series: