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On November 21, 2022, Jason Lemkin—a SaaS entrepreneur and advisor of SaaStr, a social community of SaaS founders and executives—tweeted, “A really, really rough rule in SaaS is you need a second product firmly in place by 10,000 customers, or $100m ARR, whichever comes first. That probably means launching it by the time you have 5,000 customers. If your ACV is low, that could be as early as $10m ARR.”
In another tweet earlier that same year, Lemkin suggested these numbers could become different depending on the type of company, saying that enterprise should be $300-500 million in annual recurring revenue (ARR) while it should be $20-30 million for small and medium-sized businesses.
Meanwhile, Profitwell’s benchmark says that for medium-sized companies, $1M-10M ARR is enough for companies to start considering expansion, cautioning that this often means sacrificing short-term growth for long-term aspirations.
As Lemkin points out in a blog post titled When to Go Multi-Product in SaaS,” Now these aren’t fixed rules by any stretch. Just … something to consider.” He’s simply reporting what he’s observed over his career. “As you approach 10,000 customers,” he writes, “you start to need to sell them a second product to keep the engine going. And by $100m ARR, most SaaS companies start relying too much on account expansion. Their new customer count often doesn’t keep up with the ARR growth. A new product is often the answer.”
We’re advocates for SaaS companies becoming multiproduct, something we’ve advocated for in our blog All SaaS Platforms Should Aspire to Be Multiproduct. However, not every company is ready to go multiproduct today—it’s a big decision with lots of moving parts.
While we can see from the evidence provided above that the number of customers and revenue that means it’s time to go multiproduct are somewhat anecdotal—the reality is that it’s typically a combination of customer numbers, revenue, and other extenuating circumstances—several objective criteria can tell you you’re ready to expand your SaaS platform.
This blog will explore some of the key components that mean your product, company, and team are ready to grow.
When SaaS Companies Can Comfortably Consider Going Multiproduct
- When You Have an Established Customer Base
- Once You’ve Researched the Market Demand
- If You Have the Internal Resources
- After You Understand the Competition
You Have An Established Customer Base
Before expanding your product portfolio, it’s important to have a stable, loyal customer base.
Your existing customers are valuable assets and can provide insights into the types of products and services they need. They’ll be the first market you sell your new product to and can be a great source of referrals, which can help you acquire new customers.
If you struggle to maintain a consistent customer base and your ideal customer profile (ICP) is constantly in flux (a little change is fine—and expected!), launching a new product probably isn’t in your best interests.
HiringThing Pro Tip: Establish yourself as a product-led company. Your established customer base is a good indicator of what new products you should consider. Survey (either formally or informally) your customers to see what additional products would provide them value, what solutions they’d pay more for, or what they feel your product is missing.
You've Researched the Market Demand
Again, going multiproduct is a huge undertaking. You need to have research and a strategy. Market demand is another critical factor when deciding to go multiproduct. If there’s high demand for additional products in your target market, it’s probably a good time to explore new product ideas. Conducting thorough market research to validate demand before investing in new products is essential.
HiringThing Pro Tip: No amount of market research is a substitute for organic fit. There might be high demand for AI content generation tools right now, but if your core competency is construction project management, it might be a bit of trying to fit a square peg into a round hole. You want to make sure you’re picking additional products that organically fit with your company and are something your customers would use in tandem with the product they’re already using.
You Have the Internal Resources
Expanding your product portfolio requires significant resources, including time, money, and personnel. Before embarking on this journey, ensure you have the necessary resources to support new product development, marketing, and sales efforts. This includes hiring additional staff (and training them/letting them acclimate), allocating the budget for research and development, and adjusting your marketing strategy to support the launch of a new product.
HiringThing Pro Tip: Know what you’re getting into financially. Developing a SaaS market viable product (MVP) usually takes 8-9 months and costs anywhere from $50-250k. Additionally, 70% of software development costs happen after implementation, and 53% of projects cost 189% more than their original estimate. Does your organization have the funds required to cover that lift?
You Understand the Competition
It’s important to assess the competitive landscape before expanding your product. If your competitors offer similar products, you must have a plan to differentiate yours. This might mean developing new features or providing better customer service. It’s also important to ensure your new products offer unique value propositions and address gaps in the market your competitors haven’t yet filled.
HiringThing Pro Tip: Conduct full audits on every competitor you can find—there’s no such thing as too much data. Check out their product, marketing, complete internet footprint, reviews, and other products they have (and how those are marketed). You want the fullest picture possible.
Is Your Company Ready to Go Multiproduct?
Your company may have an established customer base, researched the market, the internal resources, and a strong sense of the competition—everything looks good on paper, but there are still some other considerations to make before going multiproduct.
The next blog in this series is Considerations for a Multiproduct SaaS Initiative. This will help further break down all the considerations you must take before embarking on your multiproduct endeavor.
About HiringThing
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