When a SaaS Vendor Should Start Thinking About Going Multiproduct

A SaaS company considers whether to go multiproduct.

For many SaaS companies, the question of when to expand their product offerings beyond the initial flagship service is both daunting and exciting. Expanding into a multiproduct strategy can be a game-changer, opening up new revenue streams, reaching broader markets, and enhancing customer retention. But it also comes with risks and complexities that require careful consideration. The timing of this strategic move is crucial.

On November 21, 2022, Jason Lemkin, a seasoned SaaS entrepreneur and advisor of SaaStr, a leading community for SaaS founders and executives, shared an insightful tweet: "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."

This guideline, though not absolute, provides a useful benchmark for SaaS companies considering expansion. Lemkin's perspective suggests that reaching certain customer and revenue milestones often signals that it might be time to diversify product offerings. However, the specifics can vary depending on the company’s size, target market, and business model.

Let's dive deeper into the factors that SaaS companies should consider before deciding to go multiproduct. We’ll explore the importance of having an established customer base, the need for thorough market research, the availability of internal resources, and the understanding of the competitive landscape. These elements collectively help determine when your company is ready to expand its product portfolio.

 

When SaaS Companies Can Comfortably Consider Going Multiproduct

You Have An Established Customer Base

One of the most critical factors in determining whether your SaaS company is ready to go multiproduct is the strength and stability of your existing customer base. Your current customers are not just your primary source of revenue; they are also a valuable asset in the expansion process. Before you can think about introducing new products, it’s essential to ensure that your core offering is solid and has a loyal customer base that regularly engages with your product.

If your customer base is inconsistent or if your Ideal Customer Profile (ICP) is still evolving, it may be premature to introduce a new product. Stability in your customer base indicates that your initial product has been validated in the market and that your customers trust your brand. This trust is crucial when you introduce a new product, as your existing customers will likely be your first adopters and can serve as advocates for your new offering.

Furthermore, your established customers can provide valuable insights into what additional products they need. Through surveys, feedback, and customer interactions, you can identify gaps in your current offerings and determine what other solutions would be most valuable to them. This customer-driven approach not only increases the chances of success for your new product but also strengthens customer loyalty.

Pro Tip: Establishing yourself as a product-led company can provide further direction. Your existing customer base can offer clues about what new products would be a natural fit. Consider surveying your customers to learn what additional features or products they would be willing to pay for or what they feel is currently missing from your offerings.

You’ve Researched the Market Demand

Market research is another crucial step before deciding to go multiproduct. It’s not enough to have an idea for a new product; you need to validate that there is sufficient demand for it in your target market. This involves conducting thorough research to understand market trends, customer needs, and the competitive landscape.

Before investing in developing a new product, it’s essential to ensure that there is a clear market demand. This demand should align with your company’s core competencies and brand identity. For example, while there may be high demand for AI-driven content generation tools, if your SaaS company specializes in construction project management, this might not be the best fit. The key is to identify products that complement your existing offerings and that your customers are likely to use in conjunction with your current products.

Effective market research can help you avoid the trap of chasing trends that don’t align with your brand or customer base. Instead, focus on identifying organic opportunities where there is a natural synergy between your existing product and the new offering.

Pro Tip: Market research should be thorough and ongoing. It’s not just about identifying current demand but also about anticipating future trends. Consider factors like industry changes, technological advancements, and shifting customer behaviors when planning your product expansion strategy.

You Have the Internal Resources

Expanding into a multiproduct strategy is not just about having a good idea or identifying market demand—it requires substantial internal resources. This includes financial investment, time, and human resources. Before you embark on developing a new product, it’s critical to assess whether your company has the necessary resources to support this growth.

Developing a Minimum Viable Product (MVP) for a new SaaS offering can take anywhere from eight to nine months and cost between $50,000 to $250,000. Beyond development, additional costs arise from marketing, sales, and post-launch support. Moreover, a significant portion of software development costs—around 70%—occurs after the product is launched, in the form of maintenance, updates, and customer support.

It’s also important to consider the impact on your existing team. Will you need to hire additional staff? If so, how will you manage the recruitment, training, and onboarding process? Moreover, how will you allocate time and resources to ensure that both your existing product and the new offering receive the attention they need?

Pro Tip: Be realistic about the financial and resource commitments required for a multiproduct strategy. Ensure you have a detailed plan and budget in place before moving forward. It’s also important to have contingency plans in case costs exceed initial estimates or timelines are delayed.

You Understand the Competition

Finally, before launching a new product, it’s essential to have a clear understanding of the competitive landscape. If your competitors are already offering similar products, you’ll need to find a way to differentiate your offering. This might involve developing unique features, offering better customer service, or targeting a niche market that your competitors have overlooked.

Conducting a thorough competitive analysis is crucial in this phase. Look at what your competitors are doing, analyze their strengths and weaknesses, and identify any gaps in the market that you can fill. This information will help you position your new product in a way that offers clear value to your customers and sets you apart from the competition.

Pro Tip: A comprehensive competitive audit can provide valuable insights into how to position your new product. Examine your competitors’ entire internet footprint, including their marketing strategies, customer reviews, and other products. This will give you a fuller picture of the market and help you make informed decisions about your product development and marketing strategy.

Is Your SaaS Company Ready to Go Multiproduct?

Deciding to go multiproduct is a significant step for any SaaS company, and it’s not a decision to be taken lightly. It requires careful consideration of various factors, including your customer base, market demand, internal resources, and the competitive landscape. While expanding your product offerings can open up new revenue streams and strengthen customer loyalty, it also comes with risks and challenges.

Before making the leap, ensure that your company is well-positioned for success. This means having a stable customer base, conducting thorough market research, securing the necessary resources, and understanding your competition. If everything checks out, then it might be time to take the next step and explore the possibilities of a multiproduct strategy.

Remember, the decision to go multiproduct is not just about expanding your offerings—it’s about enhancing your brand, providing more value to your customers, and positioning your company for long-term growth and success.

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