The growth ceiling is an interesting quirk of SaaS businesses – but it's as deadly as it is fascinating.
Churn (the amount of customers lost in a given period) is almost always expressed as a percentage on a monthly basis – 2%, 5%, 7% and so on. So 100 customers, 5% churn is equal to 5 customers per month. When a company is growing quickly, that 5% churn doesn't present a drag on growth – after all, what's 5 customers when you're adding 50 every month.
Here's the kicker. Churn stays remarkably static as a company grows, and it's still a percentage number. So at 1,000 customers, 5% is 50 customers. In our example above, that's equal to the amount being added monthly. Our business is frozen – no longer growing, because the number in is exactly equal to the number out.
To restart growth, either churn must come down or customer acquisition must increase, and neither is particularly easy. This is why all SaaS businesses must be aware of their growth ceiling.
We use growth wall to describe the point at which a company hits 75% of its maximum growth. Although it may take a time to hit the growth ceiling, growth typically tails off sharply at the growth wall.
The growth ceiling is fascinating and widely misunderstood. Try the following links for more: