In my last post on mistakes to avoid when building your SaaS, I forgot to include one key aspect you should consider when qualifying your ideas and designing your software for growth:
Is it easy to share by design?
Marketing Funnels vs Growth Loops
A marketing funnel in SaaS refers to a linear process where potential customers move through distinct stages, from awareness to conversion, and potentially retention. The funnel starts with a broad audience, which gets narrower as users engage with the brand through touchpoints like ads, content, or free trials. As users progress, they’re nurtured through steps like signing up for newsletters, downloading resources, or attending webinars until they reach the conversion point—typically purchasing a subscription or starting a paid plan. The funnel is often viewed as a one-way system, focused on guiding prospects toward a single outcome: a sale.
In contrast, growth loops are self-sustaining, cyclical systems where user acquisition, engagement, and retention feed into one another, creating ongoing momentum. Unlike funnels, growth loops are built to continuously generate value. For example, in SaaS, a user who signs up might share the tool with their network, driving new signups, or create content that attracts more users. This loop generates organic growth with less direct marketing effort. Growth loops are especially powerful in product-led growth (PLG) models, where the product itself drives user acquisition, engagement, and retention.
The core idea is that with marketing funnels, you’ll spend most of your time creating distribution for your software. With growth loops, you’re designing your software in a way that customers naturally help you create more distribution without additional effort on your part.
A Couple of Growth Loop Examples:
B2C – SaaS
One of the most famous examples in B2C SaaS is Dropbox with their referral program, where users earned additional lifetime storage for every successful referral. This incentivized people to essentially become affiliates for Dropbox, with some even setting up arbitrage opportunities by running PPC ads to get more referrals.
B2B – SaaS
A classic example is the “powered by” branding often used in marketing or customer service software. When embedding a widget on your site, lower-paid or free plans often require a branded widget with the software company’s name onit. This acts both as a marketing tool and a motivator for users to upgrade to a higher-paid plan to remove the branding.
B2B – Social
LinkedIn is another example of an effective growth loop design. The professional social media network grew quickly by leveraging users’ contact books from their mobile devices. This allowed people to connect with those they knew and also invite others who didn’t yet have an account. However, this method will likely decline due to Apple’s increasing focus on privacy and security.
Tying it All Together
Building a growth loop into your software from the start can go a long way toward helping you achieve sustainable growth, especially in a product-led and bottom-up model. When building SaaS solo or as a small team, you have to take advantage of every bit of leverage you can get.