The invisible ceiling that limits SaaS and subscription businesses (and how to smash through it)

Published: June 2025

This is the fifth article in our series, A guide to unstoppable growth for CEOs and founders.

For most SaaS and subscription businesses, churn is a familiar enemy. They track it closely, knowing how much it costs in lost revenue. But there’s a deeper problem that often goes unnoticed: the way that churn imposes an invisible ceiling on growth.

In this article, we’ll share the mental model we use to think about churn and how you can break through that invisible ceiling.

How churn builds an invisible ceiling on your growth

Let’s imagine a subscription business as a simple system—a bucket with a leak in it. New customers pour into the top of the bucket from a faucet, swirl around using the product or service, then dribble or gush away depending on the size of the leak (churn).

A rubber duck dressed in a business suit, holding a clipboard, floats in a light blue metal bucket filled with water. Although water pours into the top (Customers) a leak lets it out (churn). — If your growth ceiling’s closing in, it’s time to get cracking… er, quacking.

Churn, of course, is the percentage of customers who cancel or fail to renew within a certain time frame. It’s calculated by the following formula:

Churn = Customers lost during the period / Customers at the start of period

What constitutes a “good” churn rate depends on the service being sold, but let’s say we have a SaaS business that has 100 customers at the start of the month. If we lose 10 of those customers during the month, our churn rate would be 10%.

Churn rate = 10 / 100 = 10%

Most subscription-based businesses are used to thinking about churn this way, but what if we ask ourselves a different question—how long do our customers usually stay?

Looking at problems through different lenses is a useful way of spotting hidden opportunities or constraints, and in this case, Average Customer Lifetime (ACL) can provide a new and valuable perspective.

If our churn rate is stable over time, ACL is actually the inverse of the churn rate:

Average Customer Lifetime (in months) = 1 / Monthly Churn Rate

So, if our churn rate is 10% per month:

ACL = 1 / 0.10 = 10 months

Coming back to our bucket analogy, new customers pour in from the faucet, swirl around using our product or service for an average of ten months, and then leak away.

And it’s this simple formula that imposes a ceiling on the size of our business—because growth will be capped as soon as our acquisition is matched by our churn. This graph shows the issue for our SaaS company, assuming that we acquire 100 new customers a month and keep them for an average of 10 months.

Intuitively, we might think that a business with this kind of acquisition and retention would grow quickly and continuously, but that’s not the case.

Can you see the ceiling?

Line graph showing SaaS business growth over time. The curve rises steadily, then flattens at 1,000 users, illustrating a growth ceiling caused by churn matching acquisition. — Two years in and the business is approaching its growth ceiling… fast.

Our growth is stalling as we approach 1,000 users—the point at which churn equals acquisition.

Monthly Acquisition = 100.
Monthly Churn (10% of 1,000) = 100.

Even when acquisition is strong, churn works silently in the background to cancel out our gains. Unless something changes, the system eventually reaches equilibrium—where every new customer replaces one that’s leaving. That’s our ceiling.

And it’s not a question of if we hit it—it’s when. Because every new customer we add pushes us closer to it.

The future looks grim unless we can find a way to break through this ceiling… but let’s think bigger. What might we do to double its size?

How to smash through the growth ceiling

As a simple system with inputs (new customers) and outputs (churning customers), most subscription businesses default to two familiar levers:

Reducing churn.
Buying more traffic.

Let’s look at each of these options in turn.

1. Reducing churn

We could double the size of the business by halving churn—if churn was 5%, our growth ceiling would be 2,000 customers (100 / 0.05 = 2,000), but what does that mean practically?

Reducing churn to 5% would mean increasing the average customer lifetime from 10 months to 20 months. The product or service would have to be twice as sticky—and that’s not easy. For example, SmartReach recently applied a sophisticated and exhaustive playbook of tools and techniques over a 12-month period and reduced churn from 27% to 17.5%.

Ask any product or service manager, and they’ll tell you how tough it is to reduce churn (critical as it may be).

2. Buying more traffic

This one is easy, right? We can simply double our ad spend, double our traffic, double the number of new customers, and double the size of the business.

But this lever is also harder to pull than it sounds. Let’s say our average customer spends $100 a month and stays for 10 months. That makes our Customer Lifetime Value (LTV) $1,000.

10 x $100 = $1,000

If each new customer generates $1,000, we have to spend less than that—maybe much less—to acquire them. Otherwise, we’ll go broke. And more often than not, cost-per-acquisition increases as we increase ad spend. Rising competition and diminishing audience quality limit the extra amount we can profitably spend on ads.

So while increasing ad spend can help, it often hits diminishing returns. As with churn reduction strategies, increasing ad spend can be an important part of the solution, but to really smash through the invisible ceiling, we need to combine churn reduction and ad spend with a third strategy.

The growth lever that amplifies all others

Every subscription-based business wants to reduce churn and increase acquisition. But the companies that scale fastest—the ones that break through their growth ceilings—have something else in common:

They invest deeply in conversion rate optimization.

Your ability to convert visitors into customers has a direct and proportional relationship to your growth ceiling—and therefore to the maximum size your business can become. If we double our conversion rate, we double our growth ceiling.

Graph illustrating SaaS business growth ceiling scenarios. One curve flattens at 1,000 users with 10% churn; another continues rising to 2,000 users with 5% churn, showing how lower churn raises the growth ceiling.

But the benefits of CRO don’t stop there. It also:

Expands your ad budget’s potential. A higher conversion rate improves your return on ad spend, allowing you to spend more on traffic, reach more people, and unlock traffic sources that were previously unprofitable.
Strengthens your ability to reduce churn. The deep customer insights you gain from CRO—what they want, what they fear, what makes them convert—are the same insights that help you create stickier onboarding, better messaging, and higher retention.

In short, CRO amplifies the other ceiling-busting strategies. It’s the only lever that can improve both the input (acquisition) and the output (retention) sides of the system.

When our clients combine CRO with churn reduction and paid acquisition, they enter a virtuous cycle—one where every improvement feeds the next, and the growth ceiling keeps moving higher.

Graph showing three SaaS growth scenarios over time: one capped at 1,000 users, another at 2,000 with reduced churn, and a third rising beyond 2,000 due to improved conversion rate—demonstrating how conversion amplifies growth.

Churn limits the size of your business. Conversion Rate Optimization (CRO) breaks that limit.

You can’t smash what you don’t measure

Most subscription businesses are closer to their growth ceiling than they think. The best time to act is before your growth stalls—because by the time you feel the plateau, you’re already in trouble.

Here’s how to find your ceiling—and start breaking it:

Calculate your current growth ceiling. Measure your traffic, conversion rate, and churn. Growth ceiling = (Traffic x Conversion Rate) / Churn.
Look for the biggest (fastest) opportunity (traffic, conversion rate, or churn) to increase your growth ceiling, and start work on it. It’s the only bottleneck limiting your growth, and working on anything else is irrational.
Work the loop. Go to step 1.

The good news is that the growth ceiling isn’t made of concrete. It’s made of numbers—your numbers. And by changing one of them—your conversion rate—you can change them all.

Want help breaking through your growth ceiling?

If your growth ceiling is closing in, book a free strategy session with one of our consultants. No hard sell or commitment. We only work with companies when we believe that we can achieve great results together.