Saturday, July 9, 2016

Nothing simple about SaaS benchmark metrics

There are lots of simple questions about SaaS that don’t have simple answers.  Here are a few I hear all the time:
  • How much should I spend on sales and marketing to acquire customers?
  • How many leads do I need to attract?
  • What’s the right leads-to-paying customer yield?
  • What’s an acceptable level of attrition?
There are certainly plenty of surveys and published benchmarks on SaaS metrics that try to provide 
guidance.  Just do a Google search on "SaaS conversion funnel." 

And some of the rules-of-thumb you'll find can be helpful.  For example, it’s tough to make the SaaS business model work when attrition exceeds 10 percent.

Use caution with rules of thumb

But you should be careful not to take these SaaS benchmarks as gospel.  Just because they apply to some SaaS businesses doesn’t necessarily mean they apply to yours. 

Though some survey may show, for example, that 50 percent of leads should convert into paying customers, it’s easy to imagine a scenario where a business could succeed with only a 20 percent conversion, or at the other extreme, a scenario that requires an 80 percent conversion.  

Focus on CAC/LTV and payback period

Ultimately all that matters is this:  Can you earn back more than you spend to acquire a customer, and how long does it take to do that?  

It’s all about the average customer acquisition cost (CAC)/long term value (LTV) ratio and the payback period.  (I've written about this in "Acquiring customers ain't cheap" and elsewhere.  David Skok and others have also written about the topic at length.)

Realistically, a successful SaaS business cannot afford a CAC/LTV ratio that's greater than 1.  You cannot invest $1 in sales and marketing expenses and get 75 cents in return.  If you put one dollar in and three dollars come out, that's good.  One dollar in and ten dollars out is even better.  In any case, the LTV must exceed the CAC, eventually.  

The payback period tells you more precisely how long “eventually” is.  The longer the payback period, the deeper your pockets need to be to sustain the business.  SaaS companies that can recover their customer acquisition costs in less than one year, for example, need less capital than those that require three years.

No single "right" answer

Working within those guidelines however, there are plenty of ways for a SaaS business to succeed.  A
company with a high subscription price and long subscriptions can afford a high customer acquisition cost.  It could succeed despite low conversion rates and high attrition.  For them a lead-to-paying customer yield of 10 percent and attrition of 20 percent, for example, may be sustainable.  Obviously, there’s an opportunity to operate more efficiency, but a high LTV can cover a lot of sins.

At the other end of the spectrum, a company with lower subscription prices and shorter subscription terms needs to be much more efficient with its customer acquisition spending.   To succeed, it may need to hit a lead-to-paying customer yield of 40 percent and attrition below 5 percent.  For them, operating at optimum efficiency is critical for survival.

By the way, if your company finds itself at either of these extremes - or somewhere in the middle - give me a call.  I may be able to help you get more from your investment in sales and marketing.

I wish there were simple answers to some of the basic questions... but there really aren't.  There’s no “right” level of spending to acquire customers, no “right” leads-to-paying customer yield, and no “right” level of attrition.  It all depends on your particular business and your particular market.

Saturday, June 4, 2016

Content: More isn’t necessarily better


When it comes to content marketing, more isn’t necessarily better.  If one blog post per month is good, it doesn’t always follow that two posts will be really good.  In fact, it might be worse.

Don’t get me wrong, I’ve seen content marketing work.  It can be especially effective for software-as-a-service (SaaS) companies that need to keep customer acquisition costs under control.  If you provide good content - blog posts, newsletters, white papers, webinars, infographics, etc. - prospective customers are more likely to find you.  And that’s usually a lot less expensive than you trying to find them. 

Quantity vs. quality

But effective content marketing work doesn’t mean pushing out a deluge of content.
For one thing, producing good content isn’t easy.  I mean “good” in the sense of “useful to the intended reader.”  You want them to find some value in the material.  Prospective customers should be impressed with your expertise, not your word count.   

Some folks can crank out useful content day in and day out, but unless you’re Dear Abby, it might be better to give yourself more time to pull together your thoughts before publishing.

Over-burdening your audience

You should also think about content from your readers’ perspective.  Even if you do have the skill and bandwidth to crank out lots of content, do they have the bandwidth to read it? 

Remember, in the SaaS world, the person you’re targeting is usually a very busy person.  Besides evaluating solutions for their business, they have another full time job.  While they’re thinking about HR software, they’re also running the HR department.  While they’re considering marketing automation software, they’re running marketing campaigns.  Or while they’re evaluating, financial management solutions, they running Finance.  It’s not like they have all day to read, watch or listen to everything you push out during the course of a day or a week. 

A few thoughtful pieces are far more valuable to your prospective customers than a non-stop barrage.  There is a line between helpful content and spam.



Saturday, May 7, 2016

Looking for customers in all the wrong places

When asked why he robbed banks, Willie Sutton explained “because that’s where the money is.”

Not that marketers are bank robbers, but the same idea applies to finding prospective customers.  If
you want to get their attention, you need to go where they are.

If you’re at they'll never look, it’s unlikely prospects will see you.

This idea certainly sounds logical.  In fact, it may sound blatantly obvious.

So why do so many companies ignore it?  Why do they spend time and money on marketing activity that doesn’t get them in front of prospects?  

It’s not that they have money to burn, especially if they’re software-as-a-service (SaaS) companies.  For these companies, spending too much on customer acquisition costs is a ticket to failure.

Infatuation with shiny new objects

One reason I’ve seen companies spend money to be in the wrong place at the wrong time:  an infatuation with novelty.  They’re mesmerized by new marketing tactics and channels.  

Right now, most of the new and novel techniques are intended to generate visibility online.  Companies are spending a ton of money, for example, on search engine marketing and social media marketing.  I’ve seen companies posting multiple blogs post per week, regularly updating their Facebook pages, pushing out a steady stream of tweets, and doing lots of whatever you’re supposed to do with Pinterest.

I won't dismiss these things out of hand, and neither should you.  But if your customers aren’t paying attention to these social media channels, most of your work there is wasted.

If a prospective customer is looking for a SaaS solution that’s critical to their enterprise, something they’ll be spending thousands of dollars on, are they really going to be looking for it on Facebook?

There are some products and markets where a social media campaign is a perfect way to get in front of prospects.  But they’re not always a good fit for enterprise SaaS solutions.   

And by the way, while marketers are fixated on new tactics, they’re probably overlooking some tactics that may be old, but may be much more effective for them.  I’ve worked with clients that have found that participation in well-selected trade shows or USPS mailings- yes, snail mail - can attract lots of qualified opportunities.

Don’t know where the prospects are

Here’s another reason companies look for prospects in all the wrong places:  They just don’t know the right places.

Marketers can make all kinds of guesses about their prospects’ thought processes.  And some of these
guesses are fairly sophisticated and involve deep demographic and behavioral analysis and the development of detailed “buyer personas.”

But sometimes all this analysis doesn’t give much guidance on precisely where you might find these prospects.  When they're considering a new solution, where do they go, what do they look at, and who do they talk to?

When I work with clients to build an effective customer acquisition program, I often talk with prospects and I simply ask these questions.

Sometimes they’ll talk about searching online, but often they’ll mention a particular trade show or

publication.  And sometimes I hear of totally unexpected sources.  I’ve worked with a client whose customers have found them through state-mandated licensing classes.  Another client found that one particular independent newsletter writer was virtually required reading for people in their market.

Once we figure out where these prospects go when they’re looking for a solution, it’s a lot easier - and less expensive - to get in front of them.

Saturday, April 2, 2016

Why Drive-by Marketing Doesn’t Work

So you’ve just shipped your new software-as-a-service (SaaS) solution, and for sure you’re eager to tell the world:  get out a press announcement, roll-out a search engine marketing campaign, sign-up for industry events, and whatever else you can think of.

Here’s some advice:  Slow down.

As tough as it is to resist the urge to do something, hold off a bit before going full blast with all this marketing activity.

And if you’ve already started, hang on and take a deep breath.  You may have already found that all this activity isn’t delivering the results you were expecting.  The hodgepodge of tactics and the drive-by approach is taking up lots of time and costing money, but at the end it’s not generating much business.

When SaaS companies find themselves in this bad spot, there’s usually two culprits to blame:  
  1. A poor message
  2. No plan.

The prospect doesn’t really care how your solution works

I’m sure you can do a great job explaining how your solution works and what each of its functions do.

But the prospective customer has other issues on their mind, such as:
  • Who is this for?
  • What problem does it solve for me?
  • Why is it better than alternatives?
It doesn’t really matter how well you execute on a search engine marketing plan, direct mail, or other tactics.  Without a well-thought-through value proposition and messages that answer these questions, the prospective customers won’t respond.  They really don’t care.

Activity without a plan doesn’t move you forward

Just because you’re scrambling to execute on all kinds of marketing activities doesn’t mean you’re making any meaningful progress in the right direction. 

Effective customer acquisition requires a well-structured plan.  It needs to walk through each step of the evaluation and purchase process:
  • Build visibility and generate leads
  • Convert leads into qualified prospects
  • Close prospects into paying customers
  • On-board customers
  • Retain and upsell
Drive-by marketing is unlikely to get prospects through this entire process.  Instead you’re likely to be stymied by bottlenecks and gaps.  Perhaps you’ll generate a huge volume of leads, but find yourself with no mechanism to convert them to prospects, or you'll close a steady inflow of new customers, but have no way to make them successful and retain them.

You can experiment with a whole range of marketing tactics.  There are no hard and fast rules about what might work for your particular audience.  But without a compelling value proposition and a well-structured customer acquisition plan, you may be just wasting time and money.

Saturday, March 5, 2016

Competing in a crowded market

First a confession.  Every once in awhile I get a call from a SaaS company looking for help with their customer acquisition plan, and my first thought is "Are you kidding?

The company tells me that they've developed a wonderful solution with a boatload of impressive features.

But they're selling into a market that's already crowded with other vendors.


Just what the world needs - another HR or CRM or email marketing or whatever solution.

Finding an unmet need, a hole waiting to be filled

But on second thought, I think maybe there's a way for this to work after all.  Maybe we can make the case that the world does, in fact, need another solution.

The challenge is to figure out a way to present this new solution as something different and better than the other choices that are already out there.  We need to determine if there's an important unmet need in the market that this new solution can fill.

Sometimes being late is an advantage

By the way, sometimes there’s an advantage to being a late-comer to the market.

The early entrants have already done much of the missionary work, educating the market and customers are already familiar with the category.

Having had more experience with other solutions, the customers may better understand their needs and preferences. It’s easier to determine what’s really important to them.

A late-comer can also learn from the experience of the established vendors and avoid their mistakes.

Tough to differentiate on features or price

Sometimes, companies’ first inclination is to try to differentiate themselves on features.  “Our solution has this function and the others don’t.”

Unfortunately that’s hard to pull off.  For one, getting prospects to carefully evaluate all their choices feature-by-feature can be tough.

Besides, since SaaS companies can develop and deliver new functions fairly quickly, it’s hard to sustain this advantage for very long.

Others will consider positioning themselves as the “lowest price” solution.  There are ways to make this approach work, but it can present challenges, especially when competing against larger, more established vendors that have deeper pockets and can match the low prices.

Lots of options to look different and better

But there’s no reason for SaaS companies to limit their differentiation options to just features or pricing.

They could, for example, decide to position themselves as the vendor providing the best support or expert guidance.

Or they could highlight the fact that they specialize in a specific industry or market, and they better understand the needs of those particular users.

Or they might consider making a virtue of their smaller size and claim that they are more attentive to each user.

Or… whatever other benefit that might be valuable to the prospective customer.  (Contact me if you need help figuring that out.)

If you’re competing in a crowded market, trying to stand out from the rest isn’t easy… but it’s usually not impossible.

Saturday, February 6, 2016

Why Your Prospects are Ignoring You

Trying to connect with someone while they’re scanning their Twitter feed, replying to texts, and staring at a full inbox, while desperately trying to meet deadlines for whatever deliverables are on their long to-do list isn’t easy.  But if you’re the poor marketing person trying to reach prospective customers, that’s exactly what you’re up against. 

And that’s especially true if you’re marketing a software-as-a-service (SaaS) solution.  That’s because the person evaluating the solution is often the same person that will be using the solution.

The evaluator is also the user

If you sell an HR solution, you're trying to reach the HR manager.  If you sell a sales automation solution, your audience is the sales executive.  If it’s a marketing automation solution, it’s the marketing professional.

When that's the situation you face, here’s the challenge:  All of these folks are busy.  They all have a full time job.  As much as you’d like to think otherwise, these folks have other things to do besides evaluating your solution.

Gone are the days when an expert from IT may have taken the lead in finding and evaluating software solutions.  It's a lot different for most SaaS solutions; no one has that dedicated assignment.
  
If you're the marketing person, what that means is that you need to work extra hard to grab a slice of your prospective customer’s attention.

Here are a few idea to help:

Easy to grasp message: Whatever it is that your solution does, you need to articulate the value clearly and concisely.  If you force the prospect to work too hard to figure out how you can help them, they simply won’t bother.

Create urgency.  The prospective buyer needs to feel a sense of urgency about the problem that your solution addresses.  They need to know that every month, every week, every day that they put off solving the problem, their business suffers… badly.  Evaluating and purchasing a solution is not something they can afford to put off for long.

Talk business benefits, not technology:  Remember that your SaaS buyer typically is in sales, marketing, finance, HR, or some other non-IT role.  They care about solving business problems: closing more business, optimizing marketing programs, improving cash flow, filling open positions, or whatever it is in their job description.

When you talk to them about your solution, you need to talk to them about business benefits, not just features and functions.  They care more about what your solution does and how it can help their business;  they don’t care so much about how it works.

Be consistent:  To get through to these busy buyers, repetition works.  They usually need to hear your message over and over before it has an impact.

If you’ve crafted an effective value proposition - something that is easy to grasp, creates a sense of urgency, and addresses business benefits - tell the same story everywhere.  The prospective customer should see it on your website, at events, in sales presentations, on webinars, in papers, and anywhere else you’re promoting your solution.

Resist the urge to constantly tweak the message.  You may be sick of hearing yourself say the same words every time, but that's what it takes to get through to your prospective customer.

Saturday, January 9, 2016

Bad leads cost you money

I know this is hard to believe, but sales people occasionally complain about marketing.  And they usually moan about two things in particular:
  • Not enough leads
  • Poor quality leads

I’ve seen this a lot, so I can tell you how lots of marketing people react.  They focus on fixing the first
item - generate more leads -  but pretty much ignore the second - improve the quality.

Why?  Usually because it’s just easier and faster to crank up the lead volume:  spend more on pay-per-click, add a couple more events to the calendar, or push out more direct mail.   Voila!  More leads.

At some companies, in fact, the marketing team’s compensation scheme may be tilted to encourage this.  They pick up a bonus for hitting some target number of leads.

A "suspect" is not a "lead"


Of course, if you’ve been through this kind of thing before, it’s easy to see the fly in the ointment here.

The fact is that lots of these “leads” are not really “leads” at all.  Many are really just “suspects” or “contacts.”  They’re names of people that may be interested in buying at some point in the future… but not yet.  You know very little about them and they’re not at all ready for a direct conversation with a sales person.

So what happens when we pass these “suspects” along to a sales person who then tries to get in touch with them?  Usually two bad things:

For one, the prospects are bothered and annoyed.  They don’t pick up the phone, reply to an email, or give a call back.  Why would they?  I know when I get a phone call that starts with “I see you were just on our pricing page,” that’s doesn’t make me feel warm and fuzzy.

Yes, I know there’s all kinds of research that says you need to connect with a prospect within 5 minutes of their inquiry, and that may work when it’s an inquiry from a qualified prospect.  But does downloading a white paper or signing up for a webinar really count as an inquiry from a qualified prospect?

How to waste an expensive resource      

Here's the other bad thing that happens when you chase down these unqualified prospects: you end up squandering one of your most valuable and expensive resources - sales people.

According to a survey conducted by Pacific Crest Securities, in software-as-a-service (SaaS) companies that sell through field or inside sales teams, sales expenses account for the largest portion of customer acquisition costs (CAC).



CAC Composition: Sales vs. Marketing Cost % of CAC




For SaaS companies that need to keep customer acquisition costs under control - and by the way that basically means all SaaS companies - wasting sales resources is not a path to success.

Tossing "suspects" or "contacts" from the marketing team over to the sales team just causes more problems.  Where sales people were once complaining about sitting on their hands, without enough prospects to call, now they're complaining about wasting time trying to chase down people who aren’t ready to talk to them.

Cultivate "suspects" into "leads"

Many of these "suspects" need more time to educate themselves.  They're still at the beginning of their evaluation process and need to better understand the options available to them.  That takes time.  Remember, these are busy folks and often get interrupted by other priorities.

Using sales professionals to chase these people who are early in the process is too expensive.  Instead, SaaS companies should be cultivating them, nurturing them until they are ready. 

So what's this "cultivation" all about?  It's really just a cost-effective way to stay on a prospect's radar screen.  When the prospect does focus again on whatever the problem is that you solve, they’ll have you and your solution at the top of their mind.

White papers, newsletters, webinars can all be effective cultivation tools.  (You should see what works best for your organization.)

The key is to find some way of staying in touch that’s relatively inexpensive, educates the prospect, and most importantly doesn’t require an expensive sales person.

And whatever mechanism you use, it should provide an easy way for the prospect to signal that they’re ready for the next step… they are now ready for a direct conversation. (Contact me if you need help with this.)

I doubt I have the key to everlasting peace, harmony, and love between sales and marketing.  But if you're in marketing and you hear complaints from the sales folks about leads, here's an idea:  Think first about Quality not Quantity... not the other way around.

Simply tossing more suspects or contacts into the pipeline, without a way to cultivate and qualify them, wastes time and resources, and it won't you any more popular with sales.

Bad leads costs you money; they don't make you money.