Tuesday, March 31, 2009

Ten Essentials of SaaS Solution Marketing

I've been thinking and writing for awhile now about the challenges of marketing software-as-a-service (SaaS) solutions and thought it would be useful to gather the essential elements required for success into a handy list. I've expanded on most of these topics in other posts and I've linked to them from the list.

If you want to help me build out the list to twenty items, your comments are always welcome.

For those who'd like a .pdf version of this list, I've made it available on my web site at "SaaS Marketing Essentials."

1. Build a marketing strategy specifically for your SaaS solution

While many of the tactics of marketing a SaaS solution are identical to those used in marketing an on-premise solution, the strategic elements – the audiences, the value proposition and the schedule - are different. You’ll need to do more than simply tweak your on-premise marketing strategy to meet the unique challenges of marketing your SaaS solution. (Find more at "The Unique Challenges of Marketing SaaS Solutions.")

2. Market the promise, not just the product

With SaaS solutions, customers are subscribing to the promise that your company will not only deliver functionality in the product today, but will provide fast and reliable access to the application, protect sensitive data, and deliver valuable enhancements over the entire life of the subscription. To win their trust, show customers your future plans and your record of delivering on past promises, provide proof of your reliability, and give them evidence that you can provide security. (Find more at "Advice on Exposing the Roadmap: Relax.")

3. Invest in the brand

Customers need to trust their SaaS solution vendor. Market this quality as part of your corporate identity, your brand. Customers are investing in your company as much as in a particular product, and they want to be in a positive relationship. In addition to spending on lead generation, allocate resources to ensure that your corporate brand is positive, compelling and clear. (Find more at "Relationships Matter.")

4. Win over the IT professional

Though your solution doesn’t run in their data center, IT professionals still very much care about security, reliability, performance and integration with other applications. Address these concerns directly with all the documentation required by IT of any other critical application to be deployed in the enterprise. (Find more at "What's Under the Covers.")

5. Market to your existing customers

Your existing customers will come up for renewal once their subscription expires. That means that they are also prospective customers, so treat them as such. Get them on-board painlessly, keep them informed of product enhancements, help them gain value from the solution, and engage them in a community. (Find more at "Your Existing Customers are Prospects Too.")

6. Manage your customer acquisition costs carefully

The sales and marketing costs required to acquire customers are typically the largest single expense item on a SaaS solution provider’s income statement. Ensure that you’re spending this money efficiently. Under a SaaS business model, unproductive activities can’t be covered by large up-front license fees. (Find more at "Hyper-spending on Customer Acquisition.")

7. Build a marketing process that can keep up with the development process

One of the fundamental advantages of SaaS over on-premise applications is that they are often updated frequently, perhaps every quarter. Put in place a process that makes it possible for marketing to keep up with this more aggressive product release schedule. The product introduction process that fit the on-premise model won’t necessarily fit the SaaS model. (Find more at "Product Updates and Surviving the Wheel of Death.")

8. Educate the prospective customers’ procurement specialists

Purchasing SaaS solutions is still relatively new to technology buyers and they may not be familiar with terms and conditions. Few contract standards have emerged about service level agreements, credits, and subscription terms, and vendors have introduced several different pricing models. Educate the prospective customers’ procurement specialists and legal department, and do it early in the sales process. Explain your rationale for particular terms and conditions, and ensure that your own sales executives understand what’s negotiable and what’s not. (Find more at "Getting Deals Unstuck from Legal and Procurement.")

9. Promote the entire experience, not just the features

The SaaS customer’s experience includes the speed of deployment, ease of configuration, access to support, and the simplicity of the purchase process. Market all these features and benefits of the entire “service”, not just the product functionality. (Find more at "Market the Entire Customer Experience.")

10. Don’t sell on price alone.

SaaS solutions might cost significantly less than a similar on-premise application, and this may generate the initial interest from a prospective customer. But customers value other benefits as well, including rapid deployment, reliability, easy updates, and flexibility. In fact, they may view these as even more important than price. Promote these other advantages in addition to the cost advantage. (Find more at "The Value Proposition Goes Beyond Product Features.")

Tuesday, March 24, 2009

Relationships Matter

As for the headline, I assure you that I'm not channeling Dr. Phil.

I'm actually thinking of an ad run by McGraw-Hill many years ago to explain the value of advertising. As you can see, a very skeptical prospect is saying, "I don't know who you are, I don't know your company... Now what was it you wanted to sell me?"

Fast forward to the present and to the particular challenge of selling a SaaS solution, and our grouchy friend could have added a few more items to his list:
  • I should entrust you with providing applications that are critical to my business
  • I should expect you to protect sensitive information
  • I should believe your promises to regularly enhance the solution
  • I should maintain a long-term relationship with you.
To satisfy this skeptical prospect, you need to establish a high level of trust. By its nature, SaaS is not a one-time transaction; it's a long-term relationship.

So how do we marketing people build that relationship and establish trust?

There are several things we can do with prospective customers who are evaluating solutions, including:
  • Win "trust by association." That is, show that other companies, particularly those with a high-profile and good reputation in their industry, are using your solution with success. Case studies and endorsements are obvious vehicles.
  • Show the roadmap. Let prospects know where you're going, and importantly, show that you have a track record of delivering as promised.
  • Build an engaging brand, something that prospective customers are attracted to and want to be associated with. Of course, lead generation and lead cultivation are important, but don't neglect the need to build a strong, positive perception in the market.
Once prospects sign on as customers, the marketing job doesn't end:
  • Build a community. Establish a venue where customers can share their experience with others. This venue can be a restricted-access web site or more traditional customer conferences.
  • Keep customers informed. Let them know about new enhancements and encourage them to take advantage of them.
  • Share your success with them. Let customers know of your progress and solicit their input. Customer advisory boards, for example, can be effective. Give customers a sense of investment in your success.
Remember that with a SaaS solution you're not simply marketing and selling a technology fix for a particular problem. You are actually earning the right to be a critical part of the customer's business. You're building a long-term relationship.

Friday, March 20, 2009

SaaS Marketing vs. Plain Old Marketing

Remember the CB radio phenomenon of the 70's? Everybody on the road was chattering about traffic, truck stops and speed traps. It was like Twitter for truckers. Except a lot of us were trucker wannabees, and we actually talked, not typed.

Along with the coded CB jargon - "You got a bear in the bushes at mile marker 228 so back it on down from the hammer lane" - there were the "handles," the nicknames drivers used to identify themselves.

I don't have a CB radio now, but I do have a handle: "SaaS Marketing." I know it's not as colorful as "Bandit," "Big Dog," or "Night Rider," but it is a useful way to distinguish myself and my services from the other marketing experts out there. That's why you'll find "SaaS Marketing" on my web site, my business cards, and in the header at the top of this page.

But is "SaaS Marketing" really any different than plain old marketing?

Tactically they're very similar, but strategically they're very different.

The tactics used to market SaaS solutions are familiar to anyone who's been marketing on-premise technology solutions. It's the same mix of events, PR, collateral, web site, search engine optimization, webinars, direct marketing, and other programs we know and love. We need to be especially careful that they're cost-effective, but the basic programs themselves are the same.

The difference is in the strategy. In marketing a SaaS solution, in contrast to an on-premise solution, we're delivering a different message to different audiences on a different schedule.

For a SaaS solution, the message needs to articulate the value of the full customer experience and isn't confined to just product features. It includes benefits like "easy to deploy," "easy to buy," and "easy to leave."

The message also needs to cover the promise of what you're intending to deliver in the future. The customer isn't just buying what's in the solution today. They're committing to a stream of enhancements to be delivered over the entire term of their subscription. Because of this, SaaS marketers shouldn't be hesitant about revealing the product road map.

For SaaS solutions, the audiences - the people involved in the purchase decision - are often different from those involved in an on-premise solution sale. During the sales process, we need to reach the functional buyer for the application (e.g. HR, finance, manufacturing), plus the CIO and the IT team, legal and procurement, and existing customers. In marketing on-premise solutions, we usually focus on prospective customers, not ones we've already sold to.

As for the schedule, SaaS solutions are often enhanced much more frequently than on-premise solutions, and marketing needs to work on a different timetable to stay in sync. In many cases, SaaS solutions require a marketing process geared for new releases every quarter, not once every two years.

To succeed, companies that are marketing SaaS solutions need to recognize and adjust to these strategic changes. We'll continue to deploy similar marketing programs, but our tactics will need to be re-oriented to deliver a different message to different audiences according to a different schedule.

Copy that, good buddy?

Tuesday, March 10, 2009

Which SaaS companies are driving high growth from efficient marketing?

Twice in the last few weeks I've come across the phrase "efficiency of capital." Given that sales and marketing expenses are among the highest outlays for SaaS firms, I examined the sales and marketing spending of several of the largest software-as-a-service (SaaS) companies in order to assess the link between their spending and their revenue growth. Which companies are efficiently deploying capital for marketing and sales to drive growth?

Based on results shown in the chart, it appears that there is no absolute correlation between sales and marketing spending and growth. In some instances, higher spending can yield higher growth. But it's also possible to spend a lot on sales and marketing without generating proportionately higher growth.

Mktg cost relative to growth

Comparing sales and marketing spending to growth, we can see that some companies are generating significantly better results from their sales and marketing spending than others. In other words, those companies appear to be deploying their capital much more efficiently, spending wisely on sales and marketing relative to other SaaS vendors.

Risking the scorn of far more sophisticated financial analysts, let me explain how I calculated the numbers here. Using the most recently reported results for these companies, all of them established, publicly-held SaaS vendors, I calculated the ratio of sales and marketing expense to their annual revenues derived from their SaaS business. (All but NetSuite and SuccessFactors break out their "subscription" business from professional services or other non-subscription business.) I use this ratio as a proxy for customer acquisition cost. (The folks at Bessemer Venture Partners actually offer a more sophisticated means to calculate The Customer Acquisition Cost ratio, but I opted for simplicity.)

I then compared that ratio relative to each company's most recently reported year-over-year revenue growth in order to assess how effectively sales and marketing spending was driving revenue growth.

Despite the accounting perils and the normal challenges involved in comparing different companies in different markets, we can gain a few valuable insights.

  • Nearly all of the SaaS vendors grew their subscription business at an impressive rate last year. All but one grew more than 20% year-over-year. Some analysts are predicting that these vendors will grow even faster in 2009, as customers are pushed toward the advantages of SaaS in this tough economic environment.
  • For all but one vendor, the cost of sales and marketing relative to revenues is substantial, from 25 to 82 percent In fact, for nearly all of them, sales and marketing represented the single largest expense item. This may be due, in part, to their being relatively young companies that are spending heavily to build market presence, though even a very large and well-known SaaS vendor, salesforce.com is spending 54% of annual revenues on sales and marketing.
  • There's a wide range of return on these SaaS vendors' sales and marketing spending. At the high-efficiency end of the spectrum, Concur generated 78% annual revenue growth with a relatively low 29% sales and marketing expense to revenue ratio. By contrast, RightNow generated 20% growth, having spent 66% of annual revenues on sales and marketing. In other words, companies can spend a little to grow a lot, or they can spend a lot to grow more modestly.
  • Interestingly, two companies in the same market, talent management solutions, allow us to compare the results from two different approaches. Pursuing a high spend/high growth strategy, SuccessFactors spent 82% of annual revenues on sales and marketing in 2008 (down from more than 100% in 2007) to generate growth of 78% in revenues. Following a more moderate spend/moderate growth strategy, Taleo spent 35% of revenues on sales and marketing to generate 33% growth.
Again allowing for differences between companies and markets, the assessment indicates that there are certain ways to spend on sales and marketing that are more efficient and generate better results than others.

  • Though consistent publicly available data on renewals aren't available for all the SaaS vendors I looked at, those generating the most growth from their sales and marketing spending have high renewal rates, typically in excess of 90%. This makes sense: keeping an existing customer is less expensive than winning a new one.
  • The high efficiency vendors have mechanisms in place, automated or otherwise, to closely assess the return on each sales and marketing program. And they make the tough decisions to cut those that cost more than they yield.
  • Those SaaS vendors who are generating high growth from relatively low sales and marketing expense have a solid understanding of their sales funnel. They know how many interested prospects and how many marketing touches are needed to generate a legitimate opportunity, and how many opportunities are needed to yield a win. They don't under-spend, starving the pipeline, or over-spend, generating prospects they can't pursue.

Friday, March 6, 2009

Market the Entire Customer Experience

Do iPods multiply automatically? Is there a procreation algorithm in their firmware? We first brought one into our home three years ago. Now we have at least five, though there may be even more hidden among the tangle of ear buds, chargers and accessories in my "mystery drawer."

Along with the proliferation of iPods, I'm also finding $1.98, $2.97, and $6.93 droppings on my monthly MasterCard statement, labeled "APL*ITUNES."

My playlist may be unique (Talking Heads, Johnny Cash, U2, Billie Holiday...), but I suspect many others are plagued with the same symptoms - a growing population of devices and a steady stream of payments for music to fill them. Somehow, whenever a tune pops into our head, we just go ahead and buy it.

In my mind, that's the true genius of Apple's invention. Besides all the wonderful features of the iPod & iTunes, they have made music easy to buy. I know there are other ways to acquire music online, legally and otherwise, but I am delighted to pay 99 cents for a song on the spur of the moment. And millions are apparently doing the same thing; that's a lot of moments and a lot of 99 cents.

So what does any of this have to do with SaaS?

Think of iTunes as a service that happens to require a specialized client, the iPod. Apple has carefully thought through and designed the entire customer experience. It's not just the product itself that's easy; the entire experience is easy.

Think about it this way. Would you so willing to spend 99 cents on a song if it took you 15 minutes to buy it? I wouldn't.

For those of us who are marketing SaaS solutions, there's a lesson in here. We too should think about the value of the entire customer experience. Don't confine our thinking to just the product features, narrowly defined. Make the service easy to buy and market that benefit. "Two clicks and you can add a new user; one click and you can access new functionality."

In fact, you can look beyond "easy to buy." Perhaps your SaaS solution is "easy to deploy," "easy to configure" or "easy to leave." Apple even makes it "easy to get your rebate." (Sorry if I'm sounding like one of those Mac devotee boors.) Tout all of these benefits in your marketing messages. Like our experience with iPods & iTunes, customers are attracted to the entire experience. Market it to them.

Tuesday, March 3, 2009

Your Existing Customers are Prospects too

Once upon a time in the technology marketing community, a story circulated about a rapidly-growing software company with a reputation for especially aggressive sales tactics. It was said that the only way for a besieged prospect to shake off their dogged sales execs was to break down and actually buy their product. Once you became a paying customer, they instantly disappeared.

Though the story exaggerates perhaps, the point still pertains. In the on-premise software model, you can win the deal, secure the up-front license fee, and then head on to the next victim... I mean prospect.

In the software-as-a-service (SaaS) model, however, this approach won't work.

You can't take the money and run

Why not?

For one, you need happy customers to serve as positive references. Sure, positive references are always important for business - SaaS or otherwise. But they're especially important for SaaS companies, where you need to be particularly frugal with customer acquisition expenses. And the fact is, positive "word-of-mouth" promotion can be very cost-effective.

A second reason to keep existing customers happy is renewals. Unlike the on-premise license model, SaaS providers need customers to renew when their subscription expires. High renewals and low "customer churn" are critical to recovering the initial customer acquisition and provisioning costs. Many of the successful SaaS companies are achieving renewal rates of better than 90%.

Ideas on marketing to existing customers

So now I can imagine the already over-burdened marketing executive muttering, "Just what I need - another target audience. Like it's not tough enough to reach all the influencers at my prospective customers - the functional buyer (e.g. HR, sales, accounting, etc.), the CIO, the CFO, procurement - now I need to reach them within my existing customers too."

For those marketing folks who haven't become completely discouraged and stopped reading yet, I'll offer a couple ideas on how to manage this challenge.

For one, include your existing customers right along with your prospects in most of your marketing efforts: invite them to webinars, send them case studies, meet with them at tradeshows and conferences, and send them news on product enhancements. You've promised them an on-going stream of enhancements over the life of their subscription. Make sure they know about the enhancements and encourage them to use them.

A second practice that I've seen succeed is an on-line "community" web site where customers can ask questions and provide answers on best practices. Your own experts within the company can jump in, but often customers are in a better position to help other customers. Besides the impact on support costs, an engaged group of customers can be your most effective advocates, so give them a forum.

The challenge, of course, is to run these programs to engage existing customers within a constrained marketing budget. (I didn't promise this would be easy.) But ignoring existing customers - the "take the money and run" strategy - will ultimately lead to lower renewals and higher new customer acquisition costs, which for SaaS companies is a shortcut to failure.