Monday, September 21, 2009

SaaS Requires Standardization

Does anyone else remember something that resembled a programmable typewriter?

I was volunteering at a legal aid office during the summer of 1971, and one day they rolled in a workstation outfitted with an electric typewriter, an automatic paper feeder, and a box attached to the typewriter where the typist/operator plugged in different cartridges. As I recall, each cartridge would cause the typewriter to automatically type out a standard legal document, pausing at certain points to allow the typist/operator to manually key in names, addresses and other particulars.

This precursor to the Wang word processor and MultiMate on a PC was a wonderful time-saver and served the needs of the law office as they cranked out the standard "writs of this" and "appeals of that," each legal document identical, save for the names and addresses of the parties involved.

Companies selling software-as-a-service (SaaS) solutions should strive for this kind of standardization. They should aim to prepare identical legal agreements with standard terms and conditions for all customers.

Standard = Faster

For one thing, a standard agreement accelerates the sales process. Too many of us have seen opportunities proceed smoothly through most of the sales cycle, securing approvals all along the way, until they run smack dab into the folks in procurement and legal. A quick and easy sale becomes a protracted and difficult sale. One red-lined contract draft after another gets passed back and forth between the vendor and the customer, haggling over payment terms, service level agreements, activation clauses, ad nauseam. And in the SaaS model, delaying the flow of subscription revenue by weeks or months is painful. (See "Getting Deals Unstuck from Legal and Procurement.")

Changes now can cost you later

Adhering to standard contract terms also discourages customizing the application or operations for individual customers. You can build and maintain a single application that's hosted, delivered and supported via a single, standardized set of procedures. "One-offs," whereby one customer is handled differently than others, can increase costs for development, testing, deployment, support, upgrades and operations. What may look like a small change to the contract can be costly over the entire life of the customer.

Obviously, some SaaS companies need to be more flexible than others, and a single set of terms and conditions may not be practical. Large enterprises, for example, may require particular provisions to suit their specific needs for broadly deployed, critical applications.

That said, however, SaaS companies should still aim for standardization, and they should make it clear which items are negotiable and which are not.

Anything that stops the typewriter keys from clicking automatically at 150 words per minute and forces the operator to manually type in something unique can be extremely costly.

Wednesday, September 9, 2009

How to Cut Customer Acquisition Costs

  • How much should we spend on tradeshows?
  • Should we spend more on search engine optimization, or pay-per-click?
  • Are webinars worth the cost?
As a marketing adviser, I suppose I should charge a hefty fee to address these inquiries. But I'll share the answers with you right here, right now, for absolutely nothing:

I do not know.

That may not be something you often hear from an expert, but it's the best short answer I can honestly offer.

Here's a longer answer:

I don't know which specific programs will be cost-effective for your business and which ones you should eliminate, but I do know how to figure out the answer.

Articulate the goals for your particular organization

Know what you need to achieve with your sales & marketing efforts and be specific. How many deals do you need to win to hit your revenue targets? Work backwards from that number to calculate the number of opportunities you need, and then work further upstream to calculate the number of interested prospects required. (More on understanding this funnel later.)

I've actually managed marketing for a company that sold to a handful of large mobile phone makers: we didn't need to generate leads at all. Lead generation programs would have been a waste of money, so we focused exclusively on building market awareness and sales support tools.

Measure the value of each program

Track the number of leads, qualified opportunities and wins generated by each program. Then use the overall cost of the program to calculate the cost per each lead, cost per opportunity and cost per win. There are certainly flaws in this method - notably in designating a single program as the appropriate source for a particular prospect - but it's better than guessing.

A prerequisite for measurement is an agreement between sales and marketing on the precise definition of a "lead," a "qualified opportunity," and a "win." Further, they should agree on a process for moving prospects from marketing over to sales. Marketing's dumping unqualified leads onto sales is a sure way to waste money, besides creating ill will all around.

Understand the funnel

Know how many leads are required to generate one qualified opportunity, and know how many qualified opportunities are required to generate one win. Once you know these "conversion ratios," you can figure out precisely what's needed to make each stage of the sale process productive. You won't pay for leads you don't need, or sales people you can't feed.

Understanding the funnel can also help you identify where prospects are getting stuck. A low yield of leads-to-opportunities requires a different fix than a low yield of opportunities-to-wins.

It's not only about lead generation

Remember that in addition to generating leads, the marketing task typically includes two other important tasks: building visibility in the market and providing sales tools. Establishing thought leadership and winning the trust of prospects is especially important in marketing and selling SaaS solutions. (See "Lead Generation... ad nauseam.")

Cost-effective marketing is especially important for SaaS

Most SaaS companies will find that their customer acquisition costs (sales & marketing) will account for the single largest portion of their expenses. And under the SaaS business, sales and marketing expenses can often exceed one-third of subscription revenues. There is no margin for wasteful spending. (See "Hyper-Spending on Customer Acquisition: The Wile E. Coyote Effect."

Though I wish it might be otherwise, I don't believe there is an easy answer on how to cut your customer acquisition costs. Or least not an easy answer that's accurate. As H.L. Mencken put it, "There is always an easy solution to every human problem - neat, plausible and wrong."

Thursday, September 3, 2009

Developing an Effective SaaS Value Proposition

Though I've spent more than 25 years in marketing, truth be told, I still don't understand what people really mean when they talk about "go-to-market strategy." I'm not quite certain what a "marketecture" is, and almost any marketing term that starts with "integrated" is likely to confuse me as well.

I confess that I fall into the same trap, using this marketing jargon when I'm not careful. However I do try to use plain English so that I know that folks know precisely what I'm talking about. Sometimes I run a draft by my dad, an architect, just to be sure.

So let me take a run at one of those marketing terms here: "value proposition." Simply put, it explains who would pay money for a product or service and why.

Which gets me to the issue of the value proposition and SaaS.

In developing an effective value proposition for their SaaS solution, marketers need to address issues that are unique to SaaS.

For marketers to explain to prospective buyers what they're buying, what problems it may solve for them, why they should spend money or time on it, and why it's better than alternatives, they will nearly always need to talk about these specific features of their offering:


While on-premise application vendors can focus on features already included in the product, SaaS solution vendors must focus on the future as well. They need to win the trust of prospective customers and convince them that the solution will be enhanced regularly over the course of the subscription. Provide a roadmap of planned enhancements and show a consistent record of meeting past commitments.

The concept of marketing the promise, not just the product is discussed more fully in "Ten Essentials of Software-as-a-Service Solution Marketing."


SaaS vendors should show evidence of their solution's high uptime and provide service level agreements to back-up their promises. They should establish procedures to notify customers when service will be down for scheduled maintenance and to communicate with them in the event of unplanned outages. Hint: Posting a service outage notice via the application, which the client is unable to access, isn't an option.


Prospective customers will have legitimate concerns about the security of their data in the SaaS environment. SaaS marketers should address data location, segregation, encryption, access control and other concerns in order to gain the confidence of the IT professionals. And they're wise to engage with IT early in the sales cycle.


SaaS marketers need to show the cost advantages of SaaS over on-premise applications. Their calculation should include all IT-related expenses for on-premise deployment and maintenance as well as the potential financial advantages of an operating expense vs. a capital expense.

A caution here: While the cost advantages of SaaS over on-premise might be substantial, don't build your value proposition entirely on this single element. (See "It's Not All About the Price.")


SaaS marketers should promote the simplicity of their solution, if it applies. For users, it's easy to use and easy to learn. For IT, it's easy to deploy, easy to configure, and easy to upgrade. (More about this at "Market the Entire Customer Experience."


SaaS solutions typically have the advantage of flexibility vs. on-premise applications. Tout their ability to quickly scale to meet heavy demand, without the need to carry excess capacity during periods of low usage. There's value in managing unpredictability.


Marketers should promote the accessibility of SaaS solutions for remote workers in dispersed locations. There's no need to install and maintain an application on each client, all users are working on the same version of the application, and all data is in sync.

There may be more elements to add to this list, but if you start here you'll be heading in the right direction. In fact, you may have developed a "high-value element" of your "integrated go-to-market strategy"... whatever that means.