3 Ways to Waste Your Marketing Budget

I’ll admit it.  

Over my long career marketing all kinds of technology solutions, I’ve run a few marketing campaigns that flopped: events that attracted no real prospects, email campaigns that generated no serious leads, promotions that drew no response from prospective customers.  

It happens.

And I’m pretty sure that I’m not alone among my marketing brethren.  In fact, if we're trying new ideas and taking a few chances, from time to time some program is bound to fail.

But these occasional duds usually won’t doom an entire marketing effort.  While they’re nothing to brag about,  a program or two that just fizzles won't sink a company.

What's really dangerous are the big mistakes.

Three in particular can do serious damage to a company’s overall effort to attract customers:

Not measuring

If you’re not measuring the results of your marketing campaigns, you have no idea if they’re working or not.

Your decisions on which programs to fund and which to cut need to be based on data:  how many leads, qualified prospects, and paying customers did a campaign yield.

I know there are hazards to attributing a new customer to a particular campaign, but that doesn’t mean you just throw up your hands and give up on measuring entirely. (See "Marketing numbers can lie.")

Making funding decisions based only on a few anecdotes or seat-of-the-pants impressions - “it looked like steady traffic at our booth,” or “we got a few nice comments on our cool video” - is a mistake.

Unless you’re carefully analyzing results, you could be wasting your marketing budget on one failed program after another.

No end-to-end plan

SaaS buyers often follow a long evaluation and purchase process, interrupted by other priorities.   If your marketing plan doesn’t span that entire process, prospects will get stuck, or they’ll leak out of the pipeline.

Spending lots of money on programs that build visibility and drive visitors to a website, for example, won’t work unless they’re followed up by efforts to convert those visitors into legitimate leads and paying customers.

The same goes for marketing programs that convert leads into customers, but aren’t followed by efforts to bring those new customers on-board.  (Link “How to lose customers in the first 90 days.”)

Any single program, no matter how matter how many “views,” or “opens” or “contacts” it generates, cannot stand on its own.  It needs to be connected to a well-structured, multi-step process - something that covers the entire customer evaluation journey.  Otherwise, it could simply be a waste of money.

Remember, the goal of customer acquisition efforts isn’t “views,” “opens,” or “contacts.”  The goal is long-term paying customers.

Poor messages

SaaS buyers are usually busy people, and you don’t have a lot of time to make your case.  (See "Your prospect has a day job.")

There's precious little time to clearly and consistent present what they need to know about your solution:

• Who should buy it?
• What problem does it solve and how severe is the problem?
• Why is it better than alternatives… including doing nothing?

If a prospective customer can’t grasp the answers to these questions within a minute or two, then

whatever time and money you’re spending on marketing is probably wasted.

• You’re paying for SEO, adwords, or PR to drive people to a website… but visitors won’t wade through multiple pages to figure out why they should be there. 

• You’re sending out emails and promotional offers, but prospects don’t know why they should learn more about your solution.

• Or you’re showing up a trade shows, but nobody walking by your booth has any idea why they should stop and ask for more information.

More than the marketing budget is at risk

Any marketer is bound to run programs or try new tactics that don’t deliver.  It goes with the territory.

But a marketer that makes one the three big mistakes - inadequate measurement, lack of an end-to-end plan, and ineffective messages - risks wasting a big chunk of the marketing budget.

And in SaaS companies, sales and marketing costs usually account for the largest single expense.
That means that spending money on poor programs can do more than just waste your marketing budget.  It can bring down an entire company.

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.

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.

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.

Acquiring Customers Ain't Cheap

It costs SaaS companies $1.07 in sales and marketing expense to acquire $1.00 in annual contract revenue.

So says excellent research on the experience of SaaS companies, prepared by David Skok along with Pacific Crest Securities. 

The SaaS companies included in their survey spent, on average, $1.07 on sales and marketing to win a customer that would be worth $1 in annual contract value.

Some might react with horror at that news.  “To grow a SaaS business to $100 million in annual contract value, I need to spend $107 million to acquire customers!!”

Not me. 

Spending $1 to earn $3 is a good thing

That ratio - $1.07 in customer acquisition costs (CAC) delivers $1 in annual contract value (ACV) - is great news.

Here’s what that number means.  If a SaaS business wisely invests $100 million in customer acquisition costs, they’ll earn nearly all of it back from customer revenue in the first year. 

And if they can hold onto those customers for a second year, they’ll earn another $100 million in revenue, and in the third year, another $100 million. 

In other words, the first $100 million in CAC earns nearly $300 million in contract revenues over three years.

With that kind of return, the SaaS company should put as much money into CAC as it can get its hands on.

Before folks bombard me with objections, let me be clear on a couple of points.  For one, I’ve made an assumption that the money spent on sales and marketing to acquire customers is spent efficiently.  (Call me if you need help with that.)

And second, for the sake of making a point, I’ve omitted the cost of retaining an existing customer.  The Skok survey shows that companies will pay 12 cents annually to retain an existing contract worth $1.00.    Factoring that in, the cost to acquire $300 million in contract value over three years is closer to $131 million.  Still not too shabby.

SaaS is a "pay now, collect later" model

So with such an impressive return, why the resistance to spending on customer acquisition?

It may come from a couple sources.

Perhaps there’s some misunderstanding about the SaaS business model.  SaaS companies spend money on customer acquisition in the present in order to generate revenue over the life of the customer.  (See "SaaS customer acquisition:  Feed it or starve it?")  It may take 2 or 3 years to recover the sales and marketing costs.  (If you need more than 3 years to recover CAC, let’s talk.) 

That’s a lot different than the traditional on-premises business model that charges large up-front fees for software, plus on-going maintenance fees.  In that scheme, companies might allocate 4, 5, perhaps 6 percent of annual revenues to marketing. 

Effective sales and marketing costs money


There might also be a misperception about how much sales and marketing really costs.  Companies should expect to pay well if they want it done well.  

• It costs money to design and maintain an effective website.  
• It costs money to prepare compelling content.  
• It costs money to design an effective customer acquisition plan.  
• And it costs money to execute effective search engine marketing and social media campaigns.  

The experts who do this work don’t do it for free.
Of course, companies should take advantage of newer sales and marketing tactics, like social media and inbound marketing.  These can get them in front of prospective customers much less expensively and more effectively than they could have done several years ago.

And for some solutions, building a viral component into their product can be a powerful way to gain customers. 

But even with greater efficiency, customer acquisition still isn’t cheap.

SaaS companies pay a lot for excellent developers and UX designers.  They should expect to pay a lot for excellent sales and marketing people too.

There’s a reason that sales and marketing expenses at even well-established SaaS companies account for their single largest on-going expense.  Workday’s sales and marketing expenses, for example, represented 56 percent of their annual revenue according to their most recent annual financials.

Instead of looking at customer acquisition costs as an expensive burden, people should be looking at them as an investment.  And with returns of 200, 300, maybe 400 percent, a fairly lucrative investment at that. 

Accelerating the SaaS Purchase Process

Inbound marketing can be very cost-effective, but it can also be slow.

Inbound marketing relies on prospective customers making contact with vendors.  That's the other way around from traditional marketing, where vendors try to make contact with potential customers.

What that means is that by the time the vendor engages with a prospective customer, that prospect is already fairly far along in the evaluation process.  They're already familiar with the vendor and the solution.  In other words, they've qualified themselves.

That’s perfect for software-as-a service (SaaS) vendors.  They can focus their sales and marketing activity on well-qualified prospects.  

That fits well with the SaaS business model which demands that companies spend their sales and marketing resources wisely.  (See "SaaS companies can't afford to sell")

Finding customers in the short term

But it’s not so perfect for SaaS vendors in a hurry.

While inbound marketing makes sense - and the process usually works over time - it can be a long journey.  The prospective customers move at their own pace, not the vendor's pace. 

If you're a SaaS vendor that needs to close business in the short term, you need to add in some other tactics.  Inbound marketing may not have the instant impact you need.

Friends & family

There’s a reason most vendors’ early sales are to friends & family.  These folks already have some connection to the vendor.  They might be a previous employer, an investor, or former colleagues, for example. 

Vendors looking to quickly sign on some early customers should focus their efforts on these friends & family. 

These folks are already familiar with the vendor, which means they’ve already passed through the early stage of the evaluation and purchase process.  They're more likely to buy the solution in the short term.

The early adopters

In most markets, there is usually a cadre of early adopters, folks that are actively looking for innovative solutions. To gain a competitive advantage and bolster their credentials as market leaders, they are more willing to try technology solutions before they become mainstream. 

If you're looking to close business in the short term, seek out these early adopters.

Where do you find them?  Look at the press announcements for vendors selling solutions that are
complementary to yours.  See who’s speaking at relevant conferences.  Find out who's publishing a blog that describes their experience using new technologies.   

Leverage the early adopters

One of the reasons early adopters want to be out front is that they like being known as innovators.  They want others to take their advice and follow their lead. 

So once you've secured one of these folks as a customer, enlist their help to find others.  They tend to have a wide sphere of influence.  They post, they speak, they network.  And they’re often willing to help.

Don’t abandon inbound marketing

Do keep one thing in mind:  While you’re focused on closing a few deals in the short term, don’t forget about inbound marketing.  That's what you'll need to attract the prospects that will fill your sales pipeline over the medium and long-term. 

These are the customers that will get you “across the chasm” and help you establish a sustainable revenue stream. 

Yes, it may take them some time for these prospects to get to know you, assess their needs, and evaluate how well your solution fits their requirements and budget.  (See "Winning SaaS customers requires patience.")

But when they do eventually get there, they’ll be well-qualified and ready to seriously evaluate your solution.  You just can’t rush the process.







This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License. Images obtained via iCLIPART.com.

How SaaS Marketing has Changed

Over the 10 years since salesforce.com went public, a few things have changed in the way we market software-as-a-service (SaaS) solutions.

For one, companies are getting more comfortable with the idea of running critical business functions in the cloud.

Not too long ago, people marketing SaaS solutions spent a lot of time trying to convince prospective customers that putting key applications and data on the cloud was OK.

We put together plenty of documents - white papers, fact sheets, policy and procedures documents, and more - explaining that SaaS solutions were reliable and sensitive information stored there would be safe.

Fewer concerns about "the cloud"

I don’t hear many of these concerns anymore. 

Companies have grown more comfortable with the idea. 

Maybe the hosting companies have earned more trust, building a solid record of security and high-availability over the years. 

Or maybe the benefits of cloud-based solutions now simply overwhelm the possible downsides.

Of course when companies evaluate SaaS solutions, the IT professionals still care about security, performance, and integration issues.  They need to do their due diligence and ask the tough questions.  And solution providers need to have solid answers.  (For more on addressing these concerns, see "SaaS Security:  Don't Ignore It.")

Smarter buyers

As the SaaS market has matured, buyers have become more knowledgeable.  In some markets, they are now on the second or third generation of solutions.  These companies are often replacing existing systems, not adopting automation for the first time.

With this experience, buyers have a much better idea of what features and functions they really need, and what they’re willing to pay for.

To package and promote their solution effectively, SaaS marketers need a much better understanding of these more sophisticated buyers. There's no point in highlighting features and benefits that prospective customers don't really care about and aren't willing to pay for.

“SaaS” by itself isn’t a selling point

In many markets such as HR or CRM software being “SaaS” doesn’t, by itself, distinguish one solution from others anymore.  The benefits - faster deployment, no local servers, access from anywhere, regular enhancements, lower cost, etc. - are now simply “check box” items for prospective customers.  They expect them from all the solutions they’re considering.

Of course, vendors should include the benefits of SaaS in their marketing messages, but it may not make sense to put them at the top of the list. 

(A brief commercial interruption:  Contact me if you need help understanding your prospects and preparing your marketing messages.)

Some things stay the same

Though there have been some changes, some of the challenges of marketing SaaS solutions have stayed the same.

When a company’s evaluating a SaaS solution, there’s still a broad mix of folks involved in the process.  Along with IT and procurement, there’s the business owner, the department head, and the end user.  In fact, it’s often the department head - the executive responsible for Sales, Marketing, or HR, for example - that initiates the process. 

We folks marketing SaaS solutions need to reach each of these audiences and address their particular concerns.  The head of HR or the head of sales needs to hear different messages than the IT executive.


SaaS marketing is still expensive

Another constant is the high cost of acquiring customers.

In its most recent financial statement, salesforce.com reported it spent 53 percent of annual revenues on sales and marketing.  By far its largest single expense, sales and marketing costs have kept it from net profitability.  And this is for a SaaS company that is already well-known and well-established.

Yes, there are ways that SaaS companies can keep their customer acquisition costs under control - inbound marketing tactics, low-touch sales models, etc. - but sales and marketing is still going to be a substantial expense.  (See "Customer Acquisition Spending: Lessons from Workday")


It takes a lot of work and money to build visibility and credibility, generate leads, nurture leads into qualified opportunities, convert them into paying customers, and then retain and up-sell those customers.

That's an effort and an expense that hasn't changed for SaaS companies.

How not to waste $30,000 on marketing

An entrepreneur who's just been accepted into a start-up accelerator that provides cash for young companies asks:

"How would you spend a $30,000 budget for marketing an SMB software-as-a-service (SaaS) application?" 

He's selling into "a huge but highly competitive market."  Based on feedback from about 10 active users, he explains, "I feel confident my application is ready to go to market."

Now it's just a matter of where to spend the $30,000.

Don't spend a dime yet

My advice:  Put the checkbook away.

Sure, the company could try several marketing tactics that might be helpful and reasonably cost-effective:  search engine optimization (SEO), Google adwords, PR, and others.

But in a highly competitive market, $30,000 won't go far.  The company could easily spend that amount on adwords in a single month, and good SEO or PR professionals need to get paid.

Before it spends any money on specific lead generation activities, the company should first figure out why anyone would buy its product.  And in a highly competitive market, why would they buy it from them?

If the company is facing well-established and well-funded competitors, it'll need to articulate a significant advantage over these other solutions.  A few extra features aren't nearly enough.

A new solution can't just be better; it needs to be a lot better.   

Don't promote before you know what you're promoting 

There's a lesson in here for all SaaS companies:

Don't spend money on search engine marketing, PR, or any other channel, until you have a

compelling message to promote.

Once the solution is built is not the time to start marketing.  Companies should think through these messages and their value proposition much earlier in the process.

If you're interested in building a viable business, developing a compelling value proposition is just as important as developing a sound technology solution.  Marketing and messaging are not after-thoughts. 

If you don't know who should buy your solution, what problem it solves, and why it's better than anything else out in the market, no amount of money - not $30,000, not $300,000, not $3 million - will help much.

Spend first, think later: Bad idea

When it comes to putting together a marketing plan, there are lots of reasons to spend first and think later. 

The "spending" I'm talking about is spending on marketing programs like PR, events or collateral. 

And the "thinking" is about developing a compelling value proposition and messages. 

One reason why marketers spend first and think later… it's more fun.

Spending money on a clever promotional video, a tradeshow party, or a new ad campaign...  that can be fun.

But thinking about a value proposition… that's not fun.  That's hard work. 

Eat your broccoli first

Spending before thinking is more fun... but it's backwards

You need the value proposition in place before you can do any of the fun stuff. 

It's like you need to eat your broccoli before you eat dessert.

You need to know who you're selling to, what problem they're trying to solve, and why they would buy a solution from you instead of somebody else.


And you need to express that value proposition clearly, concisely, and consistently. 

You need to do the hard work to answer these fundamental questions before you start spending on marketing programs.  (Or you can hire someone like me to help.)

Because until you have a well-articulated value proposition in place, it's difficult to get much value from the other stuff.

You can spend lots of money on programs to deliver your messages:  PR, search engine marketing, videos, a website, tradeshows, etc.

But it won't buy you much unless you have a compelling message to deliver.

For software-as-a-service (SaaS) companies in particular, that's money wasted… money that you can't afford to waste.  (See "SaaS customer acquisition:  Feed it or starve it?"

Eat your broccoli first, then you can have the pineapple pie!







This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License. Images obtained via iCLIPART.com.

Making free trials work: 3 tips

Lots of software-as-a-service (SaaS) companies offer free trials.  But in even the best cases, only about a modest portion of the free trialers actually convert into paying customers.

In fact, many times the free trialers don't even try the free stuff.

People download the trial, but then they get distracted.

Or they don't have the time to use it.

Or they don't have the data they need to get started.

Or they decide it's a hassle.

Or they lose interest.

Or whatever.

Totango calls these folks "accidental trialers:"  prospective customers who sign up for a free trial and then do nothing.

After a few weeks, the trial expires - a complete flop for both the prospective customer and the SaaS provider:

The prospect gains little experience with the product and misses the opportunity to see how it might be helpful.

The provider has little opportunity to convert the free trialer into a paying customer.   They've invested in finding and cultivating a prospect, but they can't close the deal.

How can SaaS providers avoid this?  How can they get prospects to actually try the free trial?

Tip 1:  Don't make the trialer work too hard

Just because your solution is free doesn't mean your prospective customer's time is free.  If you ask them to do lots of work - track down data, configure forms, set-up work flows - they're likely to bail out.

Instead provide completed templates, default settings and benchmark data already filled in.  The trialer, of course, can make changes, but they're not starting from a blank page.

Tip 2:  Don't overwhelm the trialer

You're proud of your solution - every bell and whistle of it.  And your paying customers may grow to love every bell and whistle too - eventually.  But your free trialers probably aren't yet ready to see every single feature and function, and they may be overwhelmed by a walk-through of the entire product.

At this stage, it's better to focus the prospect on accomplishing a few simple, common tasks.  Show them how easy the solution is to use and how quickly they can achieve worthwhile results.  Get them as soon as possible to an "Aha!" moment.

Tip 3:  Offer help

Even with the simplest, most intuitive solutions, the prospect might need some guidance.  These folks aren't dense; they're just busy.

Give them a guided tour through the trial, a step-by-step guidebook, a recorded tutorial, or one-on-one coaching.

Yes, helping free trialers can be expensive.  But remember, you've already spent time and money to get prospects this far in the purchase process.

Spending more to push them one final step - and convert them from trialers to buyers - might be a worthwhile investment.





This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License. Images obtained via iCLIPART.com.

  
  
 

SaaS profits: who cares

There's a story about accounting that wouldn't really pass as funny - even by accountants' standards- but it is instructive.

A CEO was interviewing two candidates for an accounting position. He provided each with the company's most recent financial data and asked each of them: "What would you report for our company's profit?"

The first candidate pored over the numbers, pencil and calculator at hand, carefully constructing an accurate income statement. After that protracted exercise, he dutifully walked the CEO through his arithmetic, subtracting expenses from revenues. The remainder, he proclaimed, would be the company's reported profit.

The second candidate kept his pencil and calculator in his briefcase and, in fact, never even glanced at the numbers. He looked at the CEO and said, "The company's profit is whatever you want it to be."

So much for the unassailable truth of whatever is reported as "profit." Calculating it and interpreting it can be much more elusive than the cold, hard numbers would suggest.

"Profit" isn't especially meaningful, in particular for SaaS companies

Interpreting "profit" is even more elusive when assessing software-as-a-service (SaaS) companies. The problem is timing. Profit is calculated by subtracting costs incurred during a given period from revenues generated during that same period.

For most SaaS companies, though, they incur expenses in the current period, but the revenues are realized over many periods in the future. Costs now yield revenues... but not until later. (See "SaaS market consolidation: Blame Wimpy.")

The largest of those costs tend to be for customer acquisition. Sales and marketing expenses in a given period can often exceed 50% of revenues during the same period. Adding in support, operations, development, general & administrative costs, and other expenses, there's not a lot left for profit. In fact, a reported loss is far more common.

If not "profit," what really matters?

So if profit isn't a useful measure of success for SaaS companies, what is?

Metrics like "cost of customer acquisition/customer lifetime revenues"(CAC/CLV) can give a much better picture of a SaaS company's performance. For every dollar that the company invests in sales and marketing, how many dollars in revenue are earned? And how long does it take to earn them? (See Joel York's "SaaS Metrics Guide for SaaS Financial Performance" or David Skok's "SaaS Metrics" for additional metrics appropriate for evaluating SaaS companies.)

To amend the story about the CEO and the accountants, the best answer to the question "What would you report for our company's profit" wouldn't be "revenues less costs," or even "whatever you want it to be."

For a SaaS company, the best answer might be, "Who cares?"




This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.