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Practical Advice on SaaS Marketing Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprise
Don't market to the wrong people
If you're not careful, you can waste a lot of time and money marketing to the wrong people.
Some lead generation tactics are inexpensive, so hauling in prospects that will never buy won't cost you much.
But once you start paying for things like adwords, sending out direct mail, making follow-up phone calls, or supporting free trials, pursuing the wrong prospects is a waste of resources.
If you sell a SaaS solution for financial executives in large, multi-national enterprises, for example, what good are misdirected marketing campaigns that draw in thousands of accountants who handle small business clients?
What did you buy with your pay-per-click campaign?
Why bother having an inside sales rep follow up on these names?
Why support these small business accountants through a free trial when there's no chance they'll convert to buyers?
Make choices
If you're to focus on the right prospects, you need to filter out the wrong prospects. You need to shunt aside people outside your target market.
To do that, first you need to clearly identify the target market. Know precisely who should buy your solution.
It sounds obvious, but it's not easy.
Ruling some group of people in means ruling some group of people out. And companies can have a tough time doing that.
There's an inclination to think, "Our solution is perfect for everyone!" With few exceptions, no solution is perfect for everyone.
Think through carefully who your product is designed for. And the more specific you can be, the better. Identify the target buyer:
by industry
by title
by level
by geography
by company size
by whatever other handle makes the most sense.
You can even add a psycho-graphic element to this description - something that might refer to the prospect's motivations or buying behavior.
For example, your solution might be meant for "ambitious financial executives looking to enhance their strategic impact," or "over-burdened IT managers who want to spend more time with their families and less time with their servers."
Be explicit
Once you know who you're targeting, say so loud and clear. Someone visiting your website, scrolling through email, or walking down the aisle at a tradeshow should be able to figure out in a few seconds whether your solution is meant for them.
Tell these folks you have a "solution for finance managers in multinational corporations ...."
If they're a finance manager in a large multinational, they'll pay attention. If they're not, they won't.
Focus on quality not quantity
Your lead generation efforts will be guided by what you measure, so measure the right things. Focus on the number of paying customers and revenues your marketing efforts yield - not on the number of visitors you attract or contact names you collect.
Visitors or contacts that are outside your target market - people who will never buy your solution - aren't worth your marketing and sales resources.
The wrong targets cost you money; they don't make you money.
Practical Advice on SaaS Marketing Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprise
Turning buyers into users: 3 suggestions
One of the advantages of SaaS is that solutions can be deployed quickly. Some configuration and data entry may be needed, but it's nothing like the extensive and expensive implementation that's usually required with traditional on-premises applications.
But just because companies can deploy solutions more quickly, doesn't mean they actually will deploy the solutions.
There's a gap between buying and using
Once a company has decided to subscribe to a SaaS solution, the vendor's task isn't really done. There's yet another bridge to cross. Now they need to convert that company from a
buyer into a
user.
If they don't, bad things happen. When subscribers stop using the solution, after a short while they'll usually stop paying for it.
Unlike on-premise software, customers haven't paid a large up-front license fee and, in many instances, they've made no long term commitment. It's painless to cancel their subscription.
But it's not at all painless for the SaaS vendor. Departing subscribers means lost revenue means lower profitability means trouble. Most SaaS businesses require long-term customers to thrive. (See "Good news & bad news about SaaS.")
Let me offer three suggestions for turning buyers into users.
Help new customers take their first steps
Provide all new customers with some special attention to get them up and running. Offer an introductory training webinar, a step-by-step guide or video, or personalized coaching sessions.
Yes, this hand-holding will cost some time and money, but you're less likely to lose new customers. And you'll probably find that by starting customers off on the right foot, it will save you time on support calls later on.
Lead new customers to early success
Don't overwhelm your new customers with every wonderful feature you've delivered. Focus first on getting them started, and lead them quickly to tangible success. Once they see for themselves what the basics of what your solution can do, they'll have the confidence to find more over time.
Pay attention
Closely monitor the activity of new customers over their first few weeks. See if they've started to use the solution. Applications like Evergage, formerly Apptegic, can help you identify new customers who haven't taken their first steps. Reach out to those customers and offer help.
Winning a new customer is a good thing. Gaining a new user is even better.
Practical Advice on SaaS Marketing Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprise
3 tips to make free trials work
Lots of software-as-a-service (SaaS) companies offer free trials. Some are very successful and they convert a high percentage of the free trialers into paying customers.
Others are less successful.
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.
"Accidental trialers" run out of time
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 you're not asking them to start 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 the free trial 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.
Does your plan cover the entire customer acquisition and retention process?
Does your plan generate visibility and educate people who are just beginning their search for a solution?
Can you convert "suspects" into qualified prospects?
Do you have a way to encourage prospects or free trialers to actually buy your solution?
And does you plan include activities that motivate existing customers to renew their subscriptions?
Make sure you've built a plan that reaches the prospective customer at every step of the evaluation process. Don't focus on just a single step. (See "SaaS marketing, baseball, and the batting order.")
Do you have a way to measure whether your plan is working?
Will you know which tactics are working and which aren't?
Will you be able to tell where prospective customers are getting stuck in the pipeline?
And if your customer acquisition program is working to perfection (it just might happen!), will you know that soon enough so that you can spend even more money on it?
No matter how well-constructed your plan is, conditions usually change and something will need to be adjusted. Customer acquisition plans don't run on auto-pilot.
Be prepared
I know you've got a lot on your plate, and I don't mean to dampen your enthusiasm. I just want to be sure that before you embark on the big new adventure ahead of you in the new year that you're well equipped, and you know what you need to know.
Better to ask these questions in January than in November or December.
Practical Advice on SaaS Marketing Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprise
Your 2013 Marketing Plan Will Go Wrong
Here's the good news:
You've prepared a comprehensive, well-structured, logical customer acquisition plan. Everything you need:
A compelling value proposition
A plan to raise visibility and generate leads
A way to cultivate leads into qualified prospects and paying customers
A program to retain and up-sell existing customers
Here's the bad news:
Something will go wrong.
Maybe it's something tactical - a particular tradeshow didn't work out, or a webinar didn't draw many attendees.
Or maybe it's more strategic - the prospects don't see the value of what you're selling, or you're targeting the wrong prospects altogether.
No matter how good the plan, something will go wrong.
I can't tell you exactly how your plan will go wrong, but here are few ideas on how to be ready when it does:
Measure, measure, measure
The first requirement is to carefully measure the impact of your marketing programs. Know what's working and know what's not.
How many people visited your website, your webinar, your tradeshow booth, and how many of them converted into leads, into qualified opportunities, and into paying customers?
Track this information with a CRM solution, track it with a spreadsheet, track it on a yellow legal pad. You can't know what's going on with your customer acquisition plan by guessing.
Be flexible
Once you've detected a problem, be flexible. Make adjustments. If some program or tactic doesn't deliver, try a new program or a new tactic.
Don't get locked into your plan. And don't confine yourself to what others are doing, or what you've done in the past. Marketing programs come in and out of fashion - like clothes or music.
Have courage Making adjustments sometimes requires courage, especially when the adjustments are strategic, not just tactical.
Admitting that a particular email campaign was a flop is relatively easy. Admitting that your value proposition is off-base is much more difficult.
Refining your message, targeting a new audience, clarifying your benefits and advantages - that takes work. And it takes some courage.
So now that you're prepared... Best wishes for a happy and healthy new year.
Practical Advice on SaaS Marketing Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprise
SaaS companies can't afford to sell
Most companies offering a software-as-a-service (SaaS) solution can't afford to sell it.
I'm talking here about "selling" in the traditional sense: finding prospects and convincing them to buy a product or service.
In some cases that's done with experienced sales executives working their Rolodex (or its electronic equivalent). Or it might be sold by a team of inside sales reps making cold calls from a purchased list.
The best of these sales efforts may follow "solution selling," "SPIN," "customer-centered selling" or some other sophisticated technique. But it still involves the vendor's salesperson reaching out to a potential buyer.
Selling is expensive
For most SaaS companies, however, these techniques are too costly.
For one, those experienced salespeople are expensive. Paying these folks to find and woo potential buyers, often with a sales support engineer in tow, means travel expenses, a decent draw, and a hefty commission. That's beyond the resources of many SaaS companies, who depend on future subscription revenues to pay for current sales expenses. (See "SaaS customer acquisition: Feed it or starve it.")
(A notable exception to this would include SaaS companies like Workday, which offers talent and financial management solutions for large enterprises. Selling these complex, enterprise-wide systems does indeed require experienced and expensive salespeople. But unlike most SaaS companies, the large subscription fees can support that kind of sales model.) (See "Customer acquisition spending: Lessons from Workday.")
Besides the cost, this approach - trying to find potential buyers, many who aren't really looking for a solution, and methodically coaxing through to purchase - just doesn't work as well as it once did. With information so easily available, most prospective customers can do much of their research before they even talk with a sales executive. The sales exec comes in only near the end of the process, not the beginning.
Rely on "buying," not "selling"
So if SaaS companies can't afford traditional "selling" to grow their business, they'll need a different approach. They need to rely on "buying."
That is, they need to attract prospects who are actively looking to buy. The goal isn't to sell them your solution. The goal is to attract them to buy your solution.
Perhaps an analogy can illustrate the difference.
"Selling" is like sending a brave hunter out onto the plains to stalk a large beast. The hunter wanders for days or weeks over many miles, tracking the prey, and finally gets close enough to bring it down with a well-aimed spear.
"Attracting buyers" keeps the hunter in the village. Instead of trekking for miles and days, he digs a water hole, provides a salt supply, and lets the wind carry the scent of this lovely feeding spot across the plains. When the beasts gather around the watering hole, our brave hunter tosses a net over them.
Let prospects find you and move themselves toward a purchase
Attracting buyers means making your company and your solution visible to your prospective customers. Build a watering hole where they can find you when they're searching.
Make it easy for them to find you, and you won't need to rack up mileage or pound the phones trying to find them.
Once the prospects do find you, don't sell them; educate them. Help them understand how to make an informed decision. Be a resource. Make them smarter.
Earn credibility and trust. Let them see what value your solution can deliver for them. Show them how others have used it successfully.
And then provide a way for the prospect to "buy." Give them an easy way to move themselves toward a purchase at their own pace.
With more complex SaaS solutions, a salesperson may be needed to negotiate pricing, work through terms, or configure the precise package of services. But in many cases, the prospective customer can take those steps without much help.
There's no need to push, no need to cajole, no need to "sell."
Practical Advice on SaaS Marketing Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprise
When great tactics don't deliver great results
I know from personal experience how lots of marketing programs get put together. You start with a website, then add some PR and a dash of SEO and PPC.
With a little more funding, you toss in a few events, a pinch of social media, and a webinar series.
And with next year's plan, you add a newsletter, a referral program, and a customer conference.
It seems like you're adding in all the right ingredients, doing all the right tasks, using all the right experts, and spending all the budget you can get. So why isn't it working?
Where are the leads, the qualified opportunities, the loyal customers?
The problem may not be with the tactics; it may be with the strategy.
Each of the individual programs and campaigns is being executed effectively, but there's no overall plan to fit the individual elements into a coherent, logical strategy.
You're doing all the things right, but you're not doing all the right things.
What are the symptoms?
Here are a few clues that you might have a problem.
You're attracting lots of visitors to your website, but few are becoming contacts or leads.
You're picking up lots of business cards at a tradeshow, but few of those contacts turn into qualified prospects.
You're building a rich pool of qualified prospects, some even willing to use a trial version of your product, but few of them become paying customers.
Or you're winning lots of paying subscribers, but most of them drop their subscription after a few months.
Look at the whole process, not bits & pieces
The problem may be that you're focusing on the wrong things. You're looking at individual tactics, and you're not looking at the overall end-to-end process.
Counting website hits, booth visitors, free trialers, Twitter followers, or Facebook friends, in isolation is not helpful.
You don't really care about the impact of individual programs by themselves. You care about how all the pieces fit together into a coherent customer acquisition process.
Align programs with the buying process
If individual programs don't fit together well, you'll see gaps or bottlenecks in the pipeline. Once you know where those gaps or bottlenecks are, then you'll know where to put programs in place to solve your particular problem.
If there aren't enough leads, consider programs that get you in front of prospective customers, such as SEO or PPC campaigns.
If you're gathering plenty of leads, but not generating qualified opportunities, consider programs that nurture the leads, such as newsletters or a webinar series.
If you're successfully cultivating qualified opportunities, but not converting them into buyers, consider what road-blocks might need to be cleared. Perhaps you need to streamline your contract and purchase process, or you need to improve the prospect's experience with your free trial.
If paying customers are abandoning you after a few months, marketing programs that help on-board new customers or keep them informed and productive could be the solution.
At each one of these bottlenecks, there's a whole array of remedies. But there's no point in spending money on any particular marketing program or tactic until you know where it fits into the overall strategy.
To mangle a well-worn adage:
If you don't know where it's broke, you can't fix it.
Practical Advice on SaaS Marketing Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprise
Sometimes lead generation is a bad thing
"Too much of everything is just enough" - The Grateful Dead
For many marketers, there's no such thing as "too many leads." Gathering leads is the primary focus of their marketing efforts and in some cases, their compensation depends on it: More leads = higher bonus.
With all due respect to Jerry Garcia, though, sometimes "too much" really is "too much."
Sometimes lead generation is a bad thing. And marketers' fixation on accumulating piles of leads isn't necessarily the best approach to acquiring customers.
After all, it's customers we're after; not just leads.
The fixation on accumulating leads is particularly true for us software-as-a-service (SaaS) marketers. Cost-efficient lead generation and a high return on marketing expenses are critical to a successful SaaS business model. (See "Ten Essentials of SaaS Solution Marketing.")
But generating a pile of leads isn't always a good thing. You can get too much of a good thing. Here's how:
Unqualified leads
Leads that consist of prospects that are unqualified - that is, they have no real need for your service - aren't worthwhile leads.
Unqualified leads don't make you money; they cost you money.
Think about it. You're spending money on search engine optimization, pay-per-click, PR, webinars, or other marketing programs that bring people to your door. But if those people have no need for your service and no compelling reason to purchase anything, the money you've spent to attract them has been wasted.
That's not to say that 100% of leads should convert into actual buyers. But most leads should at least be potential buyers.
Two warning signs of unqualified leads
One clear sign that you're generating unqualified leads is a low ratio of qualified opportunities-to-leads. It indicates that few leads convert into real opportunities and eventually paying customers.
Here's a second sign. In an organization that sells through a sales force, you'll hear about "worthless leads" loud and clear from the sales people. You won't even need to check the ratios!
Leads that get stuck in the pipeline
If you've spent all your money and effort bringing leads in the door, much of it will be wasted if there's no process in place to nurture those leads into opportunities and paying customers. Those leads get stuck in the pipeline.
To get them "unstuck," you'll need to build a system that moves prospects through the complete acquisition process - from initial interest to lead, from lead to qualified opportunity, from opportunity to purchase, and finally from initial purchase to renewal. Generating leads is only the first step.
Here's the big takeaway:
Generating leads isn't the goal; paying customers is the goal.
Practical Advice on SaaS Marketing Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprise
Names are cheap; Customers are expensive
Bad news for marketers:
The further prospects move through the sales pipeline, the more expensive they get.
You might pay $25 to acquire a lead, a prospective customer who's at the beginning of the purchase process.
At the next step in the pipeline, it may cost you $300 to earn a qualified opportunity, a prospect with a higher likelihood of buying.
And further along, you might end up paying $1000 to win a paying customer.
Acquisition costs escalate as prospects move through the pipeline
So what's a marketer to do? And in particular, what's a software-as-a-service (SaaS) marketer to do. After all, the SaaS business model requires that you keep customer acquisition costs low.
Don't worry about the wrong things
The short answer: Don't worry.
A bit longer answer: Don't worry about the wrong things.
The cost to acquire leads, opportunities, and customers, by itself, doesn't really matter. The costs are only half the equation.
What does matter is the cost relative to revenue. To make any meaningful assessment, you need the other half of the equation.
Paying $1000 to acquire a single customer can be sustainable and justifiable if the customer generates revenue in excess of $1000. (A rule of thumb says revenues should be at least 3 times customer acquisition costs. Of course, like most rules of thumb, there are lots of exceptions.)
On the other hand, paying $1000 to acquire a customer that will generate less than $1000 in revenue is usually a bad idea.
What SaaS marketers should worry about
SaaS marketers should focus on the numbers, but they should focus on the right numbers and they should interpret them wisely.
Focus on the cost to acquire a customer relative to the revenue generated by the customer. Spending $1000 to gain $3000 in revenue makes sense. Spending $1000 to generate $700 doesn't.
Pay attention to the complete, end-to-end customer acquisition process. Don't fixate exclusively on just one portion of the pipeline, for example, cost/lead. Your goal is not to acquire leads; your goal is to acquire paying customers.
Spend the right amount at the right step. For example, it's OK to use expensive direct sales resources on qualified opportunities that intend to purchase soon. On the other hand, you can't spend those expensive resources on every unqualified lead that downloads a white paper from your website.
Spend to retain existing customers. The most expensive "prospects" to lose are existing customers. For most SaaS companies, the business model depends on renewing customers over a long period of time. Many require two or three years to recover the customer acquisition costs. Spending money to retain existing customers is a valuable investment.
Practical Advice on SaaS Marketing Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprise
Enterprise SaaS marketing: Lessons from a shampoo bottle
You can learn a lot about marketing from a shampoo bottle - even if you market software-as-a-service (SaaS) solutions to enterprises.
Consider the label from a bottle of "UltraSwim (R) Chlorine Removal Shampoo."
The label reads, in part:
Chlorine binds to hair
Building up over time, chlorine makes hair dry, brittle, unmanageable
Unlike ordinary shampoos, UltraSwim (R) makes chlorine go away
The text is accompanied by simple illustrations showing one strand of hair with a chlorine molecule attached and another with no chlorine molecule attached.
Despite its simplicity, the label on this shampoo bottle is a right out of the "value proposition playbook."
It's a perfect message template for the rest of us:
Problem, solution, advantage.
Better yet, it all fits on the back of a shampoo bottle.
Lessons for SaaS marketers
Maybe us SaaS marketers can't fit a value proposition into a two-inch label, but it is worth trying.
Among other things, reducing customer acquisition costs
require that you deliver your message clearly and concisely. There should be no doubt as to who should buy your solution, what problem it solves, and why it's better than alternatives.
Someone walking through a drug store aisle looking for shampoo will spend only a few seconds reading your message.
And someone seeking a SaaS solution who's perusing a pay-per-click ad, scanning an email subject line, or listening to an outbound sales call probably won't give you much more than a few seconds either, at least to capture their initial attention.
Don't lead with the technology
I know that the shampoo bottle does illustrate the chemistry, but the technology story is used only to support the main message.
The primary focus is on benefits. There is a direct connection between how it works ("release chlorine molecules from the hair") and why anybody should care ("makes hair more manageable.")
I'm sure the chemistry is much more complicated than that, and some follicle scientist would surely welcome the chance to explain the process at length. But the shampoo buyer doesn't have the time to listen, and they probably don't really care.
Treat the discussion of SaaS technology in the same way. Focus on the benefits and advantages- rapid deployment, regular upgrades, lower capital expenses, browser access, etc. - not the technology.
Of course, at some point you'll need to explain, usually to someone on the customer's IT staff, how the solution works, but there's usually no need to lead with that.
Concentrate first on explaining what your solution does, not how it works.
June 2012
Practical Advice on SaaS Marketing
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
SaaS Marketing: It's a treadmill, not a sprint
It used to be that marketing software was like a relay race - a short sprint to build visibility and generate leads, and then a hand-off to Sales.
Marketing software-as-a-service (SaaS) solutions, though, is different. It's more like running on a treadmill - one with no on/off switch. For SaaS marketers there's no hand-off to anybody.
In the world of on-premise solutions, marketers generate & qualify a lead, and then they hand it off to Sales. While sales people close the deal and collect a large up-front license fee, Marketing goes back to finding and qualifying the next prospect.
SaaS marketing doesn't hand off to anybody
In the world of SaaS, marketers also generate and qualify leads, but there is no clean hand-off to anybody else to complete the process. SaaS marketers stay connected to customers from beginning to end.
No hand-off to Sales Marketing may be involved in actually closing the deal, especially when there's no direct sales force in place. If sales are done via a website, for example, Marketing may be responsible for designing and maintaining the website. The site isn't just a place to promote the solution; it's also a place to purchase the solution.
No hand-off to Training Marketing may be involved in on-boarding new customers, that is getting them up & running and actually using the product.
This is critical, especially for solutions with short-term, no-commitment subscriptions. If customers have a positive and productive first experience with the solution, they're more likely to renew.
No hand-off to Support Marketing will be responsible for on-going communications with existing customers. These customers need to be informed of product enhancements, service changes, usage tips , and other information. It's all part of the effort to secure renewals and reduce attrition.
Product enhancements are fast & furious
Besides staying engaged with existing customers, SaaS marketers also need to keep up with a much faster flow of product & service enhancements.
On-premise marketers ramp up for world-shaking product releases once per year, every 18 months, maybe longer.
For SaaS marketers, the gaps are much shorter. It's not uncommon for new enhancements to be delivered every quarter or even 6 weeks. Just as you finish with one, another's on the way.
With each one of these releases, Marketing has work to do: press announcements, analyst briefings, new collateral, website revisions, refreshed sales support material, customer communications, or some combination of these.
It's a different world
With their longer term relationship with customers and the rapid flow of enhancements, how's a SaaS marketer to keep pace? How do you not fall off the treadmill?
A few tactics are helpful: articulate a compelling value proposition and tell it consistently (See "Where to start with SaaS marketing."), prioritize the enhancements (Hint: they're not equally important), and reach across the boxes and lines on the traditional organization chart. (See "SaaS makes a mess of the org chart.")
What's most important, though, it to be prepared for the different pace and process of SaaS marketing. What you were comfortable with in the on-premise world won't translate well to the SaaS world:
Stop thinking about sprints. Start thinking about treadmills.
May 2012
Practical Advice on SaaS Marketing
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
Free trials don't always make sense
Free trials are one very popular technique for marketing software-as-a-service (SaaS) solutions. A survey of 550 companies selling business-to-business solutions revealed that 44 percent offered a free trial.
The free trial model has certainly been effective in winning my business as a customer. Having taken advantage of their free trials, I'm now an active user of Constant Contact, DropBox, and Carbonite.
But just because free trials seem to be working for some SaaS providers, doesn't necessarily mean they will work for everyone.
Before you take the leap and offer your own free trial, think carefully.
Lots of companies offer a free trial of their software-as-a-service (SaaS) offerings. For some, it works well. It's a very cost-effective way to bring in new, paying customers. Emphasis here is on "paying."
For others, it's an unproductive drain on company resources that doesn't bring in nearly enough paying customers to justify the expense.
Why do free trials work for some SaaS companies and not for others?
Free trials can't work without follow-up
For a free trial to work, it needs to be part of a overall customer acquisition plan. A free trial without a well-constructed follow-up effort to convert the free trialers into paying buyers isn't worth much.
You should also have a plan for people who tried but didn't buy. They should be part of your target audience for on-going marketing programs.
Free trials do cost money
With a free trial, you are essentially extending the sales cycle by the length of the free trial. Most buyers won't pay you until they need to. That will require more working capital.
Depending on your infrastructure and hosting platform, it will cost you money to host and deliver your solution to free trialers. The cost of computing and storage may be low, but it's not free.
If your solution requires support to get the free trialers up and running, in the form of telephone or chat help, or online tutorials, factor those costs into your calculation.
Why buy the cow if the milk is free?
For some applications, there's very little value delivered beyond the free trial period. If it's a solution that helps manage a task done once per year - for example, arranging the annual user group conference - why would the prospect actually pay for the solution once that task is done?
In this case, the SaaS company is essentially giving away the full value of its solution. A free trial can attract users, but not many paying customers. Does a free trial really show the value?
Consider whether the free trialer will truly see the full benefit of your solution during the course of the free trial. If you're helping them manage a process that takes 6 months to execute, for example, the trialer might not see much value in a 30-day free trial.
And just because a trial is free doesn't mean that the prospective customer will put in the time to learn how to use it. In fact, if it's not immediately obvious how to use your solution, a free trial might actually deter prospects from buying it. "Free" does not compensate for a poor product that's difficult to learn. (See "If it's hard to use, it's hard to sell")
"Free" might not really matter
A trial might show prospects the solution's features and functions for free, but it won't necessarily address concerns about security, reliability, deployment, and integration. For buyers within large enterprises, these other issues may be more important than price.
Alternatives to a free trial
Before you automatically opt for a free trial, think about alternatives. There's more than one way to achieve the goal of letting prospects experience your solution.
A "sandbox" demo would allow the prospective customer to work with the software in a controlled environment. It might provide access to all functionality or it might limit the user to certain features. For example, it might not allow printing or emailing reports.
Videos could be used to show off the key features of the solution, explain how it would be valuable to the prospect, and demonstrate how easy it is to use.
A money back guarantee would allow someone to purchase the solution and, if they are not satisfied, cancel their subscription after some period of time to get their money back.
A no-obligation contract would allow a paying customer to cancel their subscription at any time without penalty. They are under no long term commitment.
With these alternatives, prospective customers can get some experience with your solution. And you might avoid some of the downsides of a free trial.
April 2012
Practical Advice on SaaS Marketing
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
Metrics + Imagination + Courage
According to brain researchers, the most imaginative musicians can actually suppress the portion of their brains that inhibits spontaneity. By freeing themselves from the normal constraints that keep us from doing crazy things before we think about how crazy they are, jazz greats like John Coltrane could spontaneously improvise new riffs with every performance.
In doses, this is a good practice for software-as-a-service (SaaS) marketers, too. It's useful to escape the inhibitions of the "tried & true," exercise imagination, and have the courage to try something new.
SaaS marketers can't fly by the seat of their pants
Marketers need a dashboard - a way to carefully measure the business impact of their efforts, the effectiveness of individual programs, and the status of their customer acquisition pipeline.
SaaS companies' customer acquisition costs are too high and too important to the overall success of the business to rely on ad hoc reports and anecdotal evidence.
Poorly spent marketing resources will kill as many SaaS companies as poor products, poor operations, or poor support.
Without an accurate dashboard, it's almost impossible to know whether you're spending too much or too little, or if you're spending on the right things.
But metrics alone are not enough
While metrics can tell what's already worked and what hasn't, they won't tell you what might work if you try it. They're vital for analysis after the fact, but they aren't necessarily a source of inspiration before you start.
Marketing success requires imagination and a willingness to try new things.
Don't get stuck with the conventional. Just because "we did this program last year," or "every other vendor goes to this event," doesn't mean you should too.
There's no need to follow the pack. If everyone's doing webinars, maybe you should try local events instead. If others are blogging 6 times per day, maybe you're better off putting out a well-researched white paper every quarter.
And in the excitement over "social media," don't rule our "old media" techniques. Like clothing or music, marketing techniques and tactics that go out of fashion sometimes come back into fashion. (See "Old marketing tools in a new marketing world.")
No place for cowards
Along with metrics and flexibility, there's a final ingredient for successful marketing: Courage.
Courage here comes in two flavors.
First there's the courage to go where the metrics tell you. Sometimes they'll surprise you. Maybe they'll reveal that for your particular product in your particular market, what's "tried & true" and "sure-fire" isn't so sure-fire after all.
Don't let the numbers, by themselves, take control, but if they're providing you some new and unexpected insight, pay attention.
Second is the courage to try new things and avoid the conventional. Don't be afraid to zig when everyone else zags. Coltrane wasn't following anybody else to go where he went.
March 2012
Practical Advice on SaaS Marketing
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
Where SaaS messages go wrong
Sometimes software-as-a-service (SaaS) marketing plans come off the tracks. They're under-funded, mismanaged, or otherwise poorly implemented.
But lots of marketing plans never really get on the tracks in the first place.
They lack a necessary ingredient: a compelling message. People don't know who should buy the product or why.
No amount of thoughtful, data-driven planning to efficiently deliver a message can help...when you don't know what the message is.
This month's feature article is about messaging and the particular challenges for software-as-a-service (SaaS) companies. I discuss four common messaging mistakes SaaS providers make and suggest ways to avoid them.
With apologies to my professional marketing brethren, once you get past the jargon about "value propositions" and "branding," messaging is really about answering a few simple questions:
Who should buy your product?
What problem does it solve for them?
Why is it better than alternatives?
From what I've seen, SaaS providers tend to make at least four kinds of mistakes when it comes to answering these questions.
1. Too much focus on the cost advantage
It is true that the initial cost of SaaS subscriptions is typically significantly lower than the cost of an on-premise perpetual license, but that's not the only advantage of SaaS solutions.
Don't forget about the the advantages of flexibility, speed of deployment, remote access, and automatic upgrades. Plus there are all the benefits of not installing and maintaining hardware and being able to deploy internal IT resources to higher priorities.
The hazard of focusing on price alone is getting caught in the "buy vs. lease" trap. That kind of analysis might make sense when someone's buying a car or a machine, but it doesn't apply to SaaS solutions. (See "Pricing SaaS solutions: Beyond a "lease vs. buy" analysis")
2. Not clear who should buy your solution
An effective message should reach out and grab people: "Hey you! You need this!" There should be no doubt about who should be paying attention and who should be using your solution.
For some solutions, there may be more than one person involved in the purchase decision. That means the message needs to reach out and grab several people.
For example, you might need a message that addresses the people in IT. They're typically concerned about security, performance and integration. End users likely want to hear about ease of use. Departmental managers probably care about rapid deployment. And CFOs usually want to know about cost advantages. Your messages need to reach all of these folks.
(For more on this topic of reaching the right audience, see my rant, "Please don't sell me stuff I don't need.")
3. Focus on benefits not technology
I know there's a brilliant development team behind every SaaS solution, and they've employed all the latest technology in all the most clever ways.
But when it comes to talking to prospective customers, most of them really don't care how the solution was built and how it works. In fact, one of the attractions of SaaS is that they really don't need to know much about the technology. They just point their browser to the app and it goes. 4. No message at all
The biggest mistake is pursuing a customer acquisition plan without any message at all. That's a bad case of "ready, fire, aim."
There is no point in concentrating on where and how to deliver your message before you know what you want to say. Paying for adwords, newsletters, tradeshows, brochures, websites and anything else before you have a clear and compelling message is one of the easiest ways to waste marketing money.
February 2012
Practical Advice on SaaS Marketing
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
KISS and SaaS
"KISS" is a lovely acronym for "Keep it simple, stupid." It perfectly describes the idea behind "SaaS," a less-than-lovely acronym for "software-as-a-service."
Why burden technology users and their companies with the complexity and expense of buying, installing and maintaining lots of computing resources when all they really need is easy access to the application?
The "simple is better" notion is certainly gaining traction. IDC is projecting 26.4 percent compound annual growth in the SaaS market through 2015, much faster than growth in the market for traditional on-premise software.
Eliminating the complexity of servers and other infrastructure from users is a good start. But why stop there? SaaS providers can push this simplicity idea even further.
Simple UI: Focus on making your solution easy to learn and easy to use. This is especially important for applications that are to be deployed broadly, such as HR or travel expense solutions. What's the point of saving the customer lots of money on hardware if they're going to have to spend lots of money on training and help desk support?
And just because you sell a "business" application doesn't mean it needs to be difficult to use. "Business people" are "people" too. (See "If it's hard to use, it's hard to sell")
Simple message: Make it easy to understand your solution. Cut the techno-babble from your product descriptions and value proposition. You don't need to "dumb anything down" in order to explain clearly who should buy your solution, what problem it solves, and why it's better than alternatives. (See "SaaS Marketing Lessons from ShamWow!")
And do it in language the audience understands. If you're selling to restaurant owners, construction managers, rocket scientists, whatever, use terms and concepts that they can relate to.
Simple presentation: Cut the clutter from your web site. Figure out precisely what you want visitors to do when they arrive at your site and provide a clear path to take them there. If you want them to sign up for a free trial, demo the product, download a paper, or call you on the telephone, lead them to that goal. Too many options are distracting.
Simple pricing: Don't make your prospective customer use higher-order math to figure out what they'll pay for your solution. If you're charging per user, a simple grid will usually suffice. And if you want to offer a few one-time services - perhaps for set-up or integration work - that's OK too. But avoid too many options. "Choice" may sound like a good idea... but only up to a point.
Look for these and other opportunities throughout the entire process to remove clutter, obstacles and distractions. Keep it simple. Nothing stupid about that.
January 2012
Practical Advice on SaaS Marketing
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
"Spray & Pray" wastes time, money and reputation
Take a 10-second test.
Pretend you're a first-time visitor to your company's website. Find your way to the most common entry page for your site and answer one simple question:
Is this solution meant for me?
If you can't answer that question in 10 seconds or less, you fail. That means people are finding their way to your site, but cannot immediately see that whatever you offer is meant for them.
If you sell solutions for lawyers, make it clear, front & center, that this solution is for lawyers. If you sell solutions for pet stores, make it clear that your solution is for pet stores. If it's for procurement managers, financial advisers, school administrators, people who live in Montana, whatever..., say so.
Wait, let me put that more strongly: It should reach out of the monitor, look the visitor right in the eye, and declare in no uncertain terms, "This is for you!"
Salon Monster, for example, does a good job of this:
This item sits on the top of their home page. If you run a salon or spa that takes reservations, you're in the right place. If you do something else, you're in the wrong place.
And what about companies that target multiple audiences? They can try to sort out each audience and direct them each down the right path.
Coupa, for example, asks visitors what role they are in. It then addresses that person's particular concerns.
Why we "spray & pray"
Targeting is much more effective than a broad, undifferentiated approach, where you blast your offering out to anyone who's email address fits some broad criteria. But marketers still 'spray & pray." Why?
For one thing, it's cheap and easy. The marginal cost of adding 1000, 10,000, or 100,000 email addresses to your distribution list is insignificant. That's the secret behind spam.
Another explanation is poor metrics. If marketers are rewarded for "impressions," "visitors," or "contacts," they're more likely to focus on activities that cast a wide net. This, despite the fact that most of the "catch" has no use for the product and will never turn into a paying customer.
Rather than rewarding marketers by "how many people walk in the door" or "visit the web site," measure "qualified opportunities" and "wins."
"Good for everybody" = "Good for no-one in particular"
There's also the fear that marketing to a well-defined audience will scare off some prospects who are excluded from the explicit target. Marketers don't want to rule anybody out.
The truth is, though, there really aren't a lot of enterprise software-as-a-service (SaaS) solutions that can be used by everybody. When someone tells me that "this product can be used by anyone," I'm skeptical.
My advice: Find the people who truly can benefit and focus your marketing efforts on reaching them. If you're going to spend money on sales and marketing - and it's likely it will be your largest single on-going expense - you better spend it wisely.
December 2011
Practical Advice on SaaS Marketing
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
Seven Ways to Mess Up SaaS Marketing
Marketing software-as-a-service (SaaS) solutions presents a unique set of challenges. In contrast to their on-premise brethren, SaaS marketers are tasked with delivering new messages to new audiences, and doing it all extremely cost-effectively.
To paraphrase, Kermit the Frog, "It isn't easy being SaaS."
In the holiday spirit, here's some help.
1. Message first, media later
Before you spend a dime on a website, search engine marketing, or brochures, figure out what you want to say. Articulate with clarity who should buy your solution, what problem it solves, and why it's better than alternatives. See, "Where to start with SaaS marketing."
2. Don't under-spend
Calculating budgets to market SaaS solutions is different than calculating budgets to market on-premise applications. The "cost of customer acquisition per customer lifetime value" ratio and "payback period" is more important than "marketing costs per annual revenue."
For most SaaS providers, retaining existing customers is vital to the success of their business. Keeping customers over the long-term requires regular care and feeding, and marketers have a role here.
Yes, it requires time and effort to communicate with existing customers, but attrition - pouring money into a leaky bucket - is far more expensive. See "Good news and bad news about SaaS."
4. Think through the entire customer acquisition process
Acquiring and retaining customers is a multi-step process. It starts with building visibility and generating visits, inquiries and leads, converting those into opportunities and wins, and then renewing, retaining, and up-selling.
While it's important to know what's happening at each step, don't focus too narrowly on individual pieces of the customer acquisition funnel or on particular tactics. What matters is whether the overall process produces long-term customers. See "SaaS marketing, baseball and the batting order."
5. Get customers on-board efficiently
Getting customers successfully on-board and off to a running start is critical to SaaS companies. Concentrate on getting new customers
to actually use the service. Make sure they know how to login. Help them enter data and walk them through a few basic tasks. Get them using the product and make it part of their routine.
Know who your prospective buyers are and identify them explicitly. Find the people who can truly benefit from your solution and focus your marketing efforts on reaching them.
When marketers blast their message out indiscriminately and claim that their solution is "valuable to everyone," it's often perceived instead as "valuable to no one in particular." See "Please don't sell me stuff I don't need."
7. Tell the complete value proposition.
The advantages of SaaS can go well beyond lower up-front costs. Customers also enjoy the advantages of greater flexibility, rapid deployment, on-going enhancements, and instant "anytime/anywhere" access.
I was talking recently with a friend who I know from the old days doing
public relations. PR back then was about preparing announcements,
backgrounders and glossy photographs, arranging press and analyst tours
(usually under embargo), and pitching stories over the phone.
Moderate success was a few column inches and a color screenshot in a trade publication. Big time success was positive coverage in The Wall St. Journal or The New York Times.
Things change... but not entirely.
The new PR
I
work with clients who still use PR to generate visibility. Now press
announcements are heavy with keyword phrases and sprinkled with links,
and we send along photos as a .pdf or .gif. They're sent on to
bloggers and news aggregators as well as to the shrinking pool of
journalists with more traditional publications. The press
announcements are also "self-published" via the company's own blog,
newsletter or website.
Live events still live
Companies
still do live events, too. Though there are plenty of options for
people to virtually connect, sometimes face-to-face contact is better.
Though events can be expensive - exhibit space, booth set-up, shipping
& drayage, plus travel expenses - they can be effective if you
clearly understand where events fit in the overall customer acquisition process.
Though
you may only talk to a handful of prospects at a regional event, if 3
or 4 of them convert to paying customers, it may be a great investment.
Events have also been infused with newer, social media elements.
Nearly all of them label themselves with a Twitter hashtag, and the
online conversations about the proceedings are every bit as rich as the
in-person presentations. Sometimes more so.
Outbound calls are "social selling"
Even outbound telephone calling has had a social media facelift. There's a new concept known as "social selling"
In contrast to the traditional cold call, outbound sales people use
social media to better target and prepare for telephone conversations.
Here's my point:
Don't
rule out marketing tools that you think may be too "traditional." PR,
events, and outbound telephone calling techniques have all been
"social media-ized," making them more "modern" and more effective. Try
them, measure the results, and see if they fit into your SaaS marketing mix.
October 2011
Practical Advice on SaaS Marketing
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
When he first heard the notion of making a movie based on his book, Moneyball, the author Michael Lewis thought it was an awful idea.
A
movie about a bunch of nerds using obscure statistics to make personnel
decisions? Brad Pitt or not, it doesn't really sound like the makings
of a box office success.
Not so fast, Mr. Lewis: $57,712,000 says otherwise. Those are the gross revenues Moneyball has collected in the 3 weeks since it was released.
So
how's this for irony? Much like some of the under-valued baseball
players discovered by A's general manager Billy Beane (played by Brad
Pitt), it seems there's actually more to this story than one might
think.
Besides a story about baseball, Sabermetrics, and
competing as an underdog, Moneyball also offers some useful insights for
business... even for software-as-a-service (SaaS) companies. That's
the subject of this month's feature article, "Moneyball: Lessons for
SaaS."
In case you've not seen the movie Moneyball nor read the book by Michael Lewis, here's a brief summary:
It's the story of Billy Beane, general manager of the perennially under-funded Oakland A's baseball franchise. Without the financial resources available to other teams, he uses sophisticated statistical analysis to identify under-priced and over-looked talent to build a competitive team.
It's a great read if you like books about baseball. Even if you don't like baseball, it's a good story well told.
And there are a few good ideas in there for SaaS companies too.
Use the right metrics Billy Beane rejects the conventional metrics used to assess baseball players. He maintains that the prevailing statistical measures - batting average, RBIs, HRs, errors - are neither adequate nor accurate measures of the value of a player to his team.
Instead, he relies on new metrics, such as "on-base percentage", cooked up by a cadre of statistics gurus, known as sabermetricians.
Similarly, SaaS companies should be wary of relying too heavily on traditional metrics. Conventional calculations, such as "marketing spending as a percentage of annual revenues" are not necessarily useful to assess SaaS performance. Though they may make sense for on-premise licensed applications, they don't apply to the SaaS business model.
Metrics such as "cost of customer acquisition as a percentage of customer lifetime revenue" and other more SaaS-specific metrics provide a more accurate assessment of success. (See "How not to calculate a SaaS marketing budget.")
Think about the entire end-to-end process
Beane's approach to building an A's team is to start with the ultimate goal- winning games - and work backwards. Using a calculation like the Pythagorean expectation formula, he might determine, for example, that for the A's to win 90 games and give themselves a chance at making the playoffs for the World Series, requires that they score 750 runs from the entire team over the course of the season. That means putting together a line-up of players who can, as a team, reach that number.
One way to get there is by paying for an expensive pair of prodigious home run hitters. But he can also get there with a less-expensive, mixed bag of players who can draw walks and get on base in front of other guys who can drive them in with singles or doubles. Ultimately what matters is total team runs and wins, not the performance of selected individual players.
The same approach works for SaaS companies. Think first about the number of customers or revenues you need to bring in, and work backwards from there.
Think through the entire process that gets to that ultimate number, from building visibility through to generating leads, converting them to opportunities and trials, and closing and retaining paying customers. (See "SaaS marketing, baseball and the batting order.")
There's no point in over-spending on one particular portion of the process while ignoring what's going on upstream or downstream.
A high-performing search engine marketing program, for example, may attract lots of free trials. But if it's not followed by an effective "trial-to-purchase" effort, it's not likely to generate sales.
Don't underspend
Critics of the Moneyball approach point to the fact that the Oakland A's have never won a championship under Billy Beane. They've certainly been competitive against teams with higher payrolls, but they've not yet won it all.
Part of that is due to the fact that other teams have caught on to Sabermetrics and adopted a similar approach to evaluating talent. You'll now find Moneyball disciples in the front offices of lots of clubs. Billy Beane's competitive advantage has been narrowed.
Another part though is money. No matter how sophisticated the metrics and how thorough the talent scouting, at some point, the Oakland A's really do need to pay higher salaries to attract and keep productive players.
The same goes for SaaS companies. Once a logical and cost-effective customer acquisition machine is in place, you need the money and the confidence to feed it. Though they should always spend cautiously, SaaS companies can also fail by under-spending on sales and marketing. (See "Marketing Spend: How much is enough?")
For those who are interested, I'm a fan of one of the high-spending, superstar-laden, big market ball clubs. They're not going to the World Series either this season.
There are lots of ways to spend money foolishly on sales and marketing. I
once did a dimensional mailer to C-level executives with a bobble-head
doll. Trust me, I've seen a lot of these expensive mistakes up-close
and personal.
But the best way to waste money on sales and marketing is to spend it before you're ready.
Don't spend a dime on marketing until you've carefully thought through a few straightforward answers to a few simple questions:
What is the product or service you're selling?
You
should be able to explain this in a few seconds. That's all the time
you're likely to get from the people whose attention you need.
If
you can compare your product to something that people are already
familiar with, that helps. For example, "it's like Facebook for
business," or "it's like a turbo-charger for your website."
Who should be buying the product?
Very
few products or services are useful to everybody. In fact, when I hear
"it's made for everybody," I think "it's made for nobody in
particular." When identifying your target customers, be specific, as in
"this solution is for K-8 school district administrators."
Be
aware that several people in different roles may be involved in
purchasing your product: the CIO, a sales executive, the procurement
specialist, and others. Each may have different concerns, and you need
to address each one separately.
Why should they buy it?
What benefits does your product provide the buyer? No matter how sophisticated the technology, most prospects care most about what a product does, not how it works. They've got an itch; you need to deliver a scratch.
Why should they buy it from you?
Clearly
explain the advantages of your product or service relative to
alternatives. Remember for software-as-a-service (SaaS) solutions those
advantages may include more than superior features. Prospective
customers also care about performance, reliability, security and
trust-worthiness.
And
don't just focus on why your solution is better than direct
competitors, but also why it's better than doing nothing at all. The
competition for Carbonite, for example, isn't just Mozy and other online
data back-up services; computer users can also choose to do nothing.
But before you start spending, first do the research and analysis to understand your prospective customers.
And
if you've done it in the past, it's often worth doing again. Revisit
the fundamentals, perhaps working with an objective third party, to help
you validate or refine your analysis.
It requires a rigorous, structured approach and it takes time.
But until you're confident that you know precisely who you're selling to and why they might buy from you, don't spend money on customer acquisition.
Long-term, paying customers require long-term care and feeding.
In exchange for collecting on-going subscription fees, the SaaS vendor takes on substantial on-going obligations.
Some
of those depend on product development and operations. They need to
keep the SaaS solution up and running, protect the customer's data, and
add new features over time.
Marketing's role in retention
But marketing plays a role too. Those long term customers also expect on-going communications from
the SaaS vendor. They want to know how best to use the system, what
enhancements are being developed, and what other customers are doing.
And they don't want
just one-way communications. Customers want a way to have input into
what new features are built, and they want a way to share information
with other customers.
This is where marketing comes in. (I warned
you that we weren't off the hook.) Marketers need to take a role in
building and maintaining communication channels with existing customers.
Talk to existing customers? For lots of marketers, this could be new territory.
In the SaaS world though, existing customers are also prospective customers.
In
fact, existing customers are the least expensive "prospective"
customers to acquire. And by the way, they are the most expensive
customers to lose.
The
message is loud and clear. "If you're responsible for student,
finance, or human resource administration for K-12 school districts,
you've come to the right place."
What
about companies that have multiple audiences? They can try to sort
out each audience and direct them each down the right path.
Concur,
for example, asks on its home page whether visitors are a "small
business" or "medium & large business." Then it allows each of
these buyers follow their own path, with messages and offers targeted specifically to them.
Coupa takes
a slightly different approach and asks visitors to identify themselves
by job function. A different set of features, benefits and benefits are
presented for each job function
Why "one size fits all" persists
So if targeting specific buyers is so much more effective, why does the "one size fits all" approach persist?
For
one thing, it's cheaper and easier. If you're trying to reach
prospects via email marketing, for example, the marginal cost of adding
1000, 10,000, or 100,000 email addresses to your distribution list is
insignificant. That's the secret behind spam.
Another
explanation is poor metrics. If marketers are rewarded primarily for
volume, as in "impressions," "visitors," or "contacts," they're more
likely to focus on activities that cast a wide net. This, despite the
fact that most of the "catch" has no use for the product and will never
turn into a paying customer.
There's
also the fear that marketing to a well-defined, more qualified
audience will scare off some prospects who are excluded from the
explicit target. Marketers don't want to rule anybody out.
The fact is, very few SaaS solutions are truly appropriate for "everybody." And
when prospects have a choice of working with a solution that's
"generic" or "one size fits all" vs. a solution that's designed
specially for them, you know which one they're more likely to choose.
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
SaaS Marketing, Baseball & the Batting Order
I recently read "Three Nights in August,"
a wonderful book about the "game inside the game" of baseball. The
author, Buzz Bissinger, shadowed St. Louis Cardinal manager Tony La
Russa through a three game series against the Chicago Cubs. Bissinger
chronicles in detail the manager's thought processes and decision making
through 27 innings.
In
other words, it's about all the things hard-core baseball fans are
thinking about when non-hard-core baseball fans are thinking, "This
really is a slow, boring game."
It's not a story about dramatic home runs, sparkling pitching, or acrobatic catches. It's about how La Russa manages.
When to put on a hit & run? When to steal? When to go to the bullpen?
There's a chapter on how he puts together a batting order - who bats first through nine. Fascinating stuff for baseball fans.
And good stuff for software-as-a-service (SaaS) marketers. Putting things in the right order really matters there too.
La Russa spends hours putting together the line-up for each game. He pays
particular attention to how he assembles the batting order - who bats
where in the line-up.
It's a complicated process:
Who can take a lot of pitches and work a walk?
Who can steal a base?
Who can bunt?
Who can hit for power?
Who's right-handed, left-handed, a switch hitter, etc?
The challenge for La Russa is more than just putting guys up at the plate who can hit.
His goal is to construct a complete line-up, in the right order, that produces runs.
It's runs, not hits, that win games.
SaaS marketers should think this same way.
What
matters isn't just the performance of individual marketing programs
or campaigns. What matters is whether the overall process produces
long-term customers at a cost the business can afford.
Don't get lost in individual tactics
Given
all the sophisticated marketing analytics tools available and the
pressure to prove ROI on every element or every campaign, it's easy to
see how marketers can sometimes get buried in the numbers.
This is especially true for SaaS companies, where there's a premium on squeezing every unproductive nickel out of the customer acquisition process.
Because
of that, marketers sometimes focus too narrowly on individual pieces of
the customer acquisition funnel or particular tactics:
Does this individual keyword draw more traffic?
Does this particular white paper attract more leads?
Does this version of the email convert more trialers into buyers?
Of course you need to know which tactics are working and which are not. I encourage SaaS companies to try different things, measure their performance and make adjustments. Marketers trying to do their job without metrics will struggle.
Certain tactics fit certain roles
But
it's also important to know the particular role of each tactic and each
campaign. Different tactics, like different batters, have particular
roles.
Some programs, for example, are designed to build
visibility early in the buying process. Others are designed to retain
existing customers. Two different objectives; two different kinds of
campaigns.
If your goal is to reduce attrition, implementing a
pay-per-click campaign, no matter how well-executed, probably won't help
you.
The order matters
It's also important to know what activity precedes each individual marketing tactic and what follows it.
Look
at the entire customer acquisition and retention process from beginning
to end. Understand how each element fits as part of
a complete flow - from building initial visibility and attracting
leads, through to converting leads into opportunities and into
customers, and then retaining and up-selling existing customers.
If there are gaps in the flow, the entire process fails.
To
go back to the baseball analogy (sorry I can't resist), there's no
point in stealing a base and getting a runner into scoring position if
the batters behind him can't drive in the run.
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
How to make free trials really work
Lots of SaaS companies offer a free trial to attract prospective customers. It can be a very effective way to attract new customers and many companies have used it with great success.
But making free trials work requires more than just posting a version of your solution for trial and hoping prospects will find it. It's just not that simple.
To make a free trial work, SaaS providers should first consider whether "free" really matters that much to their prospective customers.
Second, they should understand that "free" to the prospect isn't "free" to the vendor. To make it work requires time and/or money.
Does "free" really matter to the prospect?
Sometimes "free" isn't as appealing to prospective customers as it might sound. For certain enterprise applications, in particular, many other criteria may be more important than the cost of the solution.
Think about an employee performance management application, for example. The HR executive responsible for this process has a lot at stake. The application will be used by nearly everyone in the organization, it may require training, it involves sensitive information, and the results will be used to make important corporate decisions.
In selecting an application to support this critical process, the HR executive's top concerns are likely to be ease of use, reliability, quality of data and reporting, and security. In the list of evaluation criteria, "cost" isn't anywhere near the top concern.
The fact is, an HR executive is not likely to risk messing up an important task and soiling their reputation in order to get "30 days free."
The "trial" may be more valuable than the "free"
In the case of important enterprise applications, the prospective customer probably wants to see how the solution will work in a small test group before they roll it out to the entire organization. In other words, they care mostly about the "trial" and not so much about the "free."
The lesson here? SaaS providers who sell enterprise solutions that are widely deployed across the organization - performance management, expense reporting, compensation management, etc. - may be better off providing a trial environment for prospects. The prospect may find that a "sandbox" in which they can test the solution before deploying it may be more attractive than 30 or 60 days free.
Generating leads isn't free
Earlier in my career, I managed press relations for several technology vendors. I came to despise the expression "free publicity."
To get broad, consistent, positive coverage usually requires well-paid PR practitioners and sometimes expensive agency support. There's nothing "free" about it.
This notion applies to building visibility and generating leads as well. It costs money and/or time to make prospective buyers aware of your company, your application and your website. To drive traffic to their web sites, SaaS vendors spend resources on search engine optimization and paid search. They may supplement these programs with electronic mail campaigns, PR, social media, events or other tactics to build visibility and generate leads.
These programs can be very cost-effective, but they're definitely not free. The company pays the salaries of internal people to manage them or they pay fees to outside experts.
Converting trialers into buyers isn't free
Once visitors find the site and sign up for the free trial, it then costs time or money to convert them into paying customers. Remember, the goal isn't free trialers; it's paying customers.
Part of this expense is the cost of building and maintaining the application. For example, the vendor is paying hosting and storage fees to support the free trials.
Moreover, the SaaS vendor needs to pay for effective marketing programs to nurture the trialers into becoming customers. They need a way to guide the prospects into actually using the free trial: help them with login and initial configuration, import data from existing systems, train them on basic functions, etc.
Some of these processes can be automated, reducing the cost of live help, but even "touch-less" programs cost money, either in salaries or outside fees.
Two lessons
Free trials can be very effective for SaaS companies. But before deciding to include them as part of your customer acquisition strategy, consider two things:
"Free" may not be your prospective customers' top concern. Prospects may, in fact, be more interested in the "trial" than in the 30 or 60 days' free access.
A free trial is unlikely to succeed by itself. It requires marketing resources to build visibility and convert trialers into paying customers.
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
How NOT to calculate a SaaS marketing budget
I hear this question often from software-as-a-service (SaaS) providers: "How much should we spend on marketing?"
If
these marketers have experience working in the traditional, on-premise
licensed software world, they're usually familiar with this standard
metric:
Marketing spend as a percentage of annual revenue.
This
metric is often used to allocate and track marketing budgets for
licensed software companies, and they typically spend somewhere in the
neighborhood of 5 percent of annual revenues on marketing.
Unfortunately, in most cases neither that metric nor that benchmark percentage are very useful for SaaS providers.
Out with old metric; in with the new
SaaS marketers are usually better off with two metrics more appropriate to the unique SaaS business model:
1. Marketing spend as a percentage of
the lifetime value of the customer.
This
measure better accounts for the fact that SaaS revenues extend over
the life of the subscription, and they aren't recognized in a large
up-front license fee. (I've written extensively on this topic and the
impact on marketing. See, for example, "Three deadly SaaS marketing mistakes.")
2. Recurring revenue as a percentage
of customer acquisition costs
This
calculation measures the efficiency of the sales and marketing efforts
and the time required for a positive return on that investment. (See Bessemer Venture Partners, Chaotic Flow, and others for more on calculating these metrics.)
The hazards of using old math
But
what if you choose to stick with the old standard: marketing as a
percentage of annual revenue? What are the consequences of using the
wrong metrics and benchmarks?
A few bad outcomes are possible:
Under-funding: A
business fixated on measuring marketing as a percentage of annual
revenue is likely to under-fund marketing and choke off the fuel for
customer acquisition and growth. Successful SaaS companies often spend 30 percent or more on sales and marketing as a percentage of annual revenues.
Over-pricing: To bump
up annual revenues to better cover customer acquisition expenses, the
company may over-price their solution relative to the value perceived
by the customer.
Over-promising: A
business plan that shows artificially low spending on marketing
relative to annual revenues may be attractive to investors on paper, but
disappointing in reality.
Under-funding: A plan
that expects an unrealistically rapid return on marketing spend is
likely to be under-funded and unable to sustain marketing activity over
an extended period of time.
Inadequate attention to renewals:
A SaaS company focused on annual revenues vs. lifetime revenues may
be ignoring existing customers and securing renewals in favor of
attracting new customers.
Swinging for the fences: A focus on high short-term returns may lead companies toward magic bullet, quick-fix marketing solutions and spending a burst of money on programs that will likely flop.
Bottom line: If you measure the wrong thing, you'll probably do the wrong thing.
March 2011
Practical Advice on SaaS Marketing
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
Beware! SaaS Marketing Hazards Ahead
Marketing software-as-a-service (SaaS) applications can be deceptive.On the surface, it looks a lot like marketing any other technology solution.You're building awareness, generating leads and supporting sales.You're using similar tactics as well:SEO, social media campaigns, events, email, or whatever else works.
But don't be fooled. Though the goals and tactics may be similar, the strategy is different. Not recognizing these strategic differences - in audiences, messages, and processes - can easily trip you up.
I'll point out a few of these hazards that you'll want to avoid.
Different Audiences
Attend to existing customers.First, a confession.When
I marketed on-premise applications, I paid attention to existing
customers only once a year... at the annual customer conference.These folks had paid their licensing fee already;marketing's job was to focus on new customers.
In the SaaS model, this is a recipe for disaster.Marketing to existing customers and renewing their subscriptions is essential.It costs a lot to win a customer; you can't afford to do it twice.
Educate procurement professionals.Put yourself in the position of the software procurement professionals.Over many years, they've developed their skills in assessing on-premise application contracts.
But then we drop a SaaS
contract on their desk that's loaded with unfamiliar terms like
"activation," "subscriptions," and "renewals."The result:the sales process comes to a skidding halt.
If Marketing can educate these procurement professionals, you'll see fewer red-lined versions of the contract bouncing back and forth, and a faster sales process.
Different Messages
SaaS is a promise, not a product. When customers buy a licensed on-premise product, what they've bought is what they get.They'll enjoy the benefit of whatever functionality is in the product on the day they purchase it.Upgrades and enhancements are extra.
Not so with SaaS.Customers
are buying an on-going stream of services to be delivered over the
lifetime of the subscription. They're entering into a long term
relationship with the SaaS provider, trusting that they'll reliably
receive an increasingly valuable service over an extended period.
SaaS marketers need to
earn that trust from prospective customers. You should show that you've
consistently delivered valuable enhancements in the past, and that you
have a realistic roadmap for delivering useful enhancements in the
future.
Wrong Processes
Avoid burn-out.Remembering my own experience with licensed on-premise applications, we introduced a new version every 18- 24 months.We
girded ourselves for a major launch - press & analyst briefings,
events, introduction campaigns, etc. - and then caught our breath.
With a SaaS application, there's usually not much time to catch your breath.New features are sometimes pushed out quarterly or monthly.I've even heard of enhancements delivered daily!
Spend carefully.The
traditional on-premise model with its large, up-front license fees,
gave us marketers some room to cover over ineffective programs.
With SaaS, there's less room for error.All the costs of acquiring a customer are paid up-front, while the revenues come in over the life of the subscription. SaaS marketers need to rigorously measure what programs are working and what's not, and make adjustments quickly.If a dollar spent on marketing is bringing in 70 cents of customer revenue, it's time for a change... and fast.
February 2011
Practical Advice on SaaS Marketing
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
How to waste big money on marketing
Have you ever wrestled with weighty marketing decisions: which
keywords to buy in a pay-per-click campaign, where to run your pop-up
web banners, or whether to email to prospects on Tuesday at 9 AM or
Saturday at 6 PM?
Yeah, me too. There's
nothing like a multi-page spreadsheet to dispel the notion that
marketing is all about clever ad copy and pretty designs. Analytics is a
vital part of the job, though not very glamorous.
But
while you're paying attention to every nickel & dime, don't lose
sight of the tens & twenties. Don't get so focused on the small
items that you neglect more important things.
Here's where the really big money gets wasted:
Marketing that targets the wrong messages
to the wrong people.
What, Who, & Why Better
Before
you spend anything on pay-per-click, email marketing, or a social media
campaign, think long and hard about what your message is and who it
should be delivered to. You should have a solid answer to three
fundamental questions:
What problem does your product solve?
Who has that problem?
Why is your solution better than alternatives? (Remember that "alternatives" include "doing nothing.")
Example:
Who?: This "Practical Advice on SaaS Marketing" newsletter is for professionals marketing software-as-a-service solutions to enterprises.
What?: It helps them recognize and solve marketing problems that are unique to SaaS companies, makes their marketing efforts more productive and cost-efficient, and keeps them from making costly mistakes.
Why
better?: The newsletter focuses specifically on the unique challenges
of marketing SaaS solutions to enterprises, is based on 25 years' of
first-hand experience marketing technology solutions, offers actionable
recommendations, and is free.
Truth be told, it's not easy
to put together three paragraphs like that. And every time I revisit
this value proposition, I tweak it a bit.
Just Ask!
To
answer these questions for your own business, what's the best place to
start? At the risk of getting evicted from the International Guild of
Marketing Consultants, I'll let you in on a secret.
The best way to find answers to the Who, What, and Why better questions: Ask!
Your prospective customers (or at least people you think
are prospective customers) will tell you a lot. If you already have a
product in the market, ask your existing customers as well.
To paraphrase Yogi Berra, "you can hear a lot just by listening."
January 2011
Practical Advice on SaaS Marketing
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
3 1/2 ways to lose customers in 2011 I
candidly admit that when I was marketing on-premise, licensed software
solutions, I paid attention to existing customers on only two occasions:
When I needed a customer reference or success story
During the annual customer conference
For the most part, I and the rest of the marketing team focused on attracting new customers.
That "Take the Money and Run" approach can be disastrous for software-as-a-service (SaaS) providers, whose business model relies on renewals.
Let me present a few specific techniques on how to lose existing customers that may look uncomfortably familiar to you.
Ignore them
Once
you've won a customer, consider your marketing job complete. Focus on
the prospects, not the ones who are already sending in a check every
month. Leave them out of the loop on product and service enhancements,
and ignore their suggestions for improvements. Just remember to turn on the charm a few weeks before the end of the subscription.
A corollary to ignoring existing customers: Oversell them
Pitch your customers on renewing and upgrading with every single interaction. That includes unresolved customer support issues.
There's nothing an exasperated customer, who's struggling to get the
solution to work, wants to hear about more than a discount... if they
renew their service for another 3 years.
Hide from them
If your service goes down, your communications to customers should go down as well. Keep them guessing about your system's status, and let them rely on other uninformed customers for information. Shrug off their concerns and don't even consider an apology.
Surprise them
Add new features and functions without warning. Better yet, remove
certain features without warning. Make major changes to the user
interface. These are especially effective for applications used only
occasionally, such as annual performance review solutions.
OK, now I'll let you go back to the traditional new years' self-improvement resolutions. Pardon the interruption.
December 2010
Practical Advice on SaaS Marketing
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
Greetings,
Companies adopt a software-as-a-service (SaaS) model for several reasons: customers demand a SaaS option, investors insist on it, or competitors are using SaaS to gain an advantage.
Add another good reason to that list: SaaS improves a company's vision.
I
don't mean "vision" in the sense of a sweeping long-term view into the
far future. I'm talking about the vision that lets a company put one
foot safely in front of another and avoid serious missteps. This
issue of "Practical Advice on SaaS Marketing" talks about the valuable
information SaaS companies can glean by watching customers use their
solution - information they can use to build better products, deliver
better service, and to sell and market more effectively.
SaaS Lets You See Where You're Going
The
Commonwealth of Massachusetts recently passed legislation prohibiting
texting while driving. I'm hoping they'll soon outlaw texting while
walking. I recently came back from a short, but harrowing drive that took me past our town's high school, just after the end of the school day. The scene reminded me of
old episodes of Mr. Magoo - kids fixated on the small screens of their
mobile phones, thumbing away furiously on the mini-keypad, while
wandering obliviously across heavily-trafficked intersections. On
behalf of all my fellow parents and drivers, I wanted to yell, "Look
up! There's a real world out here. If you're not careful, it can really
hurt." NIHITO: Nothing Interesting Happens in the Office The
same advice applies to marketers. You need to look up from the screen
and talk to customers and prospects to understand what's really going
on. It can be too easy to focus entirely on what's happening inside your
company. I know; I've been there. But as one particularly useful
marketing course I've taken explained, "NIHITO": "Nothing interesting
happens in the office."
Software-as-a-service
(SaaS) should make it easier for marketers to avoid this hazard and
closely observe customers' behavior. Because customers are using the
application online, it's possible for marketers to see exactly what
they're doing.
Though you need to be careful about observing
individual behavior, you can see, in aggregate, which features customers
are using and which are they avoiding. You can see periods of peak
demand, identify particular kinds of users, and see other useful
patterns. Along with whatever other analytic tools you're using, this
information on product usage can be extremely useful. Don't ignore it.
An unexpected benefit of SaaS
Executives
at companies that have made the transition from an on-premise
application to a SaaS solution point out that one of the most
unexpected, but valuable benefits they've gained is a better
understanding of their customers' behavior and needs. They have
established a much closer, ongoing relationship and a built-in feedback
loop. They can much more easily track what's working and what's not. The result is better focused product development, more attentive customer service, and more effective marketing. For the business, it means greater efficiency, lower customer acquisition costs, and higher renewals.
It also means you're less likely to make mistakes. Or if you do make a misstep, at least you'll see where you're headed before you stumble into real danger.
November 2010
Practical Advice on SaaS Marketing
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
Greetings,
Newsletters,
blogs and even full-length books are built around lists: "Five Steps
to This," "Seven Lessons for That," "Ten Keys to Something Else." All
follow a well-tested formula going back at least to the Code of
Hammurabi, whose list included "an eye for an eye" and 282 other items. Maybe the ancient Babylonians had more time on their hands.
The Code of Hammurabi
Despite that well-established format - a list of vital lessons
to be learned- I figured I'd try something a bit different: a list of
lessons to be unlearned.
This
issue of "Practical Advice on SaaS Marketing" provides a list of
practices that marketers learned from their experience with on-premise
software that they should not apply to SaaS solutions.
Three Lessons SaaS Companies Should Unlearn
When
I signed on for my first experience marketing a software-as-a-service
(SaaS) solution, I figured my 20+ years of marketing traditional
on-premise software would serve me well. As it turned out, some of the
lessons migrated well. After all, our marketing group at the SaaS
provider was still responsible for building awareness, generating leads,
and delivering sales support material.
Other lessons didn't
migrate as well. There are certain fundamental differences between
on-premise applications and SaaS solutions that require rethinking
several basic marketing maxims. These are lessons learned from the
on-premise world that need to be unlearned for the SaaS world.
I'll discuss three of these lessons in this issue of the newsletter and I'll get to others in a subsequent issue.
1. Focus on prospective customers
Time
for a confession. When I was marketing on-premise software, we only
thought existing customers on two occassions: once during the annual
customer conference and then when we needed a customer success story.
Beyond that, the prevailing notion was that we've already won existing
customers; let's focus on winning new ones.
That's a bad approach for SaaS marketers. The business depends as much on renewing existing customers as it does on securing new ones. Most SaaS companies can't survive with low renewal rates. At least for enterprise solutions, the cost of customer acquisition is high and it typically requires a long-term relationship to earn back that investment.
SaaS
marketers need to focus all the time on keeping existing customers
informed and satisfied. In many ways, existing customers should be
shown the same love as prospective customers. In fact, that's
precisely what they are: existing customers will become prospective
customers who you do indeed need to win again once their subscription
expires.
2. Sell features, features, features
Ask
many companies about what they sell and they'll reel off a long list of
features: "Our product does this, this, this, this and this." Ask a
follow-up, and you'll get an explanation about how it works: "It's
built with this technology and that technology."
By the way,
this is a marketing problem for both SaaS and on-premise companies -
confusing "what it does & how it works" for "what problem does it
solve and why someone should pay me money for it."
But SaaS
providers have a particular imperative to avoid this problem. Many of
the prospective buyers are initially attracted to a SaaS solution
because it is supposed to relieve them of the burden of understanding
the technology. The HR director, procurement manager, or sales
executive who will be using the solution frankly don't really care how
it works; they just assume that it does.
SaaS marketers need to be especially careful to remember value proposition basics:
"Who is the buyer, why would they pay me money for this service, and
how is it better than other options?" Market benefits and advantages,
and avoid "feature infatuation."
3. Market what the product does
I used to keep on my desk one of the early versions of Lotus
1-2-3. (For younger readers, this spreadsheet was one of the first
block-buster applications for PCs.) The application fit on a couple of
disks (they may have even been the 5 1/4 inch size), packaged in a
sturdy box, along with a comprehensive instruction manual. What you
bought were all the capabilities packaged into that box.
Not so with SaaS solutions. For one thing, there's no box. Moreover, the product capabilities are only part of the value. Customers aren't just buying capabilities; they're buying an entire experience.
They care what the solution does, but they also care about what it's
like to purchase it, deploy it, use it, support it, upgrade it, and
renew it.
Indulge me an Apple analogy to illustrate the point.
I'm a fan of Apple iTunes: a huge selection of music (now including the
Beatles!), most songs priced at 99 cents, and well-synced with my iPod.
Just as important as these capabilities, however, is the fact
that I can purchase a new song in less than 45 seconds. I can guarantee
that iTunes gift cards by the millions would not be stuffed into
Christmas stockings and wrapped into Hanukkah presents this season if it
took 45 minutes, instead of 45 seconds to purchase a song.
Market
the complete value of the solution. Consider the entire experience
from the customer's perspective. Think of it from end-to-end, from
initial interest and purchase through to use, upgrades and renewals.
In
future issues, I'll present several more valuable lessons from the
on-premise world that might not survive the journey to SaaS.
October 2010
Practical Advice on SaaS Marketing
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
Greetings,
If
you've been paying attention to the consolidation in the
software-as-a-service (SaaS) market lately, you're seeing a consequence
of what I call the "Wimpy Effect." Wimpy, as in "I'll gladly pay you on
Tuesday for a hamburger today" from the Popeye cartoons.
Look
at the HR/talent management market, for instance. Within just the last
few months, Kenexa acquired Salary.com, SumTotal purchased Softscape
and Taleo bought Learn.com. Like many large markets, this one's
steadily consolidating into toward two or three dominant vendors,
trailed by a bunch of "others."
So why lay the blame on Wimpy? Like his promise of payment later for a hamburger today, the SaaS business model requires that companies pay for customer acquisition today, while they wait for revenues later.
Because
of this timing mismatch between expenses and revenue, the SaaS model
favors consolidation and larger companies. While it may make it easier
to start a SaaS company, it makes it tougher to grow one.
This
issue of "Practical Advice on SaaS Marketing" explains the advantages
accruing to larger vendors in the SaaS market and why acquisition is a
likely outcome for many SaaS start-ups.
SaaS Marketing Strategy Advisors, publishers of this newsletter, help marketing professionals recognize the unique perils of marketing SaaS solutions, and we help companies steer around them. We've helped companies better understand their audience, develop compelling messages, and put in place cost-effective processes that are appropriate for the SaaS business model.
There's
been a lot of consolidation in the software-as-a-service (SaaS) market
lately, and I think I know who's to blame: Wimpy. You may remember that
he's the character in the Popeye cartoons famous for promising "I'll
gladly pay you on Tuesday for a hamburger today." Stay with me and I'll
explain.
It's easy for new SaaS firms to get rolling
The
SaaS model makes it much easier and less expensive for companies to
build new solutions. By leveraging resources available in the cloud and
agile development techniques, it is usually takes less money and less
time to develop a new SaaS application than it took to build a
traditional on-premise application.
Forget
about spending several million dollars over two or three years. I've
seen companies with a handful of clever developers bring
highly-functional products to market in a few months.
It's growing a customer base that's difficult
But
getting a functional product out the door is just the start. Once the
solution is ready for market, there's lots of difficult and expensive
work still to be done - namely, acquiring and retaining customers.
Look
at any of the well-established SaaS firms and you'll see that customer
acquisition expenses far exceed product development expenses. According
to financial statements of nine large SaaS companies, sales and
marketing expenses average 44% of annual subscription revenues. By
contrast, product development expenses average only 12% of annual
subscription revenues.
In customer acquisition, size matters
In the effort to acquire and retain customers, size matters. For SaaS companies, being bigger has several advantages:
1. Bigger usually means deeper pockets.
Here's where the "Wimpy Effect" -"I will gladly pay you on Tuesday for a hamburger today" - applies.
To acquire customers, SaaS providers have relatively large expenses for sales and marketing
people and programs, and most important, these expenses are incurred
up-front. But the payback occurs over the life of the subscription.
Or as Wimpy might explain, "I'll gladly pay you over the next several years for lots of delicious sales and marketing today."
SaaS providers need to pay for sales and marketing now, while they're waiting for revenue later. They need resources, notably cash, to bridge this gap.
Larger
companies with greater resources can usually cover a larger gap. They
can wait longer for revenue and cash flow than smaller companies.
2. There are economies of scale.
Even with effective inbound marketing
and the availability of relatively low-cost vehicles like webinars,
electronic newsletters, blogs and other social media outlets, marketing
can be expensive. These new tools and techniques still require
resources: people to set them up, develop content, assess impact,
convert leads into qualified prospects into customers, etc.
But
it's usually more cost-effective for larger companies to use these
tools and techniques than small companies. Why? Because the marginal
cost of reaching additional prospects can be low or even zero.
The
cost of preparing and sending an email newsletter to 10,000 people
isn't much higher than sending it to 100 people. Whether a business has
thousands of "friends" or "followers" or only a dozen, the cost is
virtually the same.
When customers purchase a SaaS solution, they're not just buying a product; they're buying a promise.
They are entrusting the SaaS provider to deliver a reliable,
high-value, frequently-enhanced solution over the life of the
subscription.
And because
buyers are committing to a long-term relationship, they are particularly
scrupulous in assessing the reputation and credibility of the SaaS
provider. In general, buyers are more comfortable acquiring solutions
and entering relationships with larger, more established, better
financed providers. It may not be fair, but that's how it goes.
The SaaS business model favors consolidation
The
economics of the SaaS business model and the advantages of size help
explain the inclination toward consolidation in the SaaS market. We'll
continue to see plenty of small SaaS companies come to market, and some
will get large enough, fast enough to go it alone.
But
as they try to grow and finance the cost of acquiring customers, many
of these companies will find that it makes more sense for them to be
part of a larger company, and they'll get bought.
Blame it on Wimpy.
September 2010
Practical Advice on SaaS Marketing
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
Greetings,
When people ask what we do, I tell them we keep SaaS companies from making mistakes...marketing mistakes in particular.
Sometimes the mistakes are small and tactical. They can be fixed with a white paper, an email campaign, or an online demo.
Often, though, the mistakes are bigger. In these cases, the company is usually struggling with more strategic challenges:
Targeting the wrong audience
Delivering the wrong message
Implementing through an inefficient process.
If
companies don't get these critical strategic elements right - audience,
message, process - no amount of skillfully executed marketing tactics
will help.
This
issue of "Practical Advice on SaaS Marketing" talks about one of those
strategic elements: the marketing process. Specifically, it talks about
the need to be agile, try new tactics, and measure carefully.
SaaS Marketing Strategy Advisors, publishers of this newsletter, help marketing professionals recognize the unique perils of marketing SaaS solutions, and we help companies steer around them. We've helped companies better understand their audience, develop compelling messages, and put in place cost-effective processes that are appropriate for the SaaS business model.
Who knew that software developers were such athletes? My code-writing
friends are all talking about "scrums," "sprints" and "extreme
programming."
Though I'm sure some of these folks are spending time in the gym, I've learned that these terms actually refer to the agile development methodologies many are using to build software-as-a-service (SaaS) solutions. Agile
development is "intended to allow for rapid delivery of high-quality
software, and a business approach that aligns development with customer
needs and company goals."
Agile Marketing
We
SaaS marketers should get on this fitness kick, too. We should follow
our development colleagues with our own version of a lean & mean
methodology. Call it "agile marketing."
Agile marketing refers
to a process for building visibility, generating leads and supporting
sales that's faster and more flexible than traditional marketing
processes. It is intended to deliver more effective marketing, closely
align with agile development processes, and better support a company's
overall business model.
Faster
In
the traditional on-premise world in which applications are developed
via the "waterfall" method, new versions typically come to market every
18 - 24 months. The marketing team falls into this same rhythm,
gearing up for a big launch every 18-24 months. After one of these
grand launches - gala unveiling event, PR blitz, new collateral,
multimedia ad campaign, etc. - the marketing folks recuperate for a
couple of months... and then gear up for the next big launch.
This
"marathon" pace doesn't suit most SaaS applications, and certainly not
those built according to an agile development process. Instead of
launching a massive new release every couple of years, marketing needs
to gear up for launches every couple of months. These are more like a constant series of sprints than a marathon. It requires a faster, more agile process to keep up.
More flexible: Besides more speed, agile marketing requires more flexibility. SaaS
marketers need to be eager to try new things, fearlessly measure
results, be willing to pursue what works and abandon what doesn't.
There's no room for dogma here.
Marketing folks ask me all the
time, "What marketing programs work best?" My honest, though sometimes
infuriating answer: "It depends."
What works for one company in
one market with one particular solution might not work for another
company in another market with a different solution. Be skeptical about
"best practices."
Drew Houston of Dropbox and Adam Smith of
Xobni have shared some of their experiences trying, failing, and trying
something else, while building their businesses. (Presentations on
their experiences are available on David Skok's For Entrepreneurs site.) Certain kinds of press outreach worked for them; others didn't.
Adwords worked for one, but not the other. And certain social media
campaigns were very effective, though more traditional email campaigns
generated positive results as well. Their advice would make for a good
tag-line for the Agile Marketing tee-shirt: "Learn early, learn often."
Also be aware that what works today may not work tomorrow.
I remember marketers' fleeting love affair with "dimensional mailers."
These promotions involved mailing (as in U.S. Postal mailing)
odd-sized boxes to well-targeted executives. The goal was to "bust
through the clutter" of over-stuffed mail boxes.
As ridiculous
as cluttered U.S.P.S. mailboxes sounds today, the current infatuation
with "social media marketing" may look pathetically quaint someday, too.
The fact is, there's no marketing magic bullet; or if there is, it keeps changing.
SaaS
solutions built with an agile development process require a faster,
more flexible marketing process as well. It's time for marketers to
get agile.
August 2010
Practical Advice on SaaS Marketing
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
Greetings,
Because of the unusually warm weather here in the Northeast, my
neighbor's farm has been harvesting corn earlier than normal this summer. They
plant different varieties throughout the season, carefully timing each
planting to ensure that one or another variety is available from
mid-summer into October. Earlier this month, they were harvesting a
butter & sugar variety called "Temptation." This week, they started
bringing in "Montauk." I don't know what's they'll bring in after
that.
Whatever they're picking at the time, I buy it.
Not
so with the lettuce, though. All the varieties seem to come in at the
same time. Standing in front of open crates of green leaf, red leaf,
oak leaf, romaine, buttercrunch, bibb, Boston, black-seeded Simpson -
never mind the escarole, dandelions and other roughage - I'm stumped.
Too
many choices. It's not always a good thing for farm stands... or for
software-as-a-service (SaaS) providers. In this issue, I talk about the
hazards of offering too many choices and advice SaaS marketers to
resist the urge.
SaaS Marketing Strategy Advisors, publishers of this newsletter, help marketing professionals recognize the unique perils of marketing SaaS solutions, and we help companies steer around them. We've
helped companies to develop a more compelling value proposition,
generate leads cost-effectively, and put in place a marketing strategy
that's appropriate for the SaaS business model.
Software-as-a-service (SaaS)
is confusing enough as it is. In case you doubt this, peak into the
over-heated debates about the precise definition of SaaS that erupt
every few weeks on discussion boards. Adding to that confusion with lots of options doesn't help.
Too many choices makes it more difficult to buy
When prospects are confused, they usually don't buy. Or at least they don't buy until they are educated and no longer confused.
There
are ways to paper over some complexity in order to speed up the
purchase process. For example, collateral that explains the basics of
SaaS to uninitiated procurement professionals can be very helpful. (See
"Getting deals unstuck from legal and procurement.")
But better
yet: keep it simple. Avoid the temptation to create a multi-page menu
enumerating every possible permutation of feature, delivery mode,
support option, installation method, ad nauseam.
Revenue now beats revenue later
Delayed
purchases aren't good for any vendor, but they're especially harmful
for SaaS providers. Under the SaaS business model, the costs of
acquiring a customer are paid up-front, while the revenue comes in over
the life of the subscription. The wider that gap between up-front
payments and stretched-out revenues, the greater the strain on cash flow
and the need for deep pockets.
Besides delaying purchases, too
many options can also make it more difficult to support a SaaS
application. If each customer has a unique configuration, it's more
difficult and costly to maintain each customer. Upgrades, conducted
one at a time, are a nightmare. The potential advantage of maintaining a
standard deliverable, deployed to all customers, is squandered.
With
too many options, something is likely to fall through the cracks for
some number of customers. The result: customer dissatisfaction and
lower renewals. Most SaaS providers can't survive low renewals. (See "SaaS Renewals and the Multiplier Effect.")
Believe
me, as a marketer, I understand the appeal of "choice." Thirteen
varieties of freshly-picked lettuce, displayed side-by-side, are
beautiful. But I usually end up just buying the corn.
0
July 2010
Practical Advice on SaaS Marketing
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
Greetings,
In this issue, I write about failure. Specifically, I discuss marketing strategies that could hurt or even kill software-as-a-service (SaaS) companies.
My experience has been that we often learn more from failure than we do from success. Of course, it may just mean that I've had lots of opportunities to learn!
This issue of the newsletter features a discussion, below, of three marketing mistakes:
Spending money to lose money
Racing against the clock
Bailing with a teacup
Each of these mistakes, in their own way, can sink a SaaS company. Ignore them at your peril.
SaaS Marketing Strategy Advisors, publishers of this newsletter, help marketing professionals recognize the unique perils of marketing SaaS solutions, and we help companies steer around them. We've helped companies to develop a more compelling value proposition, generate leads cost-effectively, and put in place a marketing strategy that's appropriate for the SaaS business model.
I'm sure there are hundreds of ways to sink a software-as-a-service (SaaS) company with poor marketing, but I want to focus on three that can be particularly effective... and not in a good way. 1. Spending money to lose money
In this money-losing scenario, the SaaS company spends more on acquiring a customer than they can earn back in revenues from that customer.
Drew Houston of Dropbox shared an example of this deadly hazard, detailing his company's experience with an Adwords campaign. Despite the common wisdom that Adwords and search engine marketing yield sure-fire success, careful analysis found that the campaign cost on average between $233 and $388 to attract a customer. The product sold for $99.
His succinct analysis: "Fail." For the mathematically-inclined, the problem can be expressed as
CAC > CLV
in which CAC is customer acquisition cost (i.e. sales & marketing costs) and CLV is customer lifetime value.
Either side of the equation could be at fault. I've seen (and even participated in) some high-priced customer acquisition campaigns: clever but expensive direct mail programs, luxurious events, and expensive give-aways.
On the CLV side, a low subscription price, poor renewals, or an inability to convert free trial users into paying customers might be to blame.
In either case, the outcome is the same: You're spending $1 to earn less than $1.
2. Racing against the clock
This is a variation of mistake #1, and equally deadly. A company's CAC exceeds annual revenues, which means it's burning cash in the short term. But they're betting they can reduce CAC, steeply ramp up revenues, and stop burning cash... before it all runs out. I've seen this strategy work, as in the case of SuccessFactors, where the company's CAC exceeded revenues for a period of time. CAC/annual revenue reached 112% at one point, but over time has come down to a more sustainable 53%. They out-grew the cash burn.
This strategy requires deep pockets, patient (read "fearless") investors, and lots of attention. When CAC consistently exceeds annual revenues, companies introduce more risk into their business plan. They need to rapidly accelerate revenues, and gradually taper down sales and marketing expenses, while constantly monitoring their cash. They're racing against the clock.
3. Bailing with a teacup
While mistakes #1 and #2 involve over-spending on customer acquisition, "bailing with a teacup" involves under-spending. In this scenario for failure, companies set out a huge task for sales and marketing, but then short-change them of the resources they need to do the job. Spending too little can sink a company as easily as spending too much. Much is expected of sales and marketing: build positive visibility, generate and cultivate leads, close business, retain and re-sign customers. There's heavy lifting to be done here, and it requires adequate funding. Though there's good reason to be cautious about spending, trying to do everything on the cheap may come up short. Figure out what really works, and commit to paying for it.
SaaS companies will typically spend much more on sales and marketing as a percentage of revenues than their licensed software brethren. Concur, for example, spends 31% of its annual subscription revenues on sales and marketing, and Salesforce.com spends 54%. For nearly all companies, customer acquisition costs will be the single largest expense on the income statement.
Companies should be prepared to make the required investment to fund marketing and sales appropriately. If they don't have the resources they need, or they're unwilling to make the commitment, it may not be worth spending anything at all. Bailing with a teacup won't keep the ship afloat.
When I talk to companies about SaaS marketing, I often use the "navigation" metaphor. (By the way, that explains the "compass" logo on my website.) I explain how to recognize dangers and discuss strategies to steer around hazards.The three I talked about here - "Spending money to lose money," "Raising against the clock," and "Bailing with a teacup" - are among the most treacherous.
This SaaS marketing stuff is not for the faint of heart. Be careful out there.
June 2010
Practical Advice on SaaS Marketing
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
Greetings,
The
Larz Anderson Museum, just outside of Boston, has a wonderful
collection of early automobiles dating back to the 1890s. The most
curious thing for me is how much these first-generation cars resemble
horse-drawn carriages.
The driver is perched in the center of a
high bench with a control rod in place of reins. Passengers, if there's
room for them, sit under a covered surrey, and the rear wheels are
larger than the front wheels. It looks just like a horse-drawn
carriage... without the horse.
Apparently, it took several years
for these early automobile makers to realize that their contraptions
were fundamentally different from horse-drawn carriages. It wasn't
until a second generation of automobiles emerged, just before the end of
the 19th century, that we were on our way toward the 10-passenger
mini-van with individual cup-holders and DVD players.
In certain
ways, software-as-a-service (SaaS) solutions are going through this
same kind of transformation. Though SaaS vendors are bringing to the
market a new way to deliver technology solutions, remnants of
"on-premise thinking" are still in place.
This issue of the
newsletter features a discussion, below, of pricing and the persistent
thought that SaaS subscription pricing is simply a stretched-out version
of on-premise license pricing. The inaccurate notion is that SaaS is
simply a licensed application... but without the license.
SaaS Marketing Strategy Advisors, publishers of this newsletter, help marketing professionals recognize
the differences between marketing SaaS and on-premise solutions. We've
helped companies to develop a more compelling value proposition,
generate leads cost-effectively, and put in place a marketing strategy
that's appropriate for the SaaS business model. Call or email me to learn more about how we can help you.
From the "Ask the SaaS Marketing Guy" mailbag, here's a question on
pricing from a software-as-a-service solution vendor:
"My prospective customer is asking about the
"break-even"point at which their software-as-a-service subscription
payments would equal their on-premise license cost. They're asking why
they should select a SaaS subscription option if they plan to use the
application over a long period."
If the SaaS application
is truly identical to the on-premise application, the vendor or the
customer can conduct a straight-forward "lease vs. buy" analysis,
accounting for the time-value of money. That will allow them to
identify the break-even point - measured in months or years - after
which it makes more sense to buy the on-premise license vs. lease via
SaaS subscription.
Factor in all the costs
If the vendor or the customer do conduct this
analysis, of course, they should factor in all of the costs associated with buying and running an
on-premise solution. Those would include the annual maintenance fee as
well as the hardware required to run the application on-premise and the
people required to deploy and maintain it. In the SaaS model, those
costs are borne by the SaaS solution vendor.
SaaS and on-premise functionality are not identical
In
many cases, the SaaS application is not truly identical to the on-premise application. Or the functionality of
the SaaS application may diverge from the on-premise application over
the life of the subscription. The two applications may have been
identical at the start, but over the subscription term, the SaaS
customer has gained the benefit of product enhancements that the
on-premise customer has not enjoyed. In that case, the SaaS customer is
getting increasingly more value from the application than the
on-premise customer. The customer should expect to pay a premium for
that extra value.
Promote value beyond the product features
Further,
the SaaS version may offer the customer additional benefits beyond the
product features. For example, the customer may benefit from more
rapid and less expensive deployment of the application, easier
configuration, the ability to quickly scale up to handle peak demand,
and the flexibility to stop paying for the solution if they no longer
need it (according to the terms of the contract, of course). These are
benefits beyond what they'd derive from an on-premise application and
customers should expect to pay for them.
The point here is that
the SaaS offering and the on-premise offering typically do not offer
identical benefits to the customer, so that a straight-forward lease vs.
buy analysis wouldn't be appropriate. SaaS marketers should clearly
articulate those additional benefits when pricing and promoting their solutions.
May 2010
Practical Advice on SaaS Marketing
Navigating the Challenges of Marketing Software-as-a-Service Solutions to Enterprises
Greetings,
Welcome
to the latest issue of "Practical Advice on SaaS Marketing." This
newsletter is meant to help marketing professionals better market
software-as-a-service (SaaS) solutions to enterprises.
This issue reminds companies to think very carefully before committing to SaaS. "There's nothing in the middle of the road but yellow stripes
and dead armadillos."
I
don't believe I've ever seen an armadillo, in the middle of the road or
anywhere else, but I can tell you that this is good advice for SaaS companies. On
occasion, I talk to companies who are lukewarm about their commitment
to SaaS - they want to do it, but not really - or they haven't
thoroughly thought through what's required.
Offering
a SaaS solution isn't easy, especially for companies that have had
success with on-premise products. It upends their well-established
business model. I've seen this first-hand - it can be painful. So
don't put yourself through it unless you really need to.
But once you commit, commit. Take a lesson from an armadillo: Muddling through in the middle of the road is hazardous.
Call or email me for SaaS marketing help. As always, I welcome your feedback.
When
I talk to vendors about adding a software-as-a-service (SaaS) offering
to their on-premise solution, I sometimes get questions that go like
this:
"How do I market the new
SaaS solution so that it doesn't lure away my on-premise customers?"
Or,
"Can I structure the contract for my SaaS solution to guarantee the
same large up-front license fee and on-going maintenance stream that I
have with my on-premise offering?"
Or, "How do I stuff this SaaS
genie back in the bottle?"
OK, I'm paraphrasing that last
question, but that's really what some of these vendors are asking.
They're happy with their current on-premise model, thank you very much,
and they'll gladly migrate to SaaS...but only if it doesn't really
change their business.
I understand their concerns. They've
built successful businesses that generate cash and profits. The last
thing they want to do is to kill the golden goose.
Here's what I
tell those folks: If you really don't need to move to SaaS, don't.
Moving from on-premise to a SaaS model
is difficult. You'll need to make radical changes that will be
challenging to your entire organization. It will change the way you do
development, finance, operations, support, sales and marketing.
Why you might need to move to SaaS
Given
these challenges, what would impel a company to move to SaaS? I'll list a few compelling reasons:
- Competitive
pressures require it: Your competitors offer a SaaS solution
that has significant advantages over your on-premise product.
- Customers demand it: Your existing
or prospective customers expect and demand the benefits that can only be
delivered via a SaaS solution.
- Investors require it: Moving to a SaaS model is a
requirement to secure funding to grow your business.
- Your current on-premise model isn't really as
successful as you think a SaaS model could be: There are
advantages that you can gain - faster time to market, lower costs, new
opportunities, etc. - only by moving to SaaS.
Don't get me wrong.
The SaaS model can deliver many valuable benefits and advantages. And
fortunately for me, given my
line of work, there are a lot of companies that need to move to SaaS
for the reasons I've referred to.
But if your company doesn't
want to, or to be more accurate, doesn't need to make the transition from on-premise to SaaS,
don't. Because if you think you'll navigate that change without making
tough decisions and profound adjustments throughout your entire
organization, think again.
Welcome to the latest issue of "Practical Advice on SaaS Marketing." This newsletter is meant to help marketing professionals better market software-as-a-service (SaaS) solutions to enterprises.
The emphasis in this issue is on the "practical." I suggest a few marketing ideas that work and that don't cost much money.
A few years ago as head of marketing for a small company, I had a team of one... me. The job meant developing strategy in the morning and then executing on it in the afternoon. Lots of both "sit-at-the-desk-and-think" work and "roll-up-the-sleeves-and-make-it-happen" work.
I remember coordinating the company's participation at a trade show in D.C. After shipping the pop-up booth to my hotel, early on the morning of the event I rolled the entire contraption, packed into a custom crate, several blocks to the convention center, assembled it, and put out the literature that I had picked up at Kinko's the day before.
Just before the exhibit hall opened, I changed into my suit and staffed the booth for the day, taking a break only to speak at the conference and participate in a panel discussion.
At the end of the day, I stripped off my tie, stuffed the pop-up booth back into the crate, along with the unused literature, and shipped it all back to Boston.
It was a useful experience, not just because it builds stamina and character. These kinds of hands-on experiences taught me how much things cost. Besides thinking about marketing strategy, it's also good to know how much you need to pay for marketing execution.
In the SaaS world, success depends on controlling customer acquisition costs. Though you can under-spend and over-spend on marketing, you can also mis-spend. If you don't know what things cost, and you don't know what value you're getting, you can put your company at risk.
As David Skok makes clear in "Start-up Killer: The Cost of Customer Acquisition," the cause of many SaaS providers' woes isn't poor product - it's poor control of customer acquisition costs.
There's a lot to be learned from dealing with the nitty-gritty of marketing and knowing what it costs to print collateral, build an online demo, or pay for shipping and drayage.
A few months ago, when discussing which marketing activities work and
which don't, I confessed "I
do not know."
To be truthful, actually I do have a few
ideas. I'm not sure if they'll work for every software-as-a-service
(SaaS) company, but they're at least worth thinking about. And they're relatively inexpensive to try.
I was prompted to think
about these low-cost ideas by a very thoughtful post from David Skok of
Matrix Partners, entitled "Startup Killer:
The Cost of Customer Acquisition." He points out that most young
SaaS companies haven't given nearly enough thought to customer
acquisition costs. With a wonderfully simple diagram, he illustrates
what happens when those customer acquisition costs (CAC) are wildly
out-of-line with the long-term value (LTV) derived from the customer.
I
don't remember much about levers and fulcrums from my high school
physics course, but even I can figure out that the Customer Acquisition
Costs on the left need to come down.
Let me offer a few
ideas on how to do that:
Use blogs, email newsletters and other online
media to build visibility. If you offer valuable content (read "not
overtly promotional"), prospects who are actively looking for solutions
will find you. And many of these online media provide a low-cost
delivery mechanism for your content. (I don't pay a dime to deliver
this blog!) It takes time, but not much
money.
Put all your material online. Print only in small
batches and only when absolutely necessary. Save trees and save money.
Demo
your product online. It will make it easy for prospects to see how it
works and eliminate some of the need for expensive one-on-one demos.
You can build these online demos yourself with tools like Camtasia or work with
an outside firm for a more professional look.
Do local events.
Sometimes in-person marketing events can be effective, especially to
reach enterprises. It's also a welcome break from the 100% web world.
But eschew the big, expensive shows and focus instead on local, targeted
gatherings.
Support
an online community of customers. Provide a place to share best
practices, show tips & tricks, and build loyalty. You'll gain an additional training and support resource, develop a pool of enthusiastic references,
and ease the renewal process.
You'll
still need to spend time and money to develop compelling content.
Clearly explaining "what your company makes and why people should pay
you for it" is a necessary investment. But you can take advantage of
inexpensive ways to deliver it.
Besides offering these low-cost
tactics, I'll also take this opportunity to reiterate the key
prerequisites for any marketing program:
Set appropriate
goals. A sure way to waste money on customer acquisition is to
generate more leads than you can handle.
Measure the
cost-effectiveness of every individual program and make adjustments as
needed.
Understand your pipeline. You need to know where deals
are getting stuck, so you can make smart choices about where to apply
resources.
So SaaS providers be warned: customer
acquisition will be expensive. Even well-established vendors spend
30% or more of their annual subscription revenues on sales and
marketing. The good news is that if you're careful, you can get a lot
for your money.
SaaS Marketing Strategy Advisors
If your company is selling a SaaS application and needs help to optimize your marketing efforts, SaaS Marketing
Strategy Advisors can help you.
Here's some of what we've been working on recently with clients:
A campaign to convert "trial users" to "paying customers."
An on-line video to demonstrate the key features and advantages of an application, and move prospects toward a free trial
Advice on developing contract terms & conditions that are appropriate for SaaS, and how to explain these new contracts to prospective customers
Market research on customers' purchase criteria and recommendations on a more compelling value proposition
If you'd like to benefit from our experience and avoid the time and expense of learning the hard way, please review a complete description of our service and expertise at: SaaS Marketing Strategy Advisors,
I appreciate your passing this newsletter along to
colleagues who might benefit. You'll find a big orange "Send to a
Colleague" button in the left hand column.
And
if someone has sent this along to you via email, you're welcome to sign
up for your own copy. That would be the lovely sky blue "Join Our
Mailing List" button in the left hand column.
Be assured that we won't
share or sell the subscriber list and you can easily unsubscribe at any
time.
--------------------------------------------
A reminder that, in addition to this monthly newsletter, I publish to my blog, also called "Practical Advice on SaaS Marketing" about once a week.
I recently wrote a post entitled "Marketing Collateral: How much and what kind" that discusses the need to create collateral that reaches all decision-makers and describes all elements of your value proposition.
Welcome to the latest issue of "Practical Advice on SaaS Marketing." This newsletter is meant to help marketing professionals better market software-as-a-service (SaaS) solutions to enterprises.
Many years ago, I was invited to talk about manufacturing automation technologies at a large defense contractor. On the company's vast site, I saw one particular building and an attached aircraft hanger separated from the rest of the sprawling campus and shrouded by a high fence. My hosts explained it was the company's "skunk works." And then they abruptly changed the subject.
In that super-secret facility, they were working on some kind of advanced airplane with the latest in stealth technology and advanced avionics and ordnance systems. In other words, stuff they didn't want other folks to know anything about.
Software companies used to develop new products behind this same shroud of secrecy. Though the development team usually didn't work in a fenced-off aircraft hanger, new features were closely guarded corporate secrets.
For marketing people, there was a delicate "open the kimono" dance played with customers and journalists as we tried to hold their attention, while not revealing too much in advance of "the big product launch."
With the exception of Apple, this kind of secrecy just isn't maintained anymore. And in the case of software-as-a-service (SaaS) companies, that's a good thing. For them, secrecy is usually a bad idea. It doesn't help build better products, it doesn't build trust with customers, and it doesn't even provide much competitive advantage.
I confess, though, that I do miss that "open the kimono" dance and "the big product launch." My collection of tee-shirts, hats, and leather portfolios from those events is getting old.
Secrecy is over-rated Just because Steve Jobs and Apple can go stealth, doesn't mean it works
for most technology companies. Apple is the rare exception of a company
that can roll-out a new product like the iPad in front of a global
audience drooling with anticipation after keeping the device under
wraps for months, although even Apple had difficulty containing leaks.
Time
was, this was standard operating procedure in the technology market.
New products were developed in secrecy, and new features were closely
guarded behind non-disclosure agreements and embargoes until the grand
unveiling. I participated in a few of these first-hand with Lotus 1-2-3
Release 4, Notes 3 and eSuite. (Drop me a note if you remember any of
these.)
Things change
Most technology companies, though, have abandoned the secrecy around new products, and for good reason.
For
one, all the cloak & dagger didn't really protect features from
being copied and leap-frogged by competitors. Lotus 1-2-3 brought a
long list of innovative features to spreadsheets... and most of them eventually ended up in Microsoft Excel.
This kind of feature
leap-frogging is especially true for software-as-a-service (SaaS)
solutions, where new enhancements are often brought out quarterly. At
that pace, a competitor may be able to knock off any particular
innovation in fairly short order. Companies can certainly innovate to
get ahead of competitors, but it requires constant innovation to stay ahead. One unique "killer" feature, by itself, isn't likely to stay unique for long.
To take advantage of this closer connection and respond quickly and
appropriately to customer needs requires an open channel of
communication. It's difficult to have productive discussions about new
features and functions with your user community, while covering the
whole conversation under a cone of silence. Yes, it's possible to
engage with a select few customers and carefully guard that input, but
that eliminates one of key advantages of SaaS solutions over on-premise
applications.
If you'd like to benefit from our experience and avoid the time and expense of learning the hard way, please review a complete description of our service and expertise at: SaaS Marketing Strategy Advisors,
I appreciate your passing this newsletter along to
colleagues who might benefit. You'll find a big orange "Send to a
Colleague" button in the left hand column.
And
if someone has sent this along to you via email, you're welcome to sign
up for your own copy. That would be the lovely sky blue "Join Our
Mailing List" button in the left hand column.
Be assured that we won't
share or sell the subscriber list and you can easily unsubscribe at any
time.
--------------------------------------------
A reminder that, in addition to this monthly newsletter, I publish to my blog, also called "Practical Advice on SaaS Marketing" about once a week.
I recently wrote a post entitled "Why are you paying for Marketing" that explains what you should expect - leads, brand awareness, and sales support - from the money you spend on marketing activity.
Welcome to the latest issue of "Practical Advice on SaaS Marketing." This newsletter is meant to help marketing professionals better market software-as-a-service (SaaS) solutions to enterprises.
Come closer. I'm going to let you in on a secret. According to the by-laws of the Ancient Order of Analysts, Pundits and Prognosticators, it is required that in order to remain a member in good standing, all members of the guild must publish an annual list of predictions.
A list of ten is the preferred format and extra credit goes to those who, in addition to looking forward, also show the courage to assess their previous year's predictions. I relinquished my membership in the ancient order when I left IDC many years ago, and my crystal ball is gathering dust in my attic. But I have been following others' obligatory predictions, especially those related to software-as-a-service (SaaS).
Several astute analysts are predicting further consolidation among SaaS vendors in the coming year. While these analyses often consider the impact on the market landscape and investors, in this issue I'll offer a few observations on the impact on marketing. What do mergers and acquisitions mean for acquiring and retaining customers?
As SaaS solutions gain greater acceptance among enterprises, and SaaS providers are carving out shares of large markets such as ERP, CRM and talent management, several analysts are forecasting further consolidation among SaaS providers. Speculation has focused, in particular on salesforce.com and other well-established vendors buying up other firms to acquire customers, expand into adjacent markets, acquire technology, eliminate competition, gain operational efficiencies, or some combination of all of these.
What's the impact of these mergers on marketing? What does is mean for customer acquisition and retention?
Is it an efficient way to acquire customers?
One company purchasing another should deliver one obvious benefit - the acquired company's customers. Assuming the purchased company is already in the market and has an installed base of customers, the acquirer picks up those customers along with the technology, expertise, sales channel, and whatever other assets the acquiree brings to the table.
It's difficult, however, to assess the cost of acquiring those additional customers in this fashion. The costs won't be reflected as sales & marketing expenses; they'll be captured instead in the overall purchase price. So the formula often used to measure the effectiveness of customer acquisition - sales + marketing expense/life-time value of the customer - won't reveal much.
The graph below, for example, shows a very high return on sales and marketing expense for Taleo, a large SaaS talent management provider. But the company gained many customers via its purchase of Vurv, and those costs likely aren't reflected in this calculation.
Are there higher returns on marketing spend?
In theory, mergers and acquisitions should improve marketing efficiency. The cost of marketing campaigns to build visibility, generate leads, cultivate opportunities, and support the sales channel are spread out over a broader customer base. On a "per customer" basis, the cost of sales and marketing should decline.
Some evidence suggests, however, that sales and marketing expenses don't predictably decline, even as the customer base and subscription revenue grows. In the case of Concur, for example, despite consistent growth in customers and revenues, customer acquisition costs as a percentage of subscription revenues remains in excess of 30%.
What's the impact on brand identity and loyalty?
Mergers & acquisitions will have profound impact on a company's brand and identity. The acquiring company will need to make critical decisions:
Should it retain the acquired company's name and brand identity?
Should it continue to support the acquired company's products, and if so, for how long?
Should it fold
the acquired company's user community into the acquirer's user
community.
Each of these choices, and many more, will affect the trust and confidence that prospects and existing customers will place in the combined company.
As I've discussed before, SaaS customers are buying into a promise as well as a product. They are trusting that the SaaS provider will deliver the service and enhance it regularly over the life of the subscription. Managed well, the acquiring company can retain that
trust; done poorly, they can quickly squander it.
And the impact of skillful brand and loyalty management can be measured. Acquiring companies that do it well should see improvements such as a higher lead-to-opportunity-to-win conversion rate, a shorter sales cycle, and higher retention. On the other hand, those that stumble will have more difficulty generating opportunities, closing deals and retaining customers.
SaaS Marketing Strategy Advisors
If your company is selling a SaaS application and needs help to optimize your marketing efforts, SaaS Marketing
Strategy Advisors can help you.
Here's some of what we've been working on recently with clients:
Recommendations on how to build a more effective "lead generation machine"
An on-line video to demonstrate the key features and advantages of an application, and move prospects toward a free trial
Material to help sales representatives explain SaaS contract terms & conditions to prospective customers
Market research on customers' purchase criteria and recommendations on a more compelling value proposition
If you'd like to benefit from our experience and avoid the time and expense of learning the hard way, please review a complete description of our service and expertise at: SaaS Marketing Strategy Advisors,
I appreciate your passing this newsletter along to
colleagues who might benefit. You'll find a big orange "Send to a
Colleague" button in the left hand column.
And
if someone has sent this along to you via email, you're welcome to sign
up for your own copy. That would be the lovely sky blue "Join Our
Mailing List" button in the left hand column.
Be assured that we won't
share or sell the subscriber list and you can easily unsubscribe at any
time.
--------------------------------------------
A reminder that, in addition to this monthly newsletter, I publish to my blog, also called "Practical Advice on SaaS Marketing" about once a week.
I recently wrote a post entitled "Ideas that work... and don't cost much" that offers several suggestions on cost-effective marketing activities that should help balance customer acquisition costs with lifetime customer value.
Welcome to the latest issue of "Practical Advice on SaaS Marketing." This newsletter is meant to help marketing professionals better market software-as-a-service (SaaS) solutions to enterprises.
The December 13, 2009 issue of The Sunday New York Times Magazine, "The 9th Annual Year in Ideas," includes the idea that "Good Enough is the New Great." Credited to Robert Capps of Wired Magazine, the idea is that "companies that had focused mainly on improving the technical quality of their products have started to notice that, for many consumers, 'ease of use, continuous availability and low price' are more important." The article cites as evidence low-resolution photos and video shot on mobile cell phone cameras and the effectiveness of low-tech Predator drones.
The idea can apply to SaaS solutions as well. I've written before about "continuous availability" and price. But I was reminded recently about the requirement for "ease of use," oddly enough by a panel of IT professionals.
These CIOs, all of whom have had experience with SaaS solutions, talked about their "ease of use" requirement in evaluating SaaS solutions and the high cost of "difficult to use."
I'm reluctant, though, to equate "ease of use" with "good enough." In fact, technology solutions that provide a simple user interface, deliver a productive user experience, and elegantly shield the user from intimidating complexity, without limiting what the user can do, I would call "great."
And I know that elegant, easy to use interfaces are difficult to build. It's not easy being easy.
A few weeks ago, I listened to a panel of IT professionals
share their experience with software-as-a-service (SaaS) and cloud
solutions. In part, they confirmed what I've heard from other IT
executives: "We expect performance, we expect security, we expect
fail-over." (See Rule 4 in the "Ten Essentials of SaaS Solution Marketing.")
I
was surprised, though, to hear from these IT professionals about
another concern: usability. After all, these folks have somehow managed
to endure frighteningly off-putting user interfaces for quite awhile.
SAP ERP screens are not for the faint of heart.
I learned that the IT folk's
attention to usability is driven not so much from a new-found
sensitivity to graphics and color. Instead, it derives from a greater
appreciation for the needs of their users. They don't want to deploy
applications that confuse, frustrate, and torture users.
Why IT now cares about usability
The
IT professionals on the panel have found that the SaaS solutions
they've acquired tend to be more widely deployed within their
organizations. They're not confined to highly-trained, dedicated users
with a high threshold for pain. Instead these solutions for expense
reporting, recruiting, asset tracking, or sales compensation
management, for example, are used broadly, not by experts and not on a
daily basis.
What that means is that
applications with inscrutable interfaces that frustrate non-experts
cause problems for IT professionals. And even though the application
wasn't built by the in-house IT group, it doesn't run in their data
center, and they didn't have anything to do with the interface design,
IT always gets the blame. It goes with the territory. As a CIO
colleague explained to me once,"People never call me to say 'Thanks. The email is running flawlessly today.' I only hear from them
when something's broken. This is the worst job in the company."
Not
only do the IT folks get an ear-load of grief from users who complain
that "IT is deliberately wasting our time with this awful system," but
they also bear the burden of supporting these end-users. Through a help
desk or training, they spend money to help users navigate through
the application.
Lessons for SaaS providers
There are a few lessons in here for SaaS providers:
A
poorly designed user experience will make it more difficult for you to
market and sell your solution. Propping it up with specialized training
for dedicated users isn't a workable solution for broadly-deployed
applications. The IT professionals won't let you get away with it.
A
poor user interface will make it harder to renew customers. Even if you
succeeded in getting an initial deployment into the organization, it
will be difficult to retain those frustrated users - never mind adding
new ones - if the product is painful to use.
A badly
designed application is expensive to support. If it's the internal IT
professionals who take on the support role, they'll be unhappy. You're
costing them money and grief. If it's you, the vendor, who provides the
support, it will cost you money... though the internal IT people will still get the grief.
Marketing
professionals, fixated as we are on messages, lead generation and sales
enablement tools, sometimes pay less attention to product features and
functions than we ought to. Our success with SaaS solutions, however,
will increasingly depend on an easy-to-navigate and
delightful-to-work-with user experience. If IT professionals are paying
attention to what a product looks like, marketing should too.
SaaS Marketing Strategy Advisors
If your company is bringing a SaaS application to market
and needs help to optimize your marketing efforts, SaaS Marketing
Strategy Advisors can help you.
Here's what I've been working on recently with clients:
Recommendations on how to build a more effective "lead generation machine"
An on-line video to demonstrate the key features and advantages of an application, and move prospects toward a free trial
Material to help sales representatives explain SaaS contract terms & conditions to prospective customers
Recommendations on how to tell a more compelling and easier to understand story about the value of the solution
If you'd like to benefit from our experience and avoid the time and expense of learning the hard way, please review a complete description of our service and expertise at: SaaS Marketing Strategy Advisors,
I appreciate your passing this newsletter along to
colleagues who might benefit. You'll find a big orange "Send to a
Colleague" button in the left hand column.
And
if someone has sent this along to you via email, you're welcome to sign
up for your own copy. That would be the lovely sky blue "Join Our
Mailing List" button in the left hand column.
Be assured that we won't
share or sell the subscriber list and you can easily unsubscribe at any
time.
--------------------------------------------
A reminder that, in addition to this monthly newsletter, I publish to my blog, also called "Practical Advice on SaaS Marketing" about once a week.
Welcome to the latest issue of "Practical Advice on SaaS Marketing." This newsletter is meant to help marketing professionals better market software-as-a-service (SaaS) solutions to enterprises.
My regular readers may note that I'm delivering this issue a week earlier than usual. For my American readers, I didn't want the newsletter to arrive amidst their Thanksgiving holiday. I wouldn't dare to interfere with turkey and football.
The timing also gives me a head start on holiday gift giving. I've sent along to each of you the "SaaS Marketing Do's & Don'ts" infographic, which outlines the key elements required to successfully market a SaaS solution. I tried to stuff much of what I know about SaaS marketing into a single box and put a ribbon around it. Enjoy!
I've noticed that people don't often give boxes of candy as gifts anymore. But I do remember as a kid buying a "Whitman Sampler" for my grandma. The box was filled with every variety of candy Whitman made: light and dark chocolate, some with gooey fillings, and almonds sugar-coated in some color not found in nature.
I've tried to create my own SaaS sampler: a box filled with a sample of ideas on what to do, and what not to do, in order to successfully market a SaaS solution.
It's not nearly as appealing as the chocolates, but I hope not nearly as scary as those odd-colored almonds.
SaaS Marketing Strategy Advisors
If your company is bringing a SaaS application to market
and needs help to optimize your marketing efforts, SaaS Marketing
Strategy Advisors can help you.
Here's what I've been working on recently with clients:
Recommendations on how to build a more effective "lead generation machine"
An on-line video to demonstrate the key features and advantages of an application, and move prospects toward a free trial
Material to help sales representatives explain SaaS contract terms & conditions to prospective customers
Recommendations on how to establish a more engaged customer community in order to improve retention
If you'd like to benefit from our experience and avoid the time and expense of learning the hard way, please review a complete description of our service and expertise at: SaaS Marketing Strategy Advisors,
I appreciate your passing this newsletter along to
colleagues who might benefit. You'll find a big orange "Send to a
Colleague" button in the left hand column.
And
if someone has sent this along to you via email, you're welcome to sign
up for your own copy. That would be the lovely sky blue "Join Our
Mailing List" button in the left hand column.
Be assured that we won't
share or sell the subscriber list and you can easily unsubscribe at any
time.
--------------------------------------------
A reminder that, in addition to this monthly newsletter, I publish to my blog, also called "Practical Advice on SaaS Marketing" about once a week.
I recently wrote a post entitled "Make Renewals Easy" that shares a recent bumpy renewal experience I had and offers a few lessons on how to do it better.
Welcome to the latest issue of "Practical Advice on SaaS Marketing." This newsletter is meant to help marketing professionals better market software-as-a-service (SaaS) solutions to enterprises.
When I first took on a marketing role at a SaaS company, we were in the midst of rolling out a significant new product. I figured I'd open the playbook of experience I'd accumulated in 20+ years of introducing on-premise applications: briefings under non-disclosure agreements (NDAs), a press announcement, launch event, etc.
Oops.
What I soon realized, the company was always in the midst of rolling out a significant new product. The old processes didn't quite fit: wrong message, wrong audience, and not enough time.
In this issue, I offer advice on how to match marketing processes to the SaaS model. Hint: toss out the old playbook.
Since there's now nearly 17 billion apps for the iPhone, I imagine there's one designed for the "sartorially-challenged," those folks who have difficulty matching tops to bottoms, different outfits to different seasons, or keeping their circa 1970s outfits buried deep in the back of their closets. As I envision it, this app would, for example, warn against wearing striped pants with plaid shirts, discourage white socks with black shoes, or alert dressers to the potential hazards of wide-wale bell-bottoms and a tie-dyed tee-shirt.
Companies providing software-as-a-service (SaaS) solutions should also be alert to poor matches, specifically marketing processes and practices that don't match the SaaS model. Many techniques and tactics that worked so well with on-premise applications clash badly with SaaS solutions.
A few examples:
Non-disclosure agreements: Put them in the back of the closet
In the world of on-premise applications, companies often briefed key customers and influential analysts in advance of releasing new products under strict non-disclosure agreements (NDAs.) The customer or analyst agreed not to disclose anything about the forthcoming product in advance of the public announcement.
Companies used the NDA to protect against premature disclosure and to keep vital information about future enhancements away from competitors.
In the SaaS world, though, companies are in the business of selling future enhancements. They are marketing the future and the promise of delivering valuable enhancements over the life of the subscription.
Don't hide the roadmap for those enhancements. Show the customer or the analyst where it is you plan to take the solution. No need to stealthily disclose it only under cover of an NDA.
Also show your track record of delivering on past commitments. If you committed to deliver five major enhancements over the last 12 months, show that you did that. Win the customer's confidence that you can deliver on your promises.
The old product launch process is out of season
When a on-premise application is updated every 18 months, the traditional launch process works well. The marketing team plans an extended roll-out, steadily ramping up activity that culminates in a big bang launch event.
But SaaS solutions, often following the Agile development model, are typically updated much more frequently. The traditional extended roll-out process is a bad fit.
Using that on-premise launch process will likely put you onto a cycle whereby no matter how fast you run, inevitably you'll find yourself hopelessly behind: marketing material will be out of date, press announcements will lag, and your marketing staff will be putting in too many late nights and weekends.
You need a launch process specifically fitted to the SaaS solution. It relies on a well-articulated positioning statement that guides all the messaging on a new product. That ensures consistency and it allows the entire team preparing the press announcement, updating the web site, and producing new sales literature and presentations to work quickly.
The right process should also store all that material in a central and easily accessible location. This helps ensure that the sales executives are all working with the latest material. And, of course, avoid printing material whenever possible.
Marketing only to new customers just doesn't go with SaaS
Truth be told, outside of the annual user conference or an occasional
customer case study, most folks marketing a traditional on-premise application spend 99.9% of their time thinking about how to win new customers and the remaining 0.1% thinking about existing customers.
That works fine when you're selling licensed software, paid up front. But for the SaaS model, which depends on renewals, it definitely clashes. There's obviously a substantial difference in the revenue stream from a one-year customer as opposed to a five-year customer.
While poor dressing might be a social faux-pas, marketing processes mismatched with your SaaS model could be a business disaster. If you think your SaaS marketing process doesn't fit your SaaS business strategy, SaaS Marketing Strategy Advisors can help.
SaaS Marketing Strategy Advisors
If your company is bringing a SaaS application to market
and needs help to optimize your marketing efforts, SaaS Marketing
Strategy Advisors can help you.
One effective way to work with us is the "SaaS Marketing Essentials"
workshop, a half-day program during which we identify the unique
challenges in marketing SaaS solutions, and work with your team to
guide your company around these hazards.
If you'd like to benefit from our experience and avoid the time and expense of learning the hard way, please review a complete description of our service and expertise at: SaaS Marketing Strategy Advisors,
I appreciate your passing this newsletter along to
colleagues who might benefit. You'll find a big orange "Send to a
Colleague" button in the left hand column.
And
if someone has sent this along to you via email, you're welcome to sign
up for your own copy. That would be the lovely sky blue "Join Our
Mailing List" button in the left hand column.
Be assured that we won't
share or sell the subscriber list and you can easily unsubscribe at any
time.
--------------------------------------------
A reminder that, in addition to this monthly newsletter, I publish to my blog, also called "Practical Advice on SaaS Marketing" about once a week.
I recently wrote a post entitled "SaaS Gone Wrong: Telltale Signs" that identifies key warning signals that a company's SaaS plans have gone off the rails.
Welcome to the latest issue of "Practical Advice on SaaS Marketing." This newsletter is meant to help marketing professionals better market software-as-a-service (SaaS) solutions to enterprises.
SaaS companies typically spend at least 30% of their annual subscription revenues on sales and marketing. For some companies, in fact, I've seen that level reach above 100%. These customer acquisition costs often represent their single largest expense.
In this issue, I talk about how to spend that money wisely. Because the SaaS business model means spending now to generate revenues extended over the life of the contract, SaaS companies need to be especially careful to spend productively on sales and marketing. There's no margin for waste.
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 - for example 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."
They should also 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 prospective customers 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."
If you need help finding your way to the right solution and getting the most from your spending on customer acquisition, SaaS Marketing Strategy Advisors can help.
SaaS Marketing Strategy Advisors
If your company is bringing a SaaS application to market
and needs help to optimize your marketing efforts, SaaS Marketing
Strategy Advisors can help you.
One effective way to work with us is the "SaaS Marketing Essentials"
workshop, a half-day program during which we identify the unique
challenges in marketing SaaS solutions, and work with your team to
guide your company around these hazards.
If you'd like to benefit from our experience and avoid the time and expense of learning the hard way, please review a complete description of our service and expertise at: SaaS Marketing Strategy Advisors,
I appreciate your passing this newsletter along to
colleagues who might benefit. You'll find a big orange "Send to a
Colleague" button in the left hand column.
And
if someone has sent this along to you via email, you're welcome to sign
up for your own copy. That would be the lovely sky blue "Join Our
Mailing List" button in the left hand column.
Be assured that we won't
share or sell the subscriber list and you can easily unsubscribe at any
time.
--------------------------------------------
A reminder that, in addition to this monthly newsletter, I publish to my blog, also called "Practical Advice on SaaS Marketing" about once a week.
I recently wrote a post entitled "SaaS Requires Standardization" about the benefits of standard terms and conditions for software-as-a-service company contracts.
Welcome to the latest issue of "Practical Advice on SaaS Marketing." This newsletter is meant to help marketing professionals better market software-as-a-service (SaaS) solutions to enterprises.
In this issue, I discuss a vital, but sometimes overlooked ingredient for SaaS success: courage.
In most instances, the SaaS business model requires that you spend now, and earn later. If your marketing strategy is designed and executed well, the short term losses to fund customer acquisition generate long term gains from customer subscriptions.
But it does require confidence, tenacity and courage to keep your foot down on the spending pedal. If you've built an efficient sales and marketing machine, resist the instinct to cut back on spending to acquire customers. The risks in easing off - lost market traction - are severe.
You can learn more about these risks, and perhaps more than you wanted to know about racing Indy Cars here: "SaaS and Indy Car Driving."
------------------------------------------------------------------- If your company is bringing a SaaS application to market and needs help to optimize your marketing efforts, SaaS Marketing Strategy Advisors can help you.
One effective way to work with us is the "SaaS Marketing Essentials" workshop, a half-day program during which we identify the unique challenges in marketing SaaS solutions, and work with your team to guide your company around these hazards.
A complete description of our services and expertise can be found at the end of this newsletter or at www.saasmarketingstrategy.com. Feel free to email me at peter.cohen@saasmarketingstrategy.com to discuss your particular needs. -------------------------------------------------------------------
A reminder that, in addition to this monthly newsletter, I publish to my blog, also called "Practical Advice on SaaS Marketing" about once a week. Some of the material appears in the newsletter, but not all of it.
I recently wrote a post entitled "It's Not All About the Price" about the need for a value proposition that's more than just "low cost." Feel free to subscribe to the blog for more insights and advice.
I appreciate your passing this newsletter along to colleagues who might benefit. You'll find a big orange "Send to a Colleague" button in the left hand column.
And if someone has sent this along to you via email, you're welcome to sign up for your own copy. That would be the lovely sky blue "Join Our Mailing List" button in the left hand column.
And if you're not interested in receiving additional issues, you can find the simple unsubscribe link at the bottom.
As always, feel free to send along feedback.
Regards,
Peter
Peter Cohen Managing Partner SaaS Marketing Strategy Advisors
SaaS and Indy Car Driving: Don't Lift the Accelerator
A race car driver who had just qualified for the first time for the
Indianapolis 500 explained to me the most difficult part of navigating
the 2.5 mile circuit: keeping the accelerator pushed to the floor. He
said it's easy to do while driving down the straightaway; the tough
part is when you're heading into the 90-degree turn at the end. If you
lift the pedal, the car won't turn left in front of the concrete wall at turn one.
A quick lesson on race car aerodynamics. Indy Cars are designed like aircraft wings, only upside-down. In a plane, the faster it goes, the
more lift is generated to carry it up into the air.
Indy Cars,
by contrast, need to stay on the ground, not fly into the air. They are
designed so that the faster the car goes, the more downforce is
generated to hold it onto the track. Not enough speed means not enough
downforce, means the car leaves the track surface, means the driver
can't steer, means... you get the idea.
Marketing software-as-a-service (SaaS) solutions is a lot like racing an Indy Car
The
goal with SaaS marketing is to build a machine that generates lifetime
customer revenue that exceeds customer acquisition costs. You want a
process in place whereby every $1 of sales and marketing expense yields
more than $1 in revenues over the life of a customer's subscription. (I
discuss this in more detail at "Marketing Spend: How Much is Enough?")
Of
course, those subscription revenues are recognized over the entire
lifetime of the customer, often over several years. However, the sales
and marketing costs are recognized immediately. You spend now to earn later. According to this formula, the faster you spend, the more short-term losses you generate.
As
you're racing down this straightaway, running up big deficits, one
instinct is to lift off the accelerator. Radically cut spending on
sales and marketing. After all, these are probably the largest single
expense items on your income statement. (I've shown how much
publicly-held SaaS companies are spending at "The Risk of Spending Too Little on SaaS Marketing.") It's an instinct perhaps learned from experience with the business model for on-premise applications.
Resist the instinct to cut spending on customer acquisition
But
if you've built an efficient sales and marketing machine, lifting the
accelerator is exactly the wrong thing to do. If your finely-tuned
customer acquisition machine is yielding $3, $4, $8 in lifetime customer revenue for every $1 in
sales and marketing spend, keep the pedal to the floor.
If you cut back on spending, you lose visibility in the market, you
can't generate prospects, and you can't support your sales efforts. The
result: you can't acquire customers, and you fall further behind
competitors until you're no longer a viable choice.
You'll lose
revenue in the short term, and you'll lose revenue over the long term.
Then you're unable to fund product development, customer support, and
operations, so you lose your existing customers.
You may save
cash by cutting expenses, but at the same time you've lost market
traction. Like an under-steering Indy car heading toward turn one, the
business slides into a drift, and at least figuratively, hits the wall.
Of
course, keeping your foot on the sales and marketing accelerator
requires enough fuel, in the form of capital, to stay in the race until
the lifetime customer revenues come in over time. And it requires a
well-tuned, efficient customer acquisition machine.
But it also
requires courage. No doubt, the notion of accumulating big short-term
losses is downright scary. Maybe not quite as scary as heading toward a
reinforced concrete barrier at 220 miles-per-hour, but scary
nonetheless.
SaaS Marketing Strategy Advisors
Do you need help with your SaaS marketing mix?
Are your customer acquisition efforts cost-effective?
Are you delivering compelling value propositions to all the influencers involved in the purchase decision, including CFOs, CIOs, procurement, and current customers?
Does your marketing extend throughout the entire sales process from initial engagement to renewal?
Are marketing and sales keeping up with frequent product introductions?
SaaS Marketing Strategy Advisors provides expert guidance to companies selling software-as-a-service (SaaS) solutions to enterprises.
The SaaS Marketing Essentials Seminar or Workshop This seminar identifies the unique challenges of marketing a SaaS
solution to enterprises, and provides marketing professionals with
practical guidance on how to avoid the "Seven Deadly Sins." SaaS platform or infrastructure providers find the seminar useful to attract and support their community of SaaS application developers.
The half-day workshop expands on the issue, presents examples of effective strategies and techniques, provides sample documents and templates, and gives interactive instruction. The workshop is valuable to companies
that are preparing to introduce a SaaS solution to the market for the
first time or for those companies who need to enhance the effectiveness
of their existing program.
This planning activity
is designed for SaaS solution providers that
need guidance in building an effective marketing plan. We work with
your team to prepare a blueprint with actionable recommendations on how
to achieve key marketing objectives.
This
comprehensive assessment is designed for SaaS
solution providers who are already actively marketing their solution,
but need help to improve the effectiveness of their marketing efforts.
If you'd like to benefit from our experience and avoid the time and expense of learning the hard way, please contact us at:
Welcome to the latest issue of "Practical Advice on SaaS Marketing." I've prepared this newsletter to help marketing professionals better market software-as-a-service (SaaS) solutions to enterprises.
Some of you may be relieved then that in this issue I speak up in favor of "guesstimating" as opposed to precise calculation.
Specifically, I discuss the appropriate marketing mix for SaaS companies - the concoction of resources required to attract and retain customers.
My advice: Before you get fixated on the precise measures, first identify the right ingredients:
Stay connected to existing customers
Address IT concerns
Spend on building a positive reputation
Expose your roadmap
Educate procurement
------------------------------------------------------------------- If your company needs guidance on optimizing your marketing mix, SaaS Marketing Strategy Advisors can help you drive more value from your marketing budget. We understand the unique challenges of marketing a SaaS solution and can guide you toward lower customer acquisition costs, a shorter sales cycle, and higher renewals. We can help you build and implement an effective marketing plan, or audit and enhance your existing marketing efforts.
A complete description of our services and expertise can be found at the end of this newsletter or at www.saasmarketingstrategy.com. Feel free to email me at peter.cohen@saasmarketingstrategy.com to discuss your particular needs. -------------------------------------------------------------------
A reminder that, in addition to this monthly newsletter, I publish to my blog, also called "Practical Advice on SaaS Marketing" about once a week. Some of the material appears in the newsletter, but not all of it.
I recently wrote a post entitled "Message cops are Essential to SaaS Success," about the need for consistency across all communications with customers. Feel free to subscribe to the blog for more insights and advice.
I appreciate your passing this newsletter along to colleagues who might benefit. You'll find a big orange "Send to a Colleague" button in the left hand column.
And if someone has sent this along to you via email, you're welcome to sign up for your own copy. That would be the lovely sky blue "Join Our Mailing List" button in the left hand column.
And if you're not interested in receiving additional issues, you can find the simple unsubscribe link at the bottom.
As always, feel free to send along feedback.
Regards,
Peter
Peter Cohen Managing Partner SaaS Marketing Strategy Advisors
During the summer, I spend most Saturday morning's tending to my yard
and garden, though my tomatoes are struggling with all this rain we've
had here in New England. But in the winter, I sometimes watch the
succession of cooking shows that run all day on public television.
I
prefer the ones in which the host chef measures ingredients in
"handfuls of this" and "dashes of that." They pay most attention to the
ingredients, and give only a rough approximation of proportions.
I don't enjoy the
more precise chefs nearly as much, especially those that
bake. Baking is a more exact science - chemistry actually - and it
requires precise measurements. Most baking recipes are not very
forgiving... a lesson I learned from a tragic experience with a marble
cake.
My approach to the marketing mix for software-as-a-service
(SaaS) companies follows this same predilection. I tend to focus first
on ensuring that companies are using the right ingredients in
approximately the right proportions, before they get fixated on the precise measures.
Before
a marketing executive at a SaaS company delves into exactly how much to
spend on the assortment of tactical marketing programs - webinars,
collateral, search engine optimization, etc. - it's usually best to
ensure that they first have the basic ingredients on hand.
My Recipe for Effectively Marketing SaaS Solutions to Enterprises
A
hefty dollop of brand awareness activity to go along with your lead
generation efforts. With SaaS, customers are buying into your promise, not just your product.You need to win their trust.
A thick slice of product roadmap, NDA's removed. Before a customer goes along for a ride, they usually need to know where you're going to take them.
A
few shakes of education for procurement professionals. They may not be
familiar with the terms and conditions of SaaS contracts, so you'll
need to provide an explanation.
In
preparing the concoction, be prepared to work quickly. The SaaS model
usually involves frequent product enhancements, so marketing folks need
to update programs and material quickly. Items left out too long will go bad.
So
before you start measuring and calculating down to the final dollar,
make sure you've got the right ingredients in the kitchen.
Bon appetit!
SaaS Marketing Strategy Advisors
Do you need help with your SaaS marketing mix?
Are your customer acquisition efforts cost-effective?
Are you delivering compelling value propositions to all the influencers involved in the purchase decision, including CFOs, CIOs, procurement, and current customers?
Does your marketing extend throughout the entire sales process from initial engagement to renewal?
Are marketing and sales keeping up with frequent product introductions?
SaaS Marketing Strategy Advisors provides expert guidance to companies selling software-as-a-service (SaaS) solutions to enterprises.
The SaaS Marketing Essentials Seminar or Workshop This seminar identifies the unique challenges of marketing a SaaS
solution to enterprises, and provides marketing professionals with
practical guidance on how to avoid the "Seven Deadly Sins." SaaS platform or infrastructure providers find the seminar useful to attract and support their community of SaaS application developers.
The half-day workshop expands on the issue, presents examples of effective strategies and techniques, provides sample documents and templates, and gives interactive instruction. The workshop is valuable to companies
that are preparing to introduce a SaaS solution to the market for the
first time or for those companies who need to enhance the effectiveness
of their existing program.
This planning activity
is designed for SaaS solution providers that
need guidance in building an effective marketing plan. We work with
your team to prepare a blueprint with actionable recommendations on how
to achieve key marketing objectives.
This
comprehensive assessment is designed for SaaS
solution providers who are already actively marketing their solution,
but need help to improve the effectiveness of their marketing efforts.
If you'd like to benefit from our experience and avoid the time and expense of learning the hard way, please contact us at:
Welcome to the latest issue of "Practical Advice on SaaS Marketing." I've prepared this newsletter to help marketing and sales professionals better market and sell software-as-a-service (SaaS) solutions to enterprises.
Last month, I proposed a way to assess SaaS companies' sales and marketing effectiveness. In this issue, I'm following up with a particular focus on renewals, the "renewal multiplier effect," and the impact on lifetime customer revenue.
The goal is to help you better understand the key metrics critical to SaaS business success and know where to focus your sales and marketing efforts for maximum impact. -------------------------------------------------------------------
A reminder that, in addition to this monthly newsletter, I publish to my blog, also called "Practical Advice on SaaS Marketing" about once a week. Some of the material appears in the newsletter, but not all of it. I recently wrote about "The Magic Marketing Bullet" fallacy and the "Automatic Feedback Loop" for product managers built into SaaS solutions. Feel free to subscribe to the blog for more insights and advice.
I appreciate your passing this newsletter along to colleagues who might benefit. You'll find a big orange "Send to a Colleague" button in the left hand column.
As always, feel free to send along feedback. I'm especially eager to hear from folks about their own efforts to improve SaaS sales & marketing.
Regards,
Peter
Peter Cohen Managing Partner SaaS Marketing Strategy Advisors
In case you've forgotten the concept of the multiplier effect from Economics 101, it's commonly used to project the impact of a change in government spending or money supply on the growth of GDP.
If, for example, we know that the government spending multiplier is 5, and the government increases spending by $10 billion, we'd project that GDP would grow by $50 billion.
In a similar fashion, renewals have a multiplier impact on SaaS companies' revenues.
The higher the renewal multiplier - that is the more times a company can
renew a customer and extend its revenue-generating life - the greater
the revenue accruing to the company.
Lifetime Customer Revenue
To be more precise, what we're actually referring to here is "lifetime customer revenue."
Lifetime customer revenue = recurring revenue per period * term of customer lifetime
As an example, I'll calculate the average lifetime customer revenue for salesforce.com, estimating a 3-year customer life mutiplier:
$985 million in FY 2009 annual subscription revenue/55,400 customers = $17,780 average annual revenue per customer
$17,780 average annual revenue per customer * 3 year customer lifetime = $53,340 lifetime customer revenue.
Changing the renewal multiplier to a 5-year customer life, yields a more favorable result:
$17,780 average annual revenue per customer * 5 year customer lifetime = $88,900 lifetime customer revenue.
To illustrate the dramatic impact of longer customer life on lifetime revenue, I've calculated the lifetime customer revenue at several publicly-held SaaS companies, using 5-year, 3-year and 1-year renewal multipliers. As expected, a higher renewal multiplier yields
substantially higher revenue.
The relationship between the renewal multiplier, lifetime customer revenue and customer acquisition cost
This calculation becomes truly useful when comparing the lifetime customer revenue to the cost of acquiring a customer, i.e. sales & marketing expenses.
Average lifetime customer revenue/average customer acquisition cost
This
formula reveals how much lifetime customer revenue is generated by $1
in customer acquisition costs. (I discussed this concept at greater length in the May 2009 newsletter.)
According to this illustration, when salesforce.com can extend the average customer lifetime to 5 years, the company generates $2.40 in lifetime customer revenue for every $1 spent on customer acquisition. At a 3-year lifetime, $1.44 of lifetime revenue is generated. And at a 1-year customer lifetime, only 48 cents of revenue is generated for every $1 spent on sales & marketing.
Don't lose customers you've already paid for
As you can surmise, spending more than $1 to acquire a customer that yields less than $1 in lifetime revenue is not a sustainable business model.
Extending the life of
the customer's subscription is critical to success. It's bad business to lose customers
you've already paid for.
SaaS Marketing Strategy Advisors
Are your customer acquisition efforts cost-effective?
Are you delivering compelling value propositions to all the influencers involved in the purchase decision, including CFOs, CIOs, procurement, and current customers?
Does your marketing extend throughout the entire sales process from initial engagement to renewal?
Are marketing and sales keeping up with frequent product introductions?
SaaS Marketing Strategy Advisors provides expert guidance to companies selling software-as-a-service (SaaS) solutions to enterprises.
The SaaS Marketing Essentials Seminar or Workshop This seminar identifies the unique challenges of marketing a SaaS
solution to enterprises, and provides marketing professionals with
practical guidance on how to avoid the "Seven Deadly Sins." SaaS platform or infrastructure providers find the seminar useful to attract and support their community of SaaS application developers.
The half-day workshop expands on the issue, presents examples of effective strategies and techniques, provides sample documents and templates, and gives interactive instruction. The workshop is valuable to companies
that are preparing to introduce a SaaS solution to the market for the
first time or for those companies who need to enhance the effectiveness
of their existing program.
This planning activity
is designed for SaaS solution providers that
need guidance in building an effective marketing plan. We work with
your team to prepare a blueprint with actionable recommendations on how
to achieve key marketing objectives.
This
comprehensive assessment is designed for SaaS
solution providers who are already actively marketing their solution,
but need help to improve the effectiveness of their marketing efforts.
If you'd like to benefit from our experience and avoid the time and expense of learning the hard way, please contact us at:
Welcome to the latest issue of "Practical Advice on SaaS Marketing." I've prepared this newsletter to help marketing and sales professionals better market and sell software-as-a-service (SaaS) solutions to enterprises.
I know from talking to many of you that marketing budgets are under close scrutiny and, in some cases, have been cut. In this issue, I've proposed a formula to help assess whether your sales & marketing budget is too high, too low, or just right.
Average lifetime customer value Average customer acquisition cost
I wish I could tell you that the formula has revealed a "magic number," at which your budget is perfectly suited for your business. Unfortunately, I don't believe there's enough experience with SaaS yet to conclude with any certainty precisely what that number is. You can see from the chart in the article below that successful companies fall along a wide spectrum.
The formula is useful though in identifying the key metrics you should monitor and which levers you can pull to match sales & marketing spending to your business.
Renewals are critical. You cannot afford to lose customers you've already paid for.
Match the potential customer value to the acquisition cost. There's no point in spending $5 to win a customer that's only worth $3.
You'll need deep pockets to bridge the time gap between the sales & marketing costs, which you incur up-front, and the lifetime customer revenues, which may take several years to be realized.
I publish practical advice to my blog, also called "Practical Advice on SaaS Marketing" about once a week, so if this monthly newsletter isn't satisfying your craving, feel free to subscribe to the blog.
Thanks to all of you who passed this newsletter along to colleagues who could benefit from practical advice on marketing SaaS solutions to enterprises. In case others come to mind, here's that handy button again.
As always, I enjoy hearing from you, so drop me a note with feedback. I'm especially eager to hear from folks about their own calculations on sales & marketing spending.
Regards,
Peter
Peter Cohen Managing Partner SaaS Marketing Strategy Advisors
Workday, a software-as-a-service (SaaS) provider of HR and financial
solutions, raised another $75 million last month to fund growth. This
is in addition to $75 million raised in earlier rounds, bringing the
total to $150 million in funding.
Workday will probably use some
of the new funding to build out its application and its operations and
support infrastructure, but I suspect a large portion will be spent on
sales & marketing to acquire customers.
Is this amount too much? Too little? Just right?
A formula to assess the level of spending on customer acquisition could be helpful.
Average lifetime value of customer Average cost of customer acquisition
In this formula,
Avg. lifetime value of customer= avg. annual recurring revenue * avg. length of subscription
According
to this formula, a calculation yielding "1" would indicate that the
cost of acquiring a customer would be equal to the revenues derived
from that customer over their entire subscription. In other words, $1 in customer
acquisition expense yields $1 in lifetime revenue.
A number
greater than "1" would indicate that customers are contributing more
than the costs of acquiring them, and the excess could be used to
fund development, support, operations, and other expenses, or even show a profit. That is, $1 spent on
acquiring a customer would generate more than $1 in lifetime revenues
from that customer.
A number less than "1" would indicate that
the cost of acquiring customers exceeds the revenues they'll contribute
over time. SaaS vendors may run at a rate of less than "1" for a period
of time, funding the shortfall with debt or outside capital, but it's
not sustainable over a long period.
(There are certainly more
sophisticated formulas, using gross margin, cash flow analysis and
other elements, which would provide indicators for profitability and
capital requirements, but in this instance I've opted for simplicity in
order to focus on sales & marketing spending. Bessemer Ventures and Joel York are excellent sources for more in-depth financial analysis.)
For
illustration, let's run the formula using financial results reported by
salesforce.com for the fiscal year ending January 31, 2009.
Revenues from subscriptions in FY 2009 = $985 million
Sales & Marketing costs in FY 2009= $534 million
New customers acquired during FY 2009 = 14,400
Total customers at Jan. 31, 2009 = 55,400
salesforce.com
reports that the average length of a subscription contract is 12-24
months, though I suspect they renew most of these contracts, so the
average length of a subscription is much longer. For the sake of this
exercise, I'll estimate 5 years.
Avg. lifetime value of customer= ($985,000,000/55,400 customers) * 5 years =$88,899
Avg. cost of customer acquisition = $534,000,000/14,400 new customers = $37,083
Average lifetime value of customer/average cost of customer acquisition = 2.40
Based
on these data and my assumptions, for each $1 spent on acquiring a customer, salesforce.com generates $2.40 in lifetime revenue from that customer.
I've calculated the ratio for several publicly-held SaaS companies, using the same estimate of a 5-year customer lifespan.
At the high-end of the scale, athenahealth generates about $10 in lifetime customer revenues for every $1 in sales & marketing costs to acquire a customer.
RighNow, by contrast, generates 40 cents for every $1 spent acquiring a customer.
Use these numbers with caution. For one, they represent only a single year's worth of data and can be skewed by unusual events. Taleo's ratio, for example, is affected by its acquisition of Vurv and its entire customer base in 2008.
More data and deeper analysis would be required to
assess the potential profitability, cash requirements or overall
financial health of SaaS companies, but the formula does give useful
guidance on marketing spending.
Extending the life of
the customer's subscription is critical to success. It's senseless to lose customers
you've already paid to acquire. Be certain to
allocate resources to retain your current customers. High quality service and support are certainly required, but marketing can help this retention effort as well. (See "Your Existing Customers are Prospects Too.")
Carefully control
spending to maximize effectiveness. To the extent possible, measure the
impact of all sales & marketing activity on acquiring or retaining
customers. Certainly, this is critical to on-premise vendors as well,
but it's especially so for SaaS companies. (See "Hyper-Spending on Customer Acquisition: The Wile E. Coyote Effect.")
Carefully identify
your target prospects and avoid deals that don't offer adequate
potential lifetime revenue. There's no point in spending $5 to acquire a
customer who's maximum potential lifetime value is $3. That's spending
money to lose money.
Ensure
your pockets are deep enough to carry you while you wait for revenue.
Though you're making the sales & marketing investment up front, the
returns are spread over the lifetime of the customer. You need to have adequate funding bridge this mismatch of immediate investment and long-term return.
SaaS Marketing Strategy Advisors
Are you delivering compelling value propositions to all the influencers involved in the purchase decision, including CFOs, CIOs, procurement, and current customers?
Does your marketing extend throughout the entire sales process from initial engagement to renewal?
Are your customer acquisition efforts cost-effective?
Are marketing and sales keeping up with frequent product introductions?
SaaS Marketing Strategy Advisors provides expert guidance to companies selling software-as-a-service (SaaS) solutions to enterprises.
The SaaS Marketing Essentials Seminar or Workshop This seminar identifies the unique challenges of marketing a SaaS
solution to enterprises, and provides marketing professionals with
practical guidance on how to avoid the "Seven Deadly Sins." SaaS platform or infrastructure providers find the seminar useful to attract and support their community of SaaS application developers.
The half-day workshop expands on the issue, presents examples of effective strategies and techniques, provides sample documents and templates, and gives interactive instruction. The workshop is valuable to companies
that are preparing to introduce a SaaS solution to the market for the
first time or for those companies who need to enhance the effectiveness
of their existing program.
This planning activity
is designed for SaaS solution providers that
need guidance in building an effective marketing plan. We work with
your team to prepare a blueprint with actionable recommendations on how
to achieve key marketing objectives.
This
comprehensive assessment is designed for SaaS
solution providers who are already actively marketing their solution,
but need help to improve the effectiveness of their marketing efforts.
If you'd like to benefit from our experience and avoid the time and expense of learning the hard way, please contact us at:
Welcome to the latest issue of "Practical Advice on SaaS Marketing." I've prepared this newsletter to help marketing and sales professionals better market and sell software-as-a-service (SaaS) solutions to enterprises.
Since I've been writing and thinking about the challenges of marketing SaaS solutions for awhile now, I thought it would be helpful to collect the essentials into a handy list. I've offered it here: "Ten Essentials of SaaS Solution Marketing."
Though all the items are important (hence the "essentials" label), the first is especially so: "Build a marketing strategy specifically for your SaaS solution."
I can tell you through experience that you'll need to do more than tinker around the edges of a marketing plan that was originally developed to support an on-premise solution.
Though many of the tactics are the same, there are critical strategic differences:
the audience is different
the message is different
the timing is different.
Recognize these strategic differences up-front, and following the other nine essentials will be a lot easier.
If you need help to build a marketing plan that's designed specifically for your SaaS solution or guidance on optimizing your current plan, contact me at peter.cohen@saasmarketingstrategy.com.
Three housekeeping details to take care of:
1. If you'd prefer a formatted .pdf version of the "Ten Essentials of SaaS Solution Marketing," I've made it available for download from my web site. It's at the bottom of the page.
2. I publish practical advice to my blog, also called "Practical Advice on SaaS Marketing" about once a week, so if this monthly newsletter isn't satisfying your craving, feel free to subscribe to the blog.
3. Thanks to all of you who passed this newsletter along to colleagues who could benefit from practical advice on marketing SaaS solutions to enterprises. In case others come to mind, here's that handy button again.
As always, I enjoy hearing from you, so drop me a note with feedback. Surely let me know if you think there's an 11th or 12th essential I've missed.
Regards,
Peter
Peter Cohen Managing Partner SaaS Marketing Strategy Advisors
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.")
SaaS Marketing Strategy Advisors
Are you delivering compelling value propositions to all the influencers involved in the purchase decision, including CFOs, CIOs, procurement, and current customers?
Does your marketing extend throughout the entire sales process from initial engagement to renewal?
Are your customer acquisition efforts cost-effective?
Are marketing and sales keeping up with frequent product introductions?
SaaS Marketing Strategy Advisors provides expert guidance to companies selling software-as-a-service (SaaS) solutions to enterprises.
The SaaS Marketing Essentials Workshop This
half-day workshop identifies the unique challenges of marketing a SaaS
solution to enterprises, and provides marketing professionals with
practical guidance on how to avoid common hazards. It is valuable to companies
that are preparing to introduce a SaaS solution to the market for the
first time or for those companies who need to enhance the effectiveness
of their existing program.
This planning activity
is designed for SaaS solution providers that
need guidance in building an effective marketing plan. We work with
your team to prepare a blueprint with actionable recommendations on how
to achieve key marketing objectives.
This
comprehensive assessment is designed for SaaS
solution providers who are already actively marketing their solution,
but need help to improve the effectiveness of their marketing efforts.
If you'd like to benefit from our experience and avoid the time and expense of learning the hard way, please contact us at:
Welcome to the latest issue of "Practical Advice on SaaS Marketing." I've prepared this newsletter to help marketing and sales professionals better market and sell software-as-a-service (SaaS) solutions to enterprises.
For my long term readers, note that I've changed the name of the newsletter in order to better describe what I'm offering - practical advice. There are plenty of challenges in marketing SaaS solutions to enterprises. I'm trying to help fellow marketers navigate this difficult terrain.
In the first article, I've drawn a few helpful insights based on an assessment of how much the largest SaaS solution providers are spending on sales and marketing and what growth they're generating as a result. Some companies are clearly getting a higher yield than others, and I've offered some explanations.
If your company would like to enhance the yield on your
own marketing spending, get in touch with me.
Sales and marketing costs are likely to be among your highest expenses. You can't
afford to make lots of mistakes, spending lots of money for low
return. You might benefit from the fact that I've probably seen lots
of these mistakes already and can steer you around them.
In the second article and related link, you'll see proof-positive that there are plenty of passionately-held and well-articulated opinions on how to succeed in the SaaS
market, and in particular whether companies can realistically offer both and on-premise and a SaaS solution.
Please feel free to pass this newsletter along to colleagues who could benefit from practical advice on marketing SaaS solutions to enterprises. Here's a handy button.
Also, I'd enjoy hearing from you, so drop me a note with feedback.
Regards,
Peter
Peter Cohen Managing Partner SaaS Marketing Strategy Advisors
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.
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 more 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%. That 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.
The Challenge of Offering both SaaS and On-Premise Solutions...More Heat and Light
Well, the post was linked to a discussion within the Software as a Service Group on LinkedIn and it stirred up passionate and enlightening commentary. Opinions, based on a wealth of experience, ranged from "it's do-able and we've proven it" to "it's suicidal." Check it out and weigh in with your own thoughts.
SaaS Marketing Strategy Advisors
SaaS Marketing Strategy Advisors provides expert guidance to companies selling software-as-a-service solutions to enterprises.
We'd be happy to conduct a SaaS Marketing Strategy Audit (tm) for your company, assessing the effectiveness of your marketing programs.
Are you delivering compelling value propositions to all the influencers involved in the purchase decision, including CIOs, CFOs and current customers?
Does your marketing extend throughout the entire sales process, from initial engagement through to renewal?
Are your customer acquisition efforts cost-effective?
Can marketing and sales keep up with more frequent product enhancements?
Based on the SaaS Marketing Strategy Audit, we deliver prioritized, actionable recommendations to help you achieve immediate impact and long-term success. The result: an accelerated sales process, lower customer acquisition costs, higher renewals, and more consistent and timely sales & marketing material.
If you'd like to benefit from our experience and avoid the time and expense of learning the hard way, please contact us at:
Welcome to the latest issue of "SaaS Marketing Strategy Perspectives." I've prepared this newsletter to help marketing and sales professionals better market and sell software-as-a-service solutions to enterprises.
Both articles here might be accompanied by a blinking yellow light, warning you to slow down before racing through a dangerous intersection (although no drivers here in Massachusetts actually do that.)
The first discusses the hazards of offering both a SaaS solution and an on-premise solution. Choice comes with challenges.
The second talks about being more open in disclosing your roadmap. You might want to reconsider the old practice of "gag 'em with an NDA before you reveal anything."
If your company is approaching one of these dangerous intersections and would like guidance on how to get through it safely, get in touch with me.
You can learn the hard way and make lots of mistakes: targeting the wrong message to the wrong audience, and spending lots of money doing it,. Or you can benefit from the fact that I've probably made lots of these mistakes already and can steer you around them.
I hope you find the advice here useful. Your feedback is appreciated. And feel free to pass this along to colleagues.
Regards,
Peter
Peter Cohen Managing Partner SaaS Marketing Strategy Advisors
Can you offer both an on-premise and a software-as-a-service option?
I've been marketing technology products for a long time, and can understand the appeal of offering customers a choice: they can purchase the application through an on-premise license or if they prefer, through a software-as-a-service subscription. "Choice," "flexibility," "freedom": all very positive and potent selling points.
It makes good sense on the surface. The customer simply wants to solve a business problem - manage customer relationships, automate procurement, process expense reports, etc. Let them buy the solution in whatever way is most comfortable for them. Why impede their purchase by forcing them toward a single delivery mechanism?
Ah, there's the rub.
SaaS is more that a delivery mechanism
If it was only a matter of the "delivery mechanism," offering both options - on-premise or SaaS - would be much simpler. "Paper or plastic," either way the customer gets to use the application.
But SaaS is not simply a different delivery mechanism; it's a different business. The financial model is different, the development process is different, the operations and support processes are different, and sales & marketing are different. (I discuss these differences in "The Unique Challenges of Marketing and Selling SaaS Solutions.")
I've seen the lessons on the marketing differences first-hand. The company has a well-established on-premise solution and is adopting a software-as-a-service model.
Marketing's role? Add the advantages of SaaS to the list of product features, update the web site and the collateral, and we're done.
Wrong.
Marketing SaaS solutions is not the same as marketing on-premise solutions
The error began to dawn on me the first time (OK, maybe the third time) a sales rep asked for marketing material to help gain the support of the CIO. I thought we were avoiding the CIO with our SaaS offering!
And then Legal needed help to explain the subscription contract terms. And the folks in customer care wanted to keep existing customers informed of new product enhancements. And so on, until a light went on: Marketing a SaaS solution is more than a few tweaks to what we'd done to market the on-premise solution.
And I'm only talking about the changes in marketing. Play this out with Legal, Finance, Operations, Development, and Support. And then think about the challenges of supporting both a SaaS and an on-premise option.
To make this even more complicated, some vendors even offer customers the option of switching between the two models at their convenience.
Too many choices can be a bad thing
I give great credit to the vendors who go down this path, and can see the appeal to customers. But these vendors should understand that they're running two virtually separate businesses.
I'm reminded of an instance of choice gone too far, this from the much tastier world beyond technology. I brought a couple of friends from Spain to Lizzy's Ice Cream. They gaped at the 30' blackboard of options mounted behind the counter: Three columns of flavors, 18 different mix-in's, a dozen toppings, plus yogurt, sherbet, and tofutti.
At first, they were delighted. But after a moment, their delight morphed into confusion, then anxiety, and finally desperation. Too many choices.
I don't recall if they bought anything more exotic than a scoop of vanilla, but I do remember that they suffered an ice cream headache even before they ate the ice cream!
Advice on Exposing Your Roadmap: Relax
I advise companies marketing and selling SaaS solutions to enterprises
that they need to disclose their roadmap to prospective customers.
Remember this fundamental precept of SaaS marketing: You're selling a promise, not a product. You need to earn the prospect's confidence that you'll deliver valuable enhancements over the life of the subscription.
Of
course, even in the on-premise world, vendors typically need to show
their product direction as well. It's doubly important with SaaS
solutions.
An analogy from the publishing world illustrates the
differences. An on-premise application is like a book. Whatever words
and pictures are bound between the covers as you walk out of Borders or
open the package from Amazon is what you've bought.
A SaaS
solution, by contrast, is more like a magazine or newspaper
subscription. As a customer, you're not exactly sure what stories will
be covered next week or next month, but you're paying for the
publication based on the expectation - the promise - that it will provide you with
valuable content over the life of your subscription.
Any lessons that we can borrow from the publishing world that can help us?
Prepare an "editorial calendar"
Some
publications prepare an editorial calendar. They identify the general
areas they'll be covering over the coming year. They usually don't
provide much detail - a paragraph or two - but enough to convey where
they'll be focusing their editorial resources.
SaaS vendors can do
something similar. Show the prospective customer the general direction
of your solution, and given them a sense of where you're applying your
development resources. There's no need to provide many details,
especially as you get further out on the calendar. In fact, in an agile
development environment, you're not likely to have many details far in
advance in any case.
Establish a pattern
A second idea borrowed from publishers is
to show your back issues. Let the prospective customer see that you
have a history of delivering valuable content quarter after quarter.
Show the timeline of product enhancements over the last few years.
One final thought on this topic.
Don't obsess over the potential hazards of disclosing your future
plans. Some of that deeply-seated caution is a remnant of the
on-premise world. When companies introduced products every 18 months and could bring out a new "killer" feature, they could truly
steal a march on their competitors.
In the SaaS world, competitors can usually respond much more quickly. Any particular feature advantage is usually neutralized within a quarter or two.
Customers for enterprise apps don't like surprises
Moreover, the whole
notion of springing a surprise usually doesn't sit well with your large
enterprise customers. Think about it. Before the latest enhancements
get rolled out to hundreds or thousands of people in their
organization, the folks who are responsible need to carefully
understand it and prepare for it. They'll expect advance notice, not a
surprise.
For people like me who have spent lots of time in the
traditional on-premise world before the SaaS world existed, I
understand that this reticence about disclosure is a tough habit to
break. NDAs and embargoes were all standard fare. Of course, in some
cases they're still required. But it might be better to leave much of
that behind.
SaaS Marketing Strategy Advisors
SaaS Marketing Strategy Advisors provides expert guidance to companies selling software-as-a-service solutions to enterprises.
We'd be happy to conduct a SaaS Marketing Strategy Audit (tm) for your company, assessing your marketing and sales programs.
Are you delivering compelling value propositions to each audience, including CIOs, CFOs and current customers?
Does your marketing extend throughout the entire sales process, from initial engagement through to renewal?
Are your customer acquisition efforts cost-effective?
Can marketing and sales keep up with more frequent product enhancements?
Based on the SaaS Marketing Strategy Audit, we deliver prioritized, actionable recommendations to help you achieve immediate impact and long-term success. The result: an accelerated sales process, lower customer acquisition costs, higher renewals, and more consistent and timely sales & marketing material.
If you'd like to benefit from our experience and avoid the time and expense of learning the hard way, please contact us at:
Welcome to the latest issue of "SaaS Marketing Strategy Perspectives." I've prepared this newsletter specifically for marketing and sales professionals selling software-as-a-service solutions to enterprises.
You might well ask how marketing a SaaS solution differs from marketing any other application to enterprises. When I managed marketing for a company adding a SaaS solution to their existing on-premise solution, I admit I asked the same question myself. How much different could it be?
I quickly found out; it's very different. Though many of the tactics are the same as you'd use to market a traditional on-premise application, there are fundamental strategic differences. I've discussed some of those differences - messages, audience, and timing - in this issue.
Drawing on the expertise of SaaS Marketing Strategy Advisors, I've offered
guidance on managing the unique challenges of marketing SaaS
solutions. The goal is to help SaaS solution providers close more
business, accelerate the sales cycle, lower the cost of acquiring
customers, and increase renewals.
I hope you find it useful. Your feedback is appreciated.
Regards,
Peter Cohen Managing Partner SaaS Marketing Strategy Advisors
Unique Challenges of SaaS Marketing The tactics are similar...but the strategy is different
As
executives at many companies are quickly learning, marketing and
selling SaaS solutions to enterprises presents certain challenges that
differ from their approach with traditional on-premise solutions. The
techniques may be similar - search, pay-per-click, webinars, shows,
email, etc. - but there are fundamental strategic differences.
It's about more than features: Marketing and Sales need to promote
the entire customer experience, not just the product features. Speed
of deployment, ease of purchase, access to support and other benefits
not strictly part of the "feature set" are just as important to the
purchase decision.
You're selling a promise, not just a product: Customers are buying into a stream of
deliverables, not a fixed set of capabilities. Marketing and Sales
need the prospective customer's confidence and trust in your ability to
deliver over the course of the entire subscription.
The target market includes existing customers, not just prospects:
Market to the existing customers to take advantage of new features
delivered over the life of the subscription. If they're satisfied,
they're more likely to renew.
Pay attention to customer acquisition costs: The costs to acquire
and maintain customers must be carefully tracked and sales and
marketing programs optimized to fit your business model.
Win over the CIO: For any enterprise application that's to be widely deployed, the CIO will almost always be involved in the decision-making
process. Work to gain their confidence and support. Don't assume
they're all comfortable with the SaaS model.
Build an agile marketing machine: In most cases, you'll be
delivering product updates much more frequently than you did in the traditional on-premise world - once per quarter vs. every 2 years. Adjust the marketing
practices accordingly.
Companies that can make these adjustments will be in a position to
benefit from the increasing adoption of SaaS solutions across a broad
range of applications and enterprises. Those that don't adopt a "SaaS
marketing mentality" and simple port over their traditional on-premises
practices will likely struggle.
Is "Try & Buy" a Good Idea? For enterprise buyers, it may not be effective
"Try & buy" has been widely used as a
marketing technique for SaaS applications, especially consumer
applications. The customer signs up for a free trial of some limited
duration, gains some experience with the solution, and, if satisfied,
subscribes once the trial period expires.
Is this technique appropriate
for enterprise applications? It might be, but companies should think through a couple of issues beforehand.
For one, in many cases the concerns of enterprise buyers extend well
beyond price. They're just as concerned about issues such as
performance, security, and integration. That's not to say that large
companies - with professional procurement departments - won't negotiate
aggressively on price, but other equally important concerns will
likely factor into the process of purchasing a critical application for
enterprise-wide deployment.
Enterprise buyers may, in fact, be more interested in the "trial"
portion, than the "free" bit. They may want the ability to pilot the
application in a "sandbox," configuring and testing it before deploying
it widely.
A second issue to consider is whether the "try & buy" model fits
your business model. "Try & buy" is really part of the broader
issue of the cost of customer acquisition. Can you recover the cost of
the acquiring a new customer over the life of the customer's
subscription? If acquiring a customer through "try & buy," or
whatever other customer acquisition programs you use, costs $1000 and the
customer can be expected to yield $10,000 over the life of the
subscription, it may make sense. If the total subscription value is
$800, you'll probably want to rethink your customer acquisition
programs. (Jeff Kaplan of THINKstrategies offers insights into this funding and viability issue as well: Will the Rising Cost of Sales Cost SaaS Companies VC Funding?)
Show Prospects the Escape Chute Knowing there's a way out may be just the reassurance they need
I fly often enough that I can lip sync the
emergency instructions along with the flight attendant, but I still
dutifully follow the instructions and look around to locate the exit
nearest to me. ("Remember, it may be behind you.") Though I'd hope
never to use it, I do get a sense of reassurance that it's there.
Prospective
SaaS application customers often need that same reassurance. Yes, they
expect that they'll love your application, will gain incalculably
valuable benefits from it, and have no plans to ever leave, but just in
case....
Enterprise customers for your SaaS application may decide
to leave for any number of reasons. After a time, they may determine,
for example that the application is too sensitive to be off-premise, it
requires extensive customization, or it needs to be more tightly
integrated with other systems. A retailer, for example, may decide that
their e-commerce application is simply too central to the core of their
business to be supported via a SaaS application.
During the
evaluation process, in fact, prospective buyers typically won't know
which of these reasons, or others, might be a factor down the road. But
they do know enough that they should prepare for whatever may come up
that would cause them to want to leave the SaaS application.
To
reassure these prospects, Marketing and Sales needs to address these
concerns during the selling process. Show them the escape chutes. Talk
about the "red lights leading to white lights." Do the hand gestures
pointing to the exits.
That is, you should promote the "exits"
from your SaaS application. Talk about customers' retaining ownership
of their own data. Point out your policy related to returning data to
the customer. (If you don't have such a policy, that's a separate
discussion.) Market whatever other policies, practices, and features
that would make it easy for the customer to walk away.
Yes, I
recognize there's something counter-intuitive here. You could even say
it's downright unnatural for marketing and sales professionals to talk
about how easy it is for customers to leave. But think like
an enterprise buyer, especially someone new to SaaS applications. Of
course, they expect that all will go well, but just in case.... Show them
the escape chute and give them the reassurance they need.
SaaS Marketing Strategy Advisors
SaaS Marketing Strategy Advisors is an advisory services firm providing expert guidance to companies selling SaaS solutions to enterprises. We help these companies optimize their marketing and sales programs to fit the unique requirements of the SaaS market and business model.
Our SaaS Marketing Audit (tm), tailored to each company's requirements,
delivers actionable recommendations that can yield immediate impact as
well as a strategic blueprint for sustained success.
We'd be happy to talk about how we might help you. Reach us at:
company from a
Yes, this hand-holding will cost some time and money, but you're less likely to lose new customers. And you'll probably find that by starting customers off on the right foot, it will save you time on support calls later on.
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.
prospect might need some guidance. These folks aren't dense; they're just busy.
Does your plan cover the entire customer acquisition and retention process?
be sure that before you embark on the big new adventure ahead of you in the new year that you're well equipped, and you know what you need to know.
How many people visited your website, your webinar, your tradeshow booth, and how many of them converted into leads, into qualified opportunities, and into paying customers?
executives working their Rolodex (or its electronic equivalent). Or it might be sold by a team of inside sales reps making cold calls from a purchased list. 
Besides the cost, this approach - trying to find potential buyers, many who aren't really looking for a solution, and methodically coaxing through to purchase - just doesn't work as well as it once did. With information so easily available, most prospective customers can do much of their research before they even talk with a sales executive. The sales exec comes in only near the end of the process, not the beginning.
plains to stalk a large beast. The hunter wanders for days or weeks over many miles, tracking the prey, and finally gets close enough to bring it down with a well-aimed spear.
you're not looking at the overall end-to-end process.
Dead
they have no real need for your service - aren't worthwhile leads. 
To get them "unstuck," you'll need to build a system that moves prospects through the complete acquisition process - from initial interest to lead, from lead to qualified opportunity, from opportunity to purchase, and finally from initial purchase to renewal. Generating leads is only the first step.
SaaS marketers should focus on the numbers, but they should focus on the right numbers and they should interpret them wisely. 
The text is accompanied by simple illustrations showing one strand of hair with a chlorine molecule attached and another with no chlorine molecule attached.
though, there really aren't a lot of enterprise software-as-a-service (SaaS) solutions that can be used by everybody. When someone tells me that "this product can be used by anyone," I'm skeptical.
Big time success was positive coverage in The Wall St. Journal or The New York Times.
Even outbound telephone calling has had a social media facelift. There's a new concept known as 
A
movie about a bunch of nerds using obscure statistics to make personnel
decisions? Brad Pitt or not, it doesn't really sound like the makings
of a box office success.
nt
just one-way communications. Customers want a way to have input into
what new features are built, and they want a way to share information
with other customers.
el out of the customer acquisition process.
a complete flow - from building initial visibility and attracting
leads, through to converting leads into opportunities and into
customers, and then retaining and up-selling existing customers. 
sales.
I
don't mean "vision" in the sense of a sweeping long-term view into the
far future. I'm talking about the vision that lets a company put one
foot safely in front of another and avoid serious missteps.
SaaS
marketers need to focus all the time on keeping existing customers
informed and satisfied. In many ways, existing customers should be
shown the same love as prospective customers. In fact, that's
precisely what they are: existing customers will become prospective
customers who you do indeed need to win again once their subscription
expires.
Lotus
1-2-3. (For younger readers, this spreadsheet was one of the first
block-buster applications for PCs.) The application fit on a couple of
disks (they may have even been the 5 1/4 inch size), packaged in a
sturdy box, along with a comprehensive instruction manual. What you
bought were all the capabilities packaged into that box.
Targeting the wrong audience
Pricing SaaS solutions
The point here is that
the SaaS offering and the on-premise offering typically do not offer
identical benefits to the customer, so that a straight-forward lease vs.
buy analysis wouldn't be appropriate. SaaS marketers should clearly
articulate those additional benefits when pricing and promoting their solutions.
In that super-secret facility, they were working on some kind of advanced airplane with the latest in stealth technology and advanced avionics and ordnance systems. In other words, stuff they didn't want other folks to know anything about. 
To take advantage of this closer connection and respond quickly and
appropriately to customer needs requires an open channel of
communication. It's difficult to have productive discussions about new
features and functions with your user community, while covering the
whole conversation under a cone of silence. Yes, it's possible to
engage with a select few customers and carefully guard that input, but
that eliminates one of key advantages of SaaS solutions over on-premise
applications.
The idea can apply to SaaS solutions as well. I've written before about "
ualified 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.
at turn one.
