How Sales Complexity impacts startup viability There is no question that success for the entrepreneur starts with a breakthrough (or at the very least great) product or service. Yet too often, entrepreneurs fall into the “field of dreams” mentality (in the words of Terence Mann, AKA James Earl Jones: “build it and they’ll come”). But the truth is that defining the product is just the beginning. Entrepreneurs must spend significant time thinking about the complexity of their sales process and the cost of customer acquisition, as these factors will strongly impact a company’s ability to make money and attract investors. An obvious requirement for a successful startup is that they are able to make more money from a customer than they spend for a customer, i.e. Lifetime value (LTV) should be greater than cost of customer acquisition (CAC) (see my prior blog post, Startup Killer: the Cost of Customer Acquisition). Understanding Sales Cycle Complexity Let’s start by looking at the sales cycle spectrum. Freemium No Touch Self-Service
5 key learnings from analyzing top B2B SaaS pricing pages By Ed Shelley,May 5, 2015 So you’ve built a B2B SaaS product that you know adds value for your customers and solves a meaningful problem in your biggest market. A key step is deciding how to price it in a way that’s simple, flexible and valuable for the different segments of customers your product is tailored towards. We’ve spent time analysing the pricing pages of the hottest B2B products to provide you some insights into what makes them so great at doing their job – clicking that all important Signup button. What if your current pricing page is letting your whole product down, and tripping up or confusing your potential customers? Research, research, research Here’s a Pinterest board showcasing all of the pricing pages we’ve studied for inspiration – take a look below: Ed ShelleyTop SaaS Pricing Pages See On What did we learn? 1. One of the biggest mistakes with SaaS pricing plans is to define price points based on internal business value or internal feature cost, i.e 2. 3. 4. 5.
Optimizing your Customer Acquisition Funnel This blog post focuses on how B2B companies can optimize their customer acquisition funnels using a customer-centric methodology to analyze and remove blockage points. Acquiring customers in the B2B world involves using a variety of marketing and sales steps with the goal of converting prospective customers into paying customers. The process is often thought of as a funnel (see diagram above) where you pour in suspects at the top, and various steps in the process, some percentage of prospects successfully convert to the next stage, making the funnel narrower as the process evolves. No matter how large or successful your business is, you will have at least one place that is a blockage point in your customer acquisition funnel. As an example, you may have too few visitors coming to your web site, which you see as the top of your funnel. In this blog post, I will talk about a method that I have found to be highly effective at removing blockage points. Identifying Blockage Points Concerns
PowToon, free business presentation software animated video maker and PowerPoint alternative SaaS Economics - Part 1: The SaaS Cash Flow Trough This post provides SaaS entrepreneurs with an Excel spreadsheet model and graphs that show the cash flow trough that happens to SaaS, or other subscription/recurring revenue businesses that use a sales organization. These kinds of SaaS businesses face a cash flow problem in the early days, because they have to invest up front in sales and marketing expenses to acquire customers, and only get payments from those customers over a delayed period of time. I refer to this phenomenon as the the SaaS Cash Flow Trough. The greatest value from this post will come from downloading the model and inputting your own variables. Part 2 of this series can be found here: SaaS Economics – Part 2: Scaling the Business. Where is this applicable This model is applicable to any recurring revenue business that uses a sales force.This model does NOT apply to SaaS businesses that don’t use a sales force. What are the different analyses? Part 1: Looking at a single new sales hire The Cash Flow Trough Conclusions
SaaS Economics - Part 2: Scaling the Business This is the second part of a 2 part series that discusses the cash flow trough that happens to SaaS, or other subscription/recurring revenue businesses when they decide to scale their business by ramping sales and marketing. These kinds of SaaS businesses face a cash flow problem in the early days, because they have to invest up front in sales and marketing expenses to acquire customers, and only get payments from those customers over a delayed period of time. The first part of the series can be found here: SaaS Econonics – Part 1: The SaaS Cash Flow Trough. The greatest value from this post will come from downloading the model and inputting your own variables. The Excel Spreadsheet and associated PowerPoint file can be downloaded by clicking here. Where is this applicable This model is applicable to any recurring revenue business that uses a sales force.This model does NOT apply to SaaS businesses that don’t use a sales force. Scaling the Business Ramping Sales Hiring Conclusions
Will your 2011 Plan stand up to investor scrutiny? We have just gone through the time of year when startups present their 2011 plans to their boards for approval. In many ways, these meetings are very similar to the meetings we have with new startups that have projections for how they believe their revenue will grow. What I always find interesting in this process is looking at how the management team came up with the bookings forecast, and what steps they took to validate the number. In a lot of cases, the bookings target is determined using some rough top down logic like “We should be able to easily double the business this year” or “We’re similar to successful startup XYZ, and they hit $8m revenue in their third year, so we should be able to do the same.” The smart companies will have built a bottom up model that shows how making certain investments in sales and marketing will lead to the top line number that they are looking for. By going through this process, I am looking to validate the following items: Example 1: A SaaS Company
SaaS CEOs: Measure Customer Engagement - Increase Conversions & Lower Churn The goal of a SaaS CEO should be to increase the profit they make from each customer (LTV), and lower the costs in sales and marketing that it takes to acquire each customer (CAC). Measuring Customer Engagement is a key tool that will help you achieve that goal, as it will allow you to increase your trial conversion rates, which directly reduces CAC. And it will help you lower your churn rates, which directly increases LTV. (There are also other significant benefits that are described below.) How customer engagement has changed in the on-line world In the old world, most of the ways that companies engaged with their customers would involve human interactions either face-to-face, or over the phone. There are some tools that help us judge how customers as a whole are behaving on-line, but so far those tools have not allowed businesses to analyze customer behavior at the individual level. Why should you care? You might ask why would you care about how individual customers are behaving?
Multi-axis Pricing: a key tool for increasing SaaS revenue Scalable pricing is a powerful tool to grow revenue in a SaaS or software business. It allows you to capture more of the revenue that your customers are willing to pay, without putting off smaller customers that are not able to pay high prices. It also provides a great way to continue to grow revenue from your existing customers. Introduction Many SaaS startups begin life with one product that has a simple pricing model. However as time progresses, they may hear comments like: “I would have been happy paying far more for your product as it provides such great value to me”“I didn’t consider your product as it was too cheap, and didn’t look like a credible option to handle our more advanced needs”“I only needed a subset of your functionality, and your product was too expensive” These comments indicate that there are a variety of different user types in the market, with differing levels of value they can extract from use of your product, and as a result, differing willingness to pay. 1. 2.
HubSpot's Best Practices for Managing SaaS Inside Sales Best practices for inside sales managers. An interview with Mark Roberge, VP of Sales at HubSpot, discussing how he blends science and process with the art of selling. HubSpot is a SaaS company selling Inbound Marketing software. Mark’s background is unusual for a VP of Sales. How did MIT Sloan School influence the way you think about managing? It taught me to seek out science and data whenever possible to understand the business and make decisions. What are your goals as a sales exec, and what is your strategy for achieving them? Goals are Predictable, Scalable Revenue Growth My Strategy is best summed up as: Hire the same type of successful sales personTrain each sales person in the same way Provide each sales person with the same quantity and quality of leadsEnsure sales people work the leads using the same process Hiring Starting with hiring: Tell us a bit about what attributes it takes to sell HubSpot? HubSpot’s sales context is evangelistic. Our product is very broad in its capability.
Understanding the Customer Buying Cycle and Triggers This article looks at why customers expect different interactions with you depending on where they are in the buying cycle. It also examines how specific events trigger them into a buying mode. It then explains how you can use this information to make your marketing more effective. The Customer Buying Cycle A simple way to look at the buying cycle is to break into three stages: Awareness – when a customer first becomes aware of your product. How Buying Cycle impacts the sales approach needed Imagine that you wandered in to a clothing store while walking around the neighborhood. Now imagine that you have gone into the same store. What’s the difference? The difference between these two examples is where you are in the buying cycle. Depending on where you are in your buying cycle, your expectations for how the sales people in the shop should treat you are different. How do you adapt Marketing to a buyer’s stage in the cycle? What to do with visitors that are not ready to buy? Conclusions Thanks
Why Churn is SO critical to success in SaaS Summary: Illustrates graphically why churn is a huge problem a SaaS company gets larger. It also looks at a very surprising factor that can massively accelerate SaaS growth: negative churn. (This article is applicable to any recurring revenue business, not just SaaS.) Introduction As a SaaS company becomes larger, the size of the subscription base becomes large enough that any kind of churn against that base becomes a large number. That loss of revenue requires more and more bookings coming from new customers just to replace the churn. The red and yellow lines show the lost revenue due to customers cancelling their subscriptions (churn). Looking at the graph above, we can see that Churn is really not that big of a number in the early startup months. The graph below shows the impact on Total MRR (monthly recurring revenue) of each scenario, which is fairly substantial. The Impact of Negative Churn The result is quite shocking. It’s an amazing result. How do you achieve Negative Churn?
Pacific Crest's 2011 SaaS Survey Pacific Crest, an investment banking firm with a strong focus on SaaS, has surveyed a 70 SaaS companies with very interesting results. There is some great data on topics such as growth rates, cost of customer acquisition, churn/retention, expense models, capital efficiency, etc. The full survey, which was put together by David Spitz and his team (follow @dspitz on Twitter), can be found here. In this article, I include many of their slides, and the associated Pacific Crest commentary. In a few cases, I add my own commentary prefaced by my initials DRS. Details of the participating companies: 70 private SaaS company respondents, participating anonymously and confidentiallyAdministered to CEOs and CFOs, May-July 201169% multi-tenant/single instanceDiverse mix:–$0-$60M+ in revenues (~$13M median)(1)–25-250+ employees (~120 median)–10-2,000+ customers (~480 median)–$100s to $MMs median ACV (~$37.5K median)–~50% horizontal apps, ~50% vertical apps, infrastructure, etc. CAC on New / New vs.