Always a lot going on in Boston. Here are my notes from an information-rich panel discussion offered by the Massachusetts Technology Council entitled: Tricks of the Trade - Building Revenue Momentum in SaaS:
Unlike traditional software business models which are based on one-time license sales and lump-sum cash payments, the SaaS model is predicated upon building annuity-type revenue and cash streams. Over the long-term this business model is highly attractive, but especially for early-stage companies ramping SaaS revenues poses a unique set of challenges. MassTLC has gathered a panel of accomplished SaaS operating executives to share their insights on getting the initial revenue 'flywheel' turning and building sustainable SaaS enterprises.
Skip Bestoff, General Partner, at Castile Ventures did a great job of moderating the discussion--asking all the questions we hoped he'd ask. Fred Mather, Global Head, M&A and AI Sales at IntraLinks and Richard Turcott, CMO at RatePoint drew on a wealth of experience to share best practices, lessons learned, and advice about how to get the revenue flywheel going.
Determining market positioning and value propositions
Skip asked, "How do you find the sweet spot for your business?"
- Understand your market and follow through--too often people find their target market and then later ignore what they've learned.
- Meet with prospects to gather market insights. Nothing beats seeing someone's reactions as they talk about what's important to them.
- Ensure that the opportunity you're pursuing addresses a significant problem
- Tie your value proposition to cost and/or time savings.
- To ramp quickly, aim for those who already recognize they need a solution to the problem you're addressing
- Accelerate your learning by using pay-per-click ads to test various terms you're considering using to market your solution
- Then, apply what you learn to other channels
Skip asked: What's the impact of the subscription model on the value proposition?
- SaaS enables you to target the economic buyer, since you don't need to put anything in "on premise"
- The sale is more transactional. When the entry point is just $/month, perceived time savings and ease of use often trump classical ROI
- Customer centricity is more important than ever. You need to deliver a great customer experience if you lead with a trial.
IT's involvement in the sale
- The IT budget is shrinking, so you need to attack the operating budget if you want to make a lot of money
- IT is still involved for enterprise sales, that require custom development such as integration with other applications the customer is using
- You need to tell IT what's in it for them
- Although it's all over the place, most IT departments today are economic buyers
- If IT approval is needed, there is one more step in the sales cycle, and the company tends to grow less quickly.
How much should you pay to acquire a customer?
- Start by determining the lifetime value of a customer (LTV). The calculation is (1/attrition rate)*Average sales price
- In the beginning, you may need to pay more than the LTV because you haven't proven your value or developed a brand.
- In the long term, you need to pay less than LTV to achieve profitability
Best practices for acquiring customers
- Depend on prospect and customer anecdotes to get your messaging right.
- For small price point products, you're conducting focus groups every day (as you watch online buying behavior)
- Leverage the community: start with those who wield the greatest influence with the target market
- Then, focus on getting customers that are willing to serve as spokespeople for your case study
- Work your network: with the advent of social media, no one needs to make cold calls
- Set limits and success criteria to ensure that your trials encourage conversions: give prospects just enough time and functionality to experience value
- Hone your process by analyzing the sales pipeline: key metrics include visitors to trials, trials to conversions, time to progress through cycle, level of discounting
Customer support strategy is essential to success
- Having a well thought out support strategy is essential to success
- Business users are less technically savvy and require more handholding
- To scale, you need to make people comfortable with on-line support
- To maximize profitability, you need to bake support into the product over the longer term.
- Initially, however, it's likely you'll need to provide personal support to compensate for gaps in the product and/or training materials
These are some of the insights I gained from the panel. What are your clients doing to get the revenue flywheel turning for their SaaS businesses?
SaaS: Building the revenue momentum you need to achieve profitability
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