Can Inbound Marketing Improve Your SaaS?

Can Inbound Marketing Improve Your SaaS?:

In a previous life, I ran a Software-as-a-Service (SaaS) startup. With the broad move to cloud resources, this business model is becoming increasingly popular. I’m sure you know some of the current crop of great SaaS businesses like Salesforce.com or Hubspot.com.

However, there are clearly unique marketing challenges facing SaaS companies both in the startup phase and when you’re “crossing the chasm” as author Geoffrey Moore writes in his great book of the same name. At the beginning of a SaaS venture’s life the company must bring its product to market and generate revenues quickly to avoid burning excessive cash. Once you’ve proven the value of your offering, the me-too competitors pop up everywhere – fast. Now your business must grow quickly enough to capture the market by differentiating from these businesses that would capitalize on the initial risk you took. At all times a SaaS company must pay close attention to the cost of acquiring customers and the lifetime value of a customer. Inbound marketing can improve your SaaS business marketing whether you’re a struggling startup or an established SaaS business trying to grow market share.

In The Beginning…

Immediately after you launch your service, the primary concerns are brand awareness and lead generation. You must rapidly fill your sales funnel with qualified sales leads using focused campaigns across all of the relevant channels, including SEO, SEM, content marketing, social media marketing, print, trade shows and special events. The marketing mix and level of investment in each medium will depend on your product and target customers, as well as the length of your sales cycle and of course your budget. The objective, when breaking into a new market, is to optimize conversion rates to deliver new customers at a low cost and sufficient engagement to keep the revenue coming in. David Skok of of Matrix Partners has an excellent blog article on the economics of SaaS revenue streams and sales force efficiency including a great excel spreadhseet.

Getting to Break Even

After a SaaS product launch a business has anywhere from a 3 to 12 months to increase recurring revenue (good customer engagement, low turn over) to the break even point, to bridge what Skok calls the “cash gap”. The balancing act that’s critical for success is continuing to sign up new customers while keeping associated acquisition costs low to minimize cash burn. This is where inbound marketing becomes critical. Many a SaaS company starts out great but fails under its own success because it doesn’t have a scalable, low cost customer acquisition model. In effect, the continued cost of acquiring an increasing number of customers without a scalable model flips the equation so that each new customer costs more than its worth. The greater the cash burn for both sales and non-sales costs, the more difficult it will be to reach break even before cash runs out. Strategies to focus on in this phase are building brand loyalty and referrals. Typically these occur by delivering on the brand promises of superior product performance and customer service. Few companies execute well enough to get to break even before running out of cash and disappearing.

Grow Your Share or Die

coutesy David Skok

Those companies that make it to break even then face a new set of challenges. People know you. The marketplace knows about you (good), and so do your competitors (not good). You’ve taken the risk to prove the market for your service but you’re in a vulnerable position, not yet having the momentum or market share to be dominant. So your competitors come after you with a pedal to the metal execution strategy, leveraging the visibility you’ve created in the market. Your business must grow rapidly to become the 800 pound gorilla or risk having its customers raided by a hoard of wannabee competitors. The only way you can accomplish this is through careful planning at the outset and an agile (scalable) approach to growth.

The key is using what you learned getting from startup to break even. If you have measured and analyzed all of your key metrics while you were establishing your brand and acquiring early adopter customers, you know how to invest your marketing resources wisely to fill your sales funnel and optimize conversion rates from the top of the funnel to a closed sale. Competitors may know that your market exists, but they don’t know what you do about acquiring customers. You can forecast sales and churn rates, which allows you to grow sales teams, production staff and support intelligently, to meet anticipated demand. You can scale your operation at the right rate to capture the market. In this phase inbound marketing not only provides the intelligence to direct your growth but also gives you a scalable platform with predictable cost metrics.

Marketing is an important piece of the SaaS success formula. Inbound marketing uniquely contributes at each phase through scalable lead generation, reduced customer churn and most importantly, marketing analytics. The alignment you can create between sales, marketing, development and support using the intelligence gained through inbound marketing is crucial to all phases of your SaaS growth plan. How have you used the power of inbound marketing in your SaaS business? Did you find inbound marketing more effective with early adopters or in helping your SaaS business cross the chasm?