Busting Through Bottlenecks and Fueling SaaS Growth
Do you know where the bottleneck of your sales strategy is? SaaS growth strategist Joel York discusses ways to break through it by honing in on the most effective sales and marketing strategies for your business.
Quick, calculate your SaaS Growth Ceiling (Acquisition Rate x Lifetime Value). That’s the largest your business will ever be. If you’re not satisfied with that number, it’s time to start changing your sales and marketing strategy.
In this week’s Labcast, SaaS sales and marketing Joel York will help you identify the SaaS growth levers you should be adjust. All you need to ask yourself is, “Where’s the bottleneck?”
This Week’s Guest
Look at it from your customers’ perspective and ask yourself, “Where is my customer getting stuck? Where is the bottleneck?” That’s where you should focus. The truth is, if you focus anywhere else, it won’t have any effect because the bottleneck will still be the constraining factor.
— Joel York, Chaotic Flow
- SaaS Growth Ceiling = Acquisition Rate x Customer Lifetime Value [1:00]
- Know your go-to-market sales model before you pick a sales strategy. Is it a self-service model? Inside sales? A high-end field sales model? [3:30]
- Stop thinking of your product separately from marketing. [5:10]
- Focus on improving the bottleneck. Look at the customer lifecycle and ask yourself, “Where are people getting stuck?” [6:50]
- Experimenting will help you find the right strategy. The right metrics are crucial to assessing the strategy. [10:45]
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For more tips on identifying and pulling the right growth levers for your SaaS business, visit Joel’s blog Chaotic Flow, and download his new eBook:
Kevin: Hi, everyone, and welcome to another edition of Labcast. I’m your host Kevin Cain and today I’m joined by Joel York to talk about SaaS growth strategies. If you don’t know Joel, he’s s a SaaS marketing and sales executive and the respected author of a blog called Chaotic Flow where he talks about SaaS strategy, marketing and sales. You can find that blog at chaotic-flow.com
Hey, Joel, thanks so much for joining me today on Labcast. How’s it going?
Joel: It’s going well. Thanks for having me.
Kevin: As I mentioned in my introduction, today we’re talking about SaaS growth and the different levers available to drive that growth. So my first question to you today is, can you explain the framework that you use to look at SaaS growth levers?
Joel: Sure. I’ve been working on this kind of model to understand the different levers behind SaaS growth. It’s got its foundation in this metric that I called the SaaS growth ceiling. It’s really a very simple number that you can calculate that would be of interest to any entrepreneur, any VC, in that it tells you right now, today, what’s the biggest your company could ever be, given the current metrics that you’re having.
The SaaS growth ceiling is a very simple metric. It’s essentially your acquisition rate times your customer lifetime value. For example, if your customer acquisition rate right now is 1,000 customers per year and your customer lifetime value is $10,000 per customer, then the largest your SaaS business could ever be is a $10 million business. So you’ve really got to, if you want to change your life, you really want to change the future of your business, you’ve got to change one of these fundamental levers.
Kevin: That’s easier said than done. I could imagine there’s a variety of strategies one might employ from a variety of different disciplines, whether it’s sales or marketing or business development. Can you kind of highlight what some of those strategies might be, maybe going into this?
Joel: Sure. There’s quite a few to choose from right now.
Kevin: Sure. So if we could get some of the highlights.
Joel: Yeah, in this particular series I’m working on, I’m identifying 10 marketing strategies, but as you said, there are complementary sales strategies and business development strategies. But the way I like to look at it is to map those strategies to the particular stage in the customer lifecycle that you’re really attacking. There are two reasons for this, one, because the strategies vary depending on whether you’re trying to drive early demand or you’re trying to do insurance, it gives you different stages of the customer lifecycle. And the other is that there is an interesting aspect of SaaS businesses where the individual customer lifecycle is highly correlated to the evolution of the company itself.
So for example, if you’re an early startup, typically you focus on early stages of the customer lifecycle of just getting awareness and getting people to sign up and convert. Where if you’re more mature and you’re trying to reach the SaaS growth ceiling, you’re focusing on the later stage elements of the customer lifecycle, like for example reducing churn and network effects.
Kevin: So lets focus then on the earlier stage, and could you talk us through maybe some of the sales strategies that apply?
Joel: Sure, so in particular, the most important thing to understand before you can pick a strategy is you really know what your go-to-market sales model is going to be. Because SaaS companies tend to come in three different flavors when it comes to sales models, which is there’s the self-service model, there’s kind of the highly transactional, inside sales model, and then there’s the high-end field sales model, and the particular strategy you might choose would be different.
So for example, if you were a self-serve business, then you really would focus on things like being visible and SEO and driving inbound demand. Whereas if you are a high-end enterprise business, then you might focus more on just getting focusing, finding your sweet spots, getting those names, and literally old school cold calling as your primary sales strategy.
Kevin: Now what about things like technology like auto dialers or lead enrichment and cleansing, is that something that you would recommend?
Joel: Yes, I would but, again, it depends on your situation, so the most important thing to look at here is where your bottleneck is. Because if you could improve any given stage in the sales process or purchase process, but if that’s not the bottleneck, you’re not going to have an impact on final revenues. So for example, if you’ve got lots of leads but they’re not converting, then maybe conversion is your bottleneck. But if conversion is great but you don’t have leads, you always want to find the particular bottleneck that you’re going after, and that can vary from company to company, from market to market.
Kevin: And I imagine the same thing then would apply to marketing business development strategies as well?
Joel: Yes, marketing strategies in particular are an interesting topic in SaaS because one of the most important things in the marketing strategy side is to really understand the role that the product itself plays in the marketing strategy. One mistake I see a lot of SaaS companies make is, and it’s just kind of a tendency in the software industry, to think about the product separately from the marketing and I always like to say there are four P’s in marketing and one of them is product and it’s very important to look at what you’re doing in the product.
So for example, you’re asked what are some of the strategies for early stage. If your product has public facing pages and user-generated content, then you could actually search engine optimize those pages and you could use them to drive traffic. You see the consumer SaaS or Internet companies do this all the time, but I think the B2B companies struggle with this a little more. Then there’s the element of whether or not you have a free trial and that’s very much standard in the SaaS industry today but I still find SaaS companies launching without free trial, and it tends to people who have more roots in, say, enterprise sales and who are having difficulty digesting the role that the product plays in the marketing mix in terms of driving demand and moving the sales process forward.
Kevin: Then why don’t you touch a little bit on the business development strategies that you think apply?
Joel: So business development strategies are probably most important when you’re building network effects because typically, you need to bring in partners for that. Business development strategies could be very important in the mid-stage customer lifecycle or customer lifetime value because if you want to do upsells and cross-sales, it may be that you don’t have enough time to develop all of those capabilities.
So you tend to find business development being really key when you’re trying to build out some kind of partnership ecosystem, yet you want that ecosystem to create monetizable revenue for you either through straight out upsells by, say, reselling somebody else’s software, or through creating some kind of marketplace, like say you created some a bunch of open APIs for your platform and you want to get partners to plug into that and maybe they’re going to sell add ons to your SaaS product. You see this particularly in the more mature SaaS players like Salesforce.com, where they’ve got the whole app exchange, where they are monetizing through that and driving revenue through that. So anytime you need to drive more of a network effect, that’s probably when business development is going to become a key element of your growth strategy.
Kevin: I could imagine that for any SaaS company that’s new, a startup, or at the expansion stage, you’ve got a finite amount of resources and you’ve got a lot of sort of conflicting or different demands on your time and your resources. So how would you recommend that a company would sort of prioritize all the different sales marketing or business development strategies that they might be able to use? Is the idea to use them in concert on a limited basis, or to really focus on one? I’m sure it varies very much depending on each company and their situation, but is there any sort of guidance you can provide there?
Joel: Yeah, absolutely. I touched on this briefly a little bit earlier, but the key is what I call “bottlenecks”. So if you can think of this lifecycle approach where you’ve got just basic market awareness and buzz on one end and network effects all the way on the other end, and in between you’ve got customer acquisition and you’ve got churn reduction and you’ve got upsells and cross-sales and crowd sourcing. Any one of these could be your most important thing to do right now. Predictably, as you mature it becomes harder to choose because you’ve got customers at every stage of the lifecycle. You could pick and choose where you want to focus your energy.
So, to me, the key is to look at that lifecycle and ask yourself, “What’s the biggest hurdle my customers are experiencing? Can they just not find me?” Then I need to focus on awareness. Is it the churn? Is it 20% where the industry benchmark is closer to 10% or 12%? Then you might want to focus on churn reduction.
So you want to look at the metrics at each stage of the lifecycle and ask yourself, where are people getting stuck? Where are they having problems? Is on-boarding the primary issue? Like we close deals but people don’t really use the software, therefore they churn. So if you look at it from your customers’ perspective and you ask yourself, “Where is my customer getting stuck? Where is the bottleneck?” that’s where you should focus. Because the truth is if you focus anywhere else, it won’t have any effect because the bottleneck will still be the constraining factor for revenue.
Kevin: And these kinds of issues aren’t the kind of things you can resolve immediately. They’re going to take some time to sort through those types of bottlenecks. So I guess what’s your advice to companies to sort of sustain them through because they may want to see an immediate reduction in churn, but that might not actually happen for a while. So I think they may be tempted to try a bunch of different things, rather than be patient. You know what I’m trying to say here?
Joel: Yes, I do, and this is very common, particularly when you’re a rapidly growing startup and then all of a sudden you hit some kind of wall or stall in your growth. Or even in a larger company where you just don’t know what the right strategy is. So I think that it’s important to have a mix of perseverance and experimentation. You don’t want to stick with a bad strategy too long, so to me, it’s an interactive process and the metrics are critical. I can’t overemphasize the importance of metrics, and not just financial metrics, but usage metrics and campaign metrics, etc., etc., because, in the end, if you want to know if you’re having an impact, you’ve got to be able to do some sort of experimentation, give it enough time to run, and if it’s not working, then quickly switch to something else, whereas if you don’t have the metrics, then you don’t know if it’s working, you don’t know if it’s not working, you don’t know when to change. So to me, the way to get the right balance between focus and the long-term is to have good data.
Kevin: Absolutely, well, Joel, I really appreciate your time today. This has been incredibly helpful for all our listeners trying to understand SaaS growth. Thank you so much for joining us today and I hope we can talk again soon.
Joel: Yeah, thanks very much for having me. I really enjoyed it.
Photo by: Daniel Novta