Byron Deeter and his colleagues at Bessemer Venture Partners wrote a terrific piece entitled “Bessemer’s Top 10 Laws for Cloud Computing and SaaS. ” The article laid out why it is critical for SaaS-based businesses to abandon many of the long-held tenets of historic software business models and adhere to a new set of laws.
Where Deeter did a nice job of laying out “why” managing a Cloud/SaaS software business must be done differently, we have created a set of ten laws to explain “how” to succeed at SaaS Sales and Marketing.
Our SaaS sales and marketing laws are based on success stories that span many sectors – from higher education to online advertising to HR solutions to energy efficiency to vertical markets, such as the dental industry. Our experience implementing these ten laws at dozens of companies has been a consistent 50 percent-or-greater reduction of customer acquisition costs combined with a dramatic increase in revenues.
One great example of the laws in action involved a SaaS company that had an expensive field sales model. Over the course of six months, the field sales force was replaced by an inside sales team and a structured sales process was put in place. The result: A 16-fold increase in Contracted Monthly Recurring Revenues. The combination of lowering costs and increasing revenues led the company to achieving its first profits. It went from a $400,000-per month loss to its current status as one of the high fliers of the Seattle tech scene with a very bright future.
As Mark Leslie of Veritas fame stated in his seminal “Sales Learning Curve” paper in the Harvard Business Review, the risk for technology startups has shifted from technology execution to go-to-market strategy. Sales and Marketing is one of the pivotal aspects of go-to-market strategies.
Leslie’s Sales Learning Curve principles permeate the philosophy of the laws outlined below and leads to a much lower sales burn than what is typically experienced.
Ten Laws for Building a SaaS Sales & Marketing Organization
1. Develop a HOT (High Odds Target) Opportunity Profile or “HOP” that defines your most profitable lifetime value customers.
Frequently, this step is skipped. For successful SaaS Sales & Marketing organizations, this is one of the key pivot points during a Sales Process Optimization project. Profile elements can include vertical markets and sub-segments, psychographic elements (such as risk aversion) and specific company and contact criteria. Too often we see organizations take a shotgun approach when they should be taking a rifle shot approach.
This boils down to how well you understand your customer – who they are, what they care about, what’s most important to them, and need they have.
This includes understanding both needs of your customer as a whole (i.e. the organization you’re selling to) as well as the individual and/or individuals within the company who influence the purchase.
If individual decision-makers or deal influencers have different needs and perspectives, those will influence your HOP as well.
It may be that there is more than one “HOP” but starting with a very focused approach with a target that is well-defined is critical. This not only uncovers customers most likely to be great lifetime value customers but also allows the SaaS business to focus its precious marketing budget.
2. Your value proposition must be built off of the HOT Opportunity Profile attributes
With a focused target customer, it’s much easier to develop a compelling value proposition tuned to their needs. The value proposition will ripple through everything else in the rest of the laws. This ranges from lead generation and website copy to email, call and vmail scripts.
Value proposition is not about features. It’s not even always about what you actually do. Rather, a strong value proposition connects directly with the benefit and/or end-result of what your product or service provides to the customer.
It’s not “what” the customer is buying from you. Rather, it’s why they’re buying, and why they need it. The right value proposition gets to the heart of how what you’re selling will improve their business.
3. Develop a multi-tier, customer-centric engagement process
Your ideal customers are already out there. And they’re already looking for you. If what you’re selling fills a critical business need, your target customers want to buy from you. The easier you make it for those customers to discover and engage with you, well before they’re in a formal buying cycle, the better.
The result of this will be higher conversion rates a bigger pipeline, and faster sales closing cycles.
It starts with community. Where do your customers congregate and network today? What communities exist where they already congregate together, or where they’ve self-identified themselves enough for you to start a conversation with them? This is about building direct engagement, building trust, driving value immediately.
From that community, you can earn the opportunity for prospects to engage with you directly. You may still not be selling, but rather providing value-added information, advice and content that aligns with your value proposition, but drives further trust and engagement from the prospect.
This direct relationship is where you can effectively nurture prospects until they’re ready to enter a direct buying cycle.
These two steps – community and nurture – will give your sales team a highly-valuable and ever-growing pool of prospects who want to buy, and have already gone through the discovery, consideration and credibility steps of a typical sales cycle.
That means better sales conversations, faster sales cycles, and higher conversion rates.
4. Define a structured sales process
Once a prospect is ready to consider and buy, tightly define each step of the sales process with corresponding likelihood of sales closure. The following is an example of the stages of the sales pipeline. Each item has a corresponding set of Discovery questions answered or work completed to promote them to the next stage of the pipeline:
- Qualify lead
- Promote lead to opportunity.
- Develop solution
- Remove roadblocks
- Negotiate sale
- Ask for the order
- Present and close
- Close dea.
- Sell case study.
Of course, how these stages translate to your business may be different – you may have fewer stages, different stages, etc.
What’s important, however, is that you take the time to define the process, and use tools to measure prospect progress through the sales process.
Over time, the organization will find its revenues are made more predictable with forecasts that have meaning. It will also find where there are problems or bottlenecks in the sale process. For example, you may find during the negotiation phase that things are bogging down due to a Discovery process that was incomplete.
5. Develop a lifetime customer value framework
Unlike traditional enterprise software where much of the revenue is collected up front, SaaS models only pencil when you have customers for a long period of time. Starting with an effective Discovery Phase, the SaaS organization begins to establish itself as a Trusted Advisor to their customer.
It continues that with an effective account management program that includes Account Reviews, getting integrated into the customer’s business processes, executive to executive relations and customer advisory councils. These ensure great retention rates and referrals to new business.
Community also plays a big part in developing and fostering better customer relationships.
Many SaaS businesses execute on customer communications in a periodic and mostly transactional way.
The most successful SaaS businesses have an open line of communication with their customers every day. That line of communication is at times informal, and often includes opportunities for customers to communicate directly with each other as well.
But those additional, more frequent lines of communication are critical to maintaining and augmenting the credibility and trust you’ve developed with the customer.
They make it easier for you, and other customers, to constantly reinforce the value proposition and results that your SaaS product provides.
That constant reinforcement has a direct impact on lower churn rates and higher lifetime value.
6. Lead generation must be mapped to the HOT Opportunity Profile
Optimize lead-generation efforts by starting with your own in-house list. It’s your most important marketing asset, is likely bigger and more valuable than you think right now, and will absolutely drive the most long-term value and contribution to your sales cycle and revenue than other channels over time.
We find these lists are surprisingly under-utilized and can rapidly become stale if there aren’t “drip-irrigation” programs to staying in contact with these prospects.
The world has shifted from a push-based marketing model – Interrupt, Tell & Sell to a Pull-based model where informative and thought-leadership content substitutes for traditional marketing. Think like Hansel & Gretel, leaving “bread crumbs” leading to your website and into the sales funnel. Thanks to Google and a website that is search engine optimized, or at least an effective paid search campaign, you can get people to qualify themselves. Valuable analyst reports, white papers, buyer guides and the like frequently are used as value-added incentives to get someone to self-identify their interest with your business.
Often, these early-stage registrations aren’t directly about your product. They’re about the benefit you promise, or the need/pain your customer has.
Focusing early-stage lead generation assets (white papers and the like) on customer benefits and need fulfillment puts you immediately in a position of delivering value, vs. selling tactics, and will accelerate credibility and close time in addition to justifying price.
A well-optimized website and/or landing page can result in 2.5 times more leads for every dollar you spend, something that’s critical in tough times. Further, Forrester did a recent study that found that a webpage with video is 50 times more likely to show up on the first page of search results than one without. Those videos are more than cute 30 second spots. Great examples of useful video are thought leadership presentations on a topic relevant to a customer or a case study to demonstrate how a product has been used by customers to build business advantage similar to the prospect.
7. One must effectively use a CRM to manage the sales and marketing process
There are simply too many moving parts to keep track of to not effectively use a CRM system. Especially as a SaaS organization targets the SMB where many SaaS businesses find the best initial traction due to shorter sales cycles, the volume of customers and prospects is such that it can’t be kept in the mind of a sales rep. Further, a well-implemented CRM keeps the sales team focused on collecting the right information to move a prospect through the sales cycle. Just as important, there are great reports that help a management team track a SaaS business.
Your CRM system maps directly to your sales stages, giving your sales reps a specific roadmap into their pipeline and also creating instant, real-time dashboards for upper management.
If you follow the early-stage engagement model discussed earlier, your CRM system may also be augmented with an earlier-stage prospect management system that collects, manages and nurtures prospects in their early discovery and community stages, well before they are ready to speak with a sales rep.
Many SaaS companies make the mistake of assuming all leads equal. They aren’t.
Not only are different leads bringing different perspectives, and different needs, to the table in their conversation with you, but leads also approach your business at different levels of readiness to directly engage and buy.
Most of the leads in your database are not ready to speak with sales. Pushing those leads into a sales cycle right away will harm the relationship and significantly decrease your likelihood of creating credibility and converting that into business.
Effective CRM systems can automate how you categorize and approach each of these prospects. A common mistake is blending a Lead Pipeline with an Opportunity Pipeline.
8. Develop a rigorous and ongoing sales development program
We typically recommend a sales developmentpProgram that has a mix of formal training, brown bags and facilitated workshops addressing a wide array of topics. The following are the main categories of training necessary to build a high performing SaaS Sales team:
- A handful of training sessions and workshops on the company, the product, value proposition, and competition
- Training on the sales tools, website, collateral and case studies
- Sector specific training – e.g., if customer is targeting ad agencies, we go through an overview of how agencies are organized, what their key challenges are, how the SaaS offering helps them achieve their objectives, etc.
- In-depth training on CRM tool such as Salesforce.com
- Philosophy of Lifetime Value Customers including “Win Early, Lose Early,” Discovery before demo and other key success factors
- Sales Process outlining roles and responsibilities, where to find leads, role playing, Rude Q&A and through to the customer onboarding process
9. Synchronize sales and marketing organization and ensure skill alignment
Traditionally, the relationship between sales and marketing has been somewhat of a handoff. Marketing generates leads, then hands them off to sales for the close.
Today, it’s more of a handshake. In successful SaaS organizations, sales and marketing work together at every step of the sales process to optimize pipeline size, conversion rates and closed business.
Ensure both sales and marketing teams understand and agree on the HOT Opportunity Profile, marketing plans and execution timing, so leads generated meet the requirement and aren’t discarded by your sales team. This upfront work saves time and, most importantly, costs.
Create and actively use (and update as necessary) a common definitely of a qualified lead, a sales-ready lead, and an active opportunity.
Ensure all activities (including marketing) are ultimately measured not on their short-term results (i.e. lead volume), but on their contribution to closed business.
With sales teams specifically, map the right resources to each step of the sales pipeline. For example, we frequently find that someone who is more of a “farmer” is put into a “hunter” role and visa versa, resulting in sub-optimal sales yield. Roles should be defined for lead-qualification reps, acquisition reps, development reps, retention reps and on-boarding personnel.
Just like a great football team, your sales team should operate so that everyone knows their role and is in the best position according to their skill set and experience.
10. Develop a comp model aligned to Contracted Monthly Recurring Revenue
The median On-Target Earnings we recommend is 8x, though some clients have gone as high as 12x. In other words, if targeted total compensation for a sales rep is $100k (salary + bonus/commission) then that rep should drive $800k in revenue per year. The comp model then should analyze how much contracted monthly revenue the rep should drive in order to meet that target. Similar incremental revenue models can be established for development and retention focused account managers.
Bonus Law: The entire SaaS organization must establish a Rhythm of Business (ROB) aligned around sales cycles
The successful SaaS organization will have a quarterly ROB that is further broken down by month and week. At certain points, the entire organization will have no meetings scheduled and executives will be available to the Sales team to help close business.
Further, we recommend breaking down the sales reps activities by day and time of day. There should never be ambiguity in the reps mind about what they do on a given day. This will get customized by the customers ROB. For instance, with a company focused on the dental market we mapped out the sales process to know when it was best to reach an Office Manager and when it was best to reach a dentist. This kind of precision led to dramatically increasing the sales pipeline.
Naturally, there is much more detail behind each of the laws outlined above. However, this list should give you good idea of how to start building a world-class SaaS sales and marketing organization. Without fail, these laws have led to dramatic increases in sales productivity.
Dave Chase is a Senior Partner of Altus Alliance, a Seattle-based venture consulting firm. Altus Alliance has worked with nearly 100 companies to help improve their sales and marketing efforts, including, DocuSign, Genentech, AdReady, Onvia, CallVision, Microsoft, Optimum Energy, Screenplay and Sony Music. Chase may be reached at dchase@altusalliance.com.
Matt Heinz is Principal at Heinz Marketing, a sales & marketing consulting firm that focuses on customer and revenue growth for its clients. Matt has more than 12 years of marketing, business development and sales experience from a variety of organizations, vertical industries and company sizes. His career has focused on delivering measurable results for his employers and clients in the way of greater sales, revenue growth, product success and customer loyalty. Matt can be reached at matt@heinzmarketing.com.