How to sell your SaaS product
When you build a company, you need to build a repeatable and sustainable sales model:
- A repeatable sales model is one where you can win new deals by repeating the same steps. Steps include the activities that attract new leads, how you structure your conversations with opportunities, how you qualify them, and how you close them. This repeatability makes it easy to scale your sales function and forecast the growth of your product. If you recruit every new customer in a unique way, your sales model is not repeatable, and growth will be slow and painful.
- A sustainable sales model delivers new customers profitably. Your startup may not be profitable, but your sales model needs to be. A sales model is sustainable when you earn more money from each new customer than you invested in recruiting them. The more profitably you can grow, the faster you can grow because you can invest that profit in new sales.
The most important factor determining which sales strategies will work for your startup is your pricing, which should be determined by the value you bring to the market and the willingness of your market to pay. Because the goal is to grow sustainably (i.e., profitably), companies that earn a lot of money from each customer can afford to spend a lot to acquire each customer. Similarly, companies with cheaper products have smaller customer acquisition budgets per customer. Some marketing and sales opportunities cost more than others, so different activities are most appropriate for differently priced products.
Expensive products are generally best sold through a hands-on sales process. These products are expensive because they solve a critical problem for large businesses. Because these businesses are large, and the problem is significant, a hands-on sales process is often required to understand the needs of each prospect, outline any required configurations or customisations, and convince the prospect that the solution, and the startup behind it, can be trusted. Because this highly-engaged way of selling is expensive, startups need a highly-targeted top-of-funnel strategy. When your cost to sell is high, spending time handling leads that are a poor fit for your product is an expensive waste. A targeted top-of-funnels strategy filters out most low-quality leads, leaving your sales team with quality opportunities to process.
So, if your product is expensive:
- A hands-on sales process is required to convince prospects to trust your product and team. This is an expensive way of selling, but you can afford it thanks to your high price point.
- An expensive sales process requires a targeted top-of-funnel strategy because it is expensive for your sales team to manually disqualify leads.
Top of funnel (i.e., marketing) activities that are most likely to work include:
- Outbound sales and account-based marketing.
- Channel/partner sales.
- Targeted digital advertising.
- Attending and hosting events.
- Community building.
In contrast, you need a hands-off sales strategy to grow cheaply-priced products. Because each new customer only contributes a very small amount of revenue to your business, you cannot afford to engage with each customer individually. Instead, the sales and onboarding experience must be completely automated and self-service. The best way to grow a low-price product is through viral growth. Viral growth is a sales model where existing customers sell your product for you. Network effects are the classic example of this — your product is more valuable to existing customers if they bring additional customers on board. Twitter, for example, is more fun if your friends use it. Companies like Twitter need to do everything they can to encourage their users to invite their friends and colleagues to the product.
So, if your product is cheaply-priced:
- You can only afford a hands-off sales model. Achieve success through a self-service onboarding experience and an effective top-of-funnel strategy.
- Because you require many customers to achieve profitable growth, you must cast a wide net. Your product and top-of-funnel strategy need to target a broad market.
- Expensive top-of-funnel tactics, like outbound sales and account-based marketing, are unlikely to work sustainably.
Top of funnel (i.e., marketing) activities that are most likely to work include:
- Viral growth/network effects (including affiliate marketing).
- Brand advertising (digital, podcasts, influencer, and even legacy channels like print, direct mail, TV, and sponsorships for mass-appeal products).
- Community building and events at scale.
- Channel/partner sales.
- Content marketing (and organic/SEO).
Profiling your startup
Whether your startup fits into the high or low-price category may not be obvious. This is because many B2B SaaS products sit somewhere in the middle. For example, many products are valuable (and therefore expensive) enough to justify a hands-on sales model but cannot make outbound sales work sustainably. Similarly, some startups are affordable to the point where they need to be self-service and focus on top-of-funnel marketing but have little opportunity for virality.
The solution here is to pick a starting point and experiment from there. First, decide whether a hands-on or hands-off sales model will work best. Second, experiment with how you structure those conversations and the various top-of-funnel tactics that may fit well with your sales model.
To determine if your sales model is working, calculate your CAC Payback Period. CAC Payback Period estimates the number of months it takes to recoup the cost of acquiring each customer. How long does it take for your customers to pay you as much as you spent acquiring them? Calculate this by comparing your CAC (Cost to Acquire a Customer) to your ARPA (Average Revenue per Account) while factoring in your Recurring Revenue Gross Margin:
CAC ÷ (Average Annual Recurring Revenue × ARR Gross Margin) × 12
Most SaaS companies should target a CAC Payback Period of twelve months or less (though this can vary for startups with very high or very low customer churn). If you are overperforming in this metric and struggling to close deals, you probably need to be more hands-on in your sales process. If you are underperforming, you are being too hands-on and might need to increase your prices, find a way for your salespeople to close more deals each, or move to lower-cost top-of-funnel activities.
Experimenting with sales is a critical part of the journey towards product-market fit. You will likely try many ways to attract leads and close deals before you land on a repeatable and sustainable model.
Segmentation drives success
Many products can satisfy customers of different sizes. This is especially true for mature products that have gradually targeted larger customers. Segmentation is the best way for these startups to succeed:
- Segment your customers and prospects into cohorts based on the revenue you earn from them.
- Those who contribute a small amount of revenue each year should be targeted differently to those who come on board and immediately contribute a lot of revenue.
- By marketing and selling to these customers differently, you can optimise your sales model for each cohort of customers. How you sell to very large customers should be different from how you sell to mid-sized customers, which should be different from how you sell to very small customers.
Some startups target multiple user personas. For example, two-sided marketplaces like AfterPay, eBay, and Amazon must attract sellers and shoppers. These companies succeed because they segment their customer acquisition strategy:
- Each shopper only contributes a small amount of revenue, so they should acquire shoppers through a one-to-many, low-cost acquisition strategy. Viral growth is ideal for this user profile.
- Each merchant contributes significant revenue, so they should acquire merchants through more hands-on sales strategies.
In general, segmentation is the best way to scale a sales team. Even if you only target customers of a specific size, you should still segment your prospects by other factors (like region and industry vertical) as you grow. More segmentation enables more focus and standardised ways of working, leading to a more repeatable and sustainable sales model.
Product-led growth is a business strategy focusing on using the product to drive customer acquisition, engagement, and retention. This approach prioritises building a product that is so valuable and easy to use that it generates word-of-mouth marketing and viral adoption rather than relying on traditional sales and marketing tactics. Product-led growth aims to create a self-sustaining growth cycle where the product generates its own demand. It is often paired with a freemium pricing model.
Product-led growth is, of course, a great strategy for low-price products. But, it has also helped some expensive products reach a massive scale. Usually, these startups have succeeded by onboarding individual users onto free (or cheap) plans and later upselling their organisation. For example, a small team can sign up for and use Slack, Jira, or Zoom for free. But, as the product becomes more popular within an organisation, power user features become more valuable and important. This is when the sales team targets existing customers.
Product-led growth is fantastic for products that:
- Target both small and large businesses.
- Have a large total-addressable market (not too niche).
- Can satisfy individual users on their own (if the entire organisation needs to adopt your product for it to be useful, there is little point in employing a product-led growth model).
- Can be self-service (your cost to service a customer must be low for your smaller/fremium users).
While product-led growth is now widely considered the best way to grow a SaaS startup, it is not appropriate for all products. It also doesn’t necessarily lead to greater profits because a sales team is still required to convert those big deals. If your startup only targets large businesses, cannot satisfy individual users on their own or requires a lot of configuration during the onboarding phase, product-led growth probably won’t work for you.
22 January, 2023
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