SaaS Sales and Marketing Characteristics
“If you are going to sell to the SMB market, become an expert at online marketing;
Now your customers research you extensively before first contacting you”
Software companies will either offer SaaS products or compete with them. SaaS products enable marketing professionals to differentiate themselves from their competitors and show market leadership.
Cloud Strategies works with sales and marketing organizations to help devise strategies optimized for selling SaaS in an effective and cost efficient manner. Customers are moving to SaaS in accelerating numbers increasing the “win-ratio” and reducing the sales cycle for SaaS vendors.
Sales and Marketing are different for SaaS. SaaS products have an internet centric sales and marketing strategy — SaaS customers expect to research products much more extensively themselves on than for a product that requires a much larger up-front cost — all the information to sell a SaaS product must be readily accessible by the customer. That includes information from the vendor and information about the products from the user community.
“Instead of one time sale, it is a relationship commerce”
SaaS products have a lower initial financial commitment and a longer period of time before cash is received for the SaaS services than on-premise software which must be reflected in the sales processes. Additionally, the value proposition of the software of the SaaS model needs to be appropriately marketed, particularly when competing with on-premise offerings. Finally the SaaS Sales and Marketing strategy must be aligned with the SaaS channel strategy.
Customer Drivers and Inhibitors
Customers see many benefits of SaaS. These include lower initial cash outlays, faster deployments, reduced the dependency on IT, lower services costs, better ability to respond to future growth or business reductions, near elimination of shelfware, and always running the most current version of software. These factors drive customer to SaaS products and they are acquiring these products with a much shorter sales cycle time than for on-premise software with a higher initial commitment (and a greater approval level required).
SaaS has a higher penetration in consumer, SMBs, and less regulated industries. Integration efforts between SaaS and on-premise applications are become more predictable, but they are still a barrier to bringing in a new SaaS system. Over the last several years concerns about availability have diminished, and most users have come to believe that the availability and security of Cloud based applications is generally better than in-house IT, particularly for SMB without extensive IT resources. Security is still a concern for heavily regulated industries such as finance and medical, though the IaaS vendors such as Amazon, Microsoft, and Rackspace are making substantial headway in being able to support most of the regulatory requirements.
For the customer, the benefits of SaaS keep becoming more real and more apparent, and the obstacles for adoption keep diminishing. There will continue to be an acceleration of the adoption of SaaS with year over year growth much greater than on-premise applications. This increase in demand for SaaS products will drive more sales success.
SaaS Vendors Positives and Negatives
The demand for SaaS products from customers drives ever more SaaS sales. SaaS companies benefit from shorter sales cycles, and many major SaaS vendors claim higher win ratios than their on-premise competitors. The smaller initial investment in SaaS reduces barriers to closing deals. While the shorter sales cycles reduce sales costs, the sales expenses relative to the first year revenue is daunting.
SaaS allows vendors to gain access to customers that they previously could never have approached because of the relatively low commitment required to adopt a SaaS product in a specific area. Both pure play SaaS vendors such as NetSuite and Salesforce promote a “Land and Expand” strategy to establish a presence within a new customer’s operation with a relatively incremental application which is below the visibility of IT or finance. Once the initial application is installed and successful, it provides a beachhead for expansion.
Customer satisfaction is paramount for success. The two biggest killers of SaaS businesses is sales costs and attrition. The lowest sales cost is for the expansion of users and products within a satisfied customer. Attrition is deadly since often the first year’s contribution margins resulting from a sale can be nearly equal to the total sales costs.
Factors for SaaS Sales & Marketing Success
SaaS companies have a much closer relationship with their customers since the software vendor is now responsible for the daily operation of their customer’s business. This close relationship enhances the ability to continue to expand within their customers enhancing revenue opportunities. The upgrade sales into the customer base should become a major revenue stream with a low sales cost.
One of the greatest issues with SaaS sales and marketing is to be able to afford to expand as quickly as the market will allow. High growth means a high consumption of cash with pressure to reduce the cost of sales with high sales costs relative to first year customer profits. SuccessFactors spent more on sales and marketing than the received in revenue for their first few years, but were able to generate spectacular growth and ultimately receive a very high valuation for their investment. The risk of a SaaS company is to spend large amounts of money on sales and marketing before ensuring that their sales model is “right” potentially draining much needed cash. Companies must focus maniacally on their cost of sales and marketing relative to the total lifetime value of the customer, and specifically relative to the gross margin profit of the customer during the first year. Excessive sales expenses relative to the first year gross profit from new customer acquisition, and customer attrition are two of the most dangerous problems for a SaaS company.
SaaS Sales Strategies
The economics of SaaS sales (delayed receipt of revenue) and the customer expectations (more research on their own) mean the SaaS sales and marketing strategy will heavily invest in online information, online promotion, SEO and SEM. This means rethinking sales and marketing to lower initial sales costs. SaaS product sales can be more readily reduced through Internet marketing. SaaS customers are more inclined to research products on the Internet further reducing sales costs and decreasing the sales cycle.
For SaaS marketing, like traditional marketing you need to identify your buyer, understand their needs and concerns, determine how you can solve their problem, and determine how best to communicate with them. The online marketing efforts, be they email campaigns, blogs, social media, etc., need to be aligned with ability to communicate with the buyer. The web site, SEM and SEO strategies need to be aligned for the customer to find you when they are researching the solution to their problem. These marketing tasks need to be largely automated, and measured for their effectivity.
SaaS allows a great deal of flexibility in contract terms such as the length of the commitment, payment terms, and the ability to modify the contract (such as adding or deleting user licenses) providing a greater ability to tailor the contract to the customers’ requirements helping close more deals.
Channel partners show the SaaS benefits when selling SaaS products with new capabilities such as the ability to have world-wide access to customer systems as their employees need access to their systems wherever they go. A major task for software vendors is in educating their channel partners how to sell and provide services to the channel partner’s customers. Some partners can be educated, some will not be able to make the transition, and new partners with SaaS sales and services skills will need to be recruited.
Partners like software vendors should shift their resources from lower margin software installs and upgrades to higher value, higher margin business process reengineering; This also makes them more strategic to their customers.
- A discussion of best practices in Maximizing SaaS Revenue – “Maximizing Revenue for SaaS Companies is more than Customer Acquisition“
- A guide to determining how to help software channels transition to SaaS – “The Bad News and Good News of the Cloud Transition for Software Vendors’ Partners.”
- How using both Marketing Automation and Customer Engagement Analytics drives Revenue – “Marketing Automation + Customer Engagement Management Drives SaaS Revenue.”
- The movement of Channels embracing the move to SaaS – “VARs and System Integrators get on board with SaaS“
Cloud Strategies can help you navigate the SaaS Sales and Marketing complexities in many areas including sales strategies, pricing, sales comp plans, channel transitions and SLA generation.
Contact Us for a free hour review of your SaaS Marketing, Sales and Channel strategy.