by Kevin Dobbs

Montclair Advisors, LLC

When advising software clients who are interested in moving to a SaaS business model, one of the areas I really dig into is how are they selling to new customers. Most of us in the SaaS community realize that carefully tracking your Customer Acquisition Costs or CAC, is a critical component in building a successful and profitable company, but I think it is equally important to understand how traditional software sales  and marketing models and SaaS models differ.

Traditional Software Sales & Marketing Model

Over the past 25 years there has been a traditional way to market and sell enterprise software which has been based on key principles such as:

• You need a Large direct sales force including a large support team, or as I used to call them, ‘The Cast of Thousands‘
• Front loaded compensation plans that pay out when deals are sold
  
• High average sales prices, including services, that would almost always be over $500,000
• Long sales cycles, usually 6-12 months, with pursuit costs averaging around $70,000 for every deal the company played in
• Win rates are in the 30-50% range
• Average face-to-face selling time that is around 15%
• Pipeline building using a combination of in-person events (seminars, tradeshows, user group meetings), telemarketing teams (inbound and cold calling) pounding the phones and a lot of paid marketing campaigns
• Lead pipelines that appeared full but always seemed to lack the appropriate level of qualified opportunities
• First generation CRM systems and reports that were produced periodically using Excel

Brings back the good ol’ days doesn’t it.  Many software firms are still using this model and they are finding out that it doesn’t work very well in the new world of Software-as-a-Service sales.  Some of the reasons it doesn’t work is that software buyer preferences are definitely changing, but one big issue is it is very expensive to operate this type of model, especially when you get your revenues paid out over time.

SaaS Sales & Marketing Model

There are several important differences in the SaaS model that make the traditional software sales and marketing model less than effective;

• SaaS customers pay a subscription based on users or usage of the software service over time, usually over three years.  After the recession, this has become the new normal for software sales
• More focused solutions that usually have Average Sales Prices that are typically lower, so reps need to sell more deals to hit the same quota targets
• Key metrics like customer satisfaction, renewals, up-selling and cross selling are even more important for SaaS than they were in the past
• Sales method is more of a “penetrate and radiate” approach
• It takes a long time to build up a recurring revenue stream

Given these differences, then what should your SaaS Sales & Marketing model look like?  Here are some ideas to consider when building out your SaaS sales and marketing plans for 2011 that can help you to build out a low-cost but high-efficiency sales and marketing machine;

Marketing

• Hire experienced marketing leadership and professional
• Evolve a good list of key influencers and industry contact and communicate with them frequently
• Develop a clean prospect database
• Mix paid and free social networking programs
• Build a vibrant customer community and market to them with products like Lithium
• Leverage social media like LinkedIn, Facebook and Twitter to generate interest and leads
• Use Web 2.0 marketing tools like Marketo, Eloqua, Pardot and try drip marketing
• Track everything (see the last Smart SaaS post)

Sales

• Hire experienced SaaS sales leadership and reps
• Your SaaS sales team should be more low touch than your traditional sales team
• Experiment with telesales even with high end enterprise products
• See is using an indirect channel makes sense for your business, if managed correctly these distribution partnerships can dramatically lower your sales costs
• Carefully track your lead hand off between marketing and sales, make sure leads are not falling through the cracks
• Track everything

Metrics like Customer Acquisition Costs and the Magic Number can help your sales and marketing teams see how effective their programs are and can provide insight when to invest and when to continue developing your repeatable sales model.  I would also encourage you to learn more about Mark Leslie’s Sales Learning Curve, because it offers a more scientific approach to cost-effectively building out your SaaS sales team.   Best-in-class firms that have profiled in this blog have adopted many of these techniques to build a scalable but cost-careful sales and marketing organizations.

Stay tuned for Tip #6 Package for Viral Adoption

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Company: Marketbright
Started: March 2005
Located: San Bruno, California
Geography: Global
Market: On-Demand Marketing Automation Solution

Products:
Marketing Automation

Enterprise Website Management

B2B Sales Portal using Social Networking

Key Customers: Varonis, Serena Software, SAP Business Objects and Genesys

Website:    Marketbright

Recent News:

Marketbright Grows Customer Base by 43% in Q1 2009

Marketbright Expands Capabilities for Salesforce CRM Customers

Raab Guide Ranks Marketbright Among Top Demand Generation Systems

Marketbright and Rackspace Hosting Announce Solution Partnership

I asked Dom Lindars, Marketbright Chief Executive Officer a few questions about his business and his view of the SaaS market in 2009.

Did you start out as a Software-as-a-Service company?

When we started out in 2005 our vision was to create a better way to automate and integrate SaaS functionality using tools and systems to streamline large scale marketing efforts, and improve marketing ROI. I have more than 18 years experience as a veteran of online marketing and website management and Marketbright’s senior team has its roots in large enterprise marketing operations, web content management, business and enterprise software sales.

Why do your customers buy from Marketbright?
Our customers turn to us for sophisticated lead nurturing and management programs, which emphasize listening closely to customer feedback, communicating proactively and building relationships. Lead nurturing is a new business practice for many companies, where the typical mode of operation usually has marketing throwing all leads over the wall to pre-sales or sales –who often cherry-pick leads and leave the others to grow cold. Nurture marketing involves building multistage campaigns that interact with customers across multiple touch points. These nurture programs can create complex customer interactions that are difficult to manage and run the risk of causing customer fatigue if not handled properly or efficiently. Our customers choose the Marketbright approach because it automates the difficult task of managing multi-touch campaigns and the resulting, often complex flows. The platform provides an easy way to deploy and manage multi-touch campaigns across all marketing channels:

Our customers rely on us to deliver marketing automation solutions that check all the boxes, are easy to use for all team members, make complex tasks simple, and are integrated, secure, scalable and reliable.

What do you see as the key trend emerging in the SaaS industry?

The advent of social media has had an enormous impact across industry. In light of the economic instability (and at the risk of discussing the economy ad nauseam), most organizations are making efforts to save money and tighten their belts. Often the first way to do this is to cut spending on marketing for one, but the problem is, this is the time when money spent on marketing is probably more critical than ever. Companies just have to spend their money in the right place, and social media is emerging as a pretty safe bet. Even better, a SaaS solution combined with social media efforts will give you more bang for your buck. SaaS does well in a downturn economy, especially when big organizations are looking to cut back and outsource. It’s also a good alternative when organizations have no or small IT groups, or their IT teams simply don’t have the bandwidth to contribute to social media efforts.

Over the next few years we’ll see social media as a baked-in element of all multi-channel marketing solutions. At Marketbright, we’re already bringing in 17% of our leads through social media, such as LinkedIn, Twitter, Facebook, and staff blogs. Most importantly, no one objects to spending on marketing when it directly results in delivering qualified leads to sales.

What is your outlook for 2009?

In this year of pocket change, trying to find a way to sell more with less, stretching less of last year’s marketing dollars to meet more of this year’s is a top priority. The challenge for many businesses today is they seek a silver bullet, one solution that will solve everything, which of course is non-existent.

For the remainder of 2009, B2B companies should focus on the lead generation activity delivered in the past that directly produced the greatest return. Spend on those programs that generated the majority of business last year. (Seems obvious? Do any of your budgets show trimming of activities you should really be stopped altogether?) Work with sales to identify those accounts that have the greatest propensity to move through the pipeline. Get proactive. Find out what is the minimum amount of information you need to give to a prospect to make them a customer and give it to them proactively.

There is no point in pretending 2009 hasn’t been a challenging year for business thus far, but we may as well make the best of it. Apply your best judgment in becoming more agile, more creative, and above all pay attention to the data that is sitting in your businesses. Find out what worked, do more of it. Accept what didn’t. Don’t do so much of that.

Thank you to Dom Lindars, Erik Bower and Lilly Hanscom for contributing to this profile.