Go to Market Strategies: B2B SaaS Distribution Models
Marketing in a SaaS world is very different and B2B SaaS Distribution Models are equally as different and complex. A SaaS company’s go-to-market strategy is strictly dependent upon results, not leads or Marketing Qualified Leads (MQLs.) SaaS companies allocate a percentage of revenue to sales and marketing and often SaaS startups will spend up to 50% of revenue on sales and marketing. The split between sales and marketing can vary from 80:20 to 60:40 depending upon where field sales, inside sales, sales development reps, sales enablement and onboarding reside.
Obviously, SaaS companies that base their go-to-market strategy on investing almost half of their revenue on sales and marketing are dependent upon results – i.e. increased Annual Contract Value (ACV.) Increases in ACV can result from new customer acquisition, expansion in an existing account and upselling existing customers.
Go to Market Strategies – Metrics for B2B SaaS Distribution Models
Senior management teams and boards proactively monitor and manage the sales and marketing go-to-market strategy by focusing on the following key metrics:
New ACV – new ACV that is derived from new customers signed during the month
Churned ACV – lost ACV based on customers lost within the month
Expansion ACV – additional ACV gained from additional sales to another department, group, division or business unit of an existing customer
Upsell ACV – additional ACV gained from additional sales (more users, functionality, etc.) to an existing customer
Retention Rate or Customer Renewal Rate – this is the percentage of customers that renew their subscription. This is calculated by summing the up the number of customers that renewed their contract divided by the total number of subscriptions that were up for renewal in the period.
CAC – Customer Acquisition Cost – the sales and marketing costs to acquire a customer, i.e. the sum of all sales and marketing expenses divided by the number of new customers added in a period.
LTV – Lifetime Value – Lifetime Value is an estimate of a customer from contract to cancellation and is usually calculated as ARPA x Gross Margin % / Churn Rate
CAC Ratio – the CAC Ratio is the change in subscription revenue between two quarters, annualized by multiplying by 4, and dividing the result by the sum of sales and marketing spend for the earlier of the two quarters.
CAC Payback Period (CPP) – Months to recover CAC is a quantified measure of time required to recover the sales and marketing costs invested in acquiring a customer. CAC = CAC / Average MRR per Customer (some prefer to modify the denominator to Average MRR per Customer x Gross Margin %)
Marketers need to track, monitor and proactively manage B2B SaaS metrics to achieve the go-to-market plan goals.
Best-in-class B2B marketers understand the business as well as marketing’s financial contribution the business.
Go to Market Strategies – B2B SaaS Distribution Models
In general, there are three sales models that SaaS vendors can choose from: Self-Service, Transactional and Enterprise.
SaaS Sales Model – Self-Service
In a Self-Service Sales Model, SaaS vendors distribute their offerings over the web through ecommerce. Prospects visit the site and then enter into some type of engagement such as a free download, try before you buy or a freemium to premium offer. The prospect then continues through to purchase. The key in this model is to reduce barriers to usage. The basic premise is that once a user starts using the offering, he or she will immediately realize value and become hooked. Or, users may be so passionate about the offering and/or the experience that they become an evangelist (inside or outside of their organization) and help acquire more users.
The Impact for a SaaS Self-Service Sales Model for Sales & Marketing
All of the information a potential buyer needs must be found on the seller’s website and in a format preferred by the user. The site must also understand and anticipate the needs of a user throughout the customer buying process. It is crucial that relevant information is presented from the user’s perspective — and not a sales process — at each step of the buying process.
To attract and move prospects through the sales cycle, the website design must engage prospects via use of meaningful and relevant content such as text, images, videos, charts and whatever other supporting material necessary.
Also, all engagement with the prospect (initial contact through onboarding) occurs in an automated, one-to-many fashion. Price points for self-service SaaS solutions are usually under $5K.
SaaS Sales Model – Transactional
In a transactional selling SaaS sales model, some purchases can be made through ecommerce while others may require the assistance of an inside sales person or customer success manager. In short, 100% of the buying process can’t be automated in a transactional model as prospects must have a verbal dialogue (on the phone or in-person) to complete a purchase.
The role of the website in transactional selling is similar to a self-service SaaS sales model; however, the ecommerce system does not take the order, an inside sales person does. Also in this model there may be additional information that becomes available to a website visitor as they advance throughout the buying process. These are things such as access and resources that become available once an inside salesperson has vetted the prospect.
As opposed to a SaaS self-service model, the volume of deals in a transactional sales model is typically less, the number of individuals involved in the purchase process is greater and the average sales cycle is longer.
From a sales perspective, inside sales people are required to close deals. However, SaaS inside sales people conduct sales meetings on the phone and typically bring qualified sales opportunities to closure in 3-5 calls.
Marketing needs to support the inside sales team with a portion of the pipeline of qualified sales opportunities. Also, marketing should provide the inside sales team with marketing automation support that spans: lead appendage, lead routing, lead scoring,
Price points for transactional SaaS solutions are usually under $50K.
SaaS Sales Model – Enterprise
Enterprise SaaS selling is a complex sale at a high price point that requires direct field sales reps interacting directly with customers.
Enterprise purchase decisions are usually made by a rather large and diverse group (10 – 20 individuals when one includes the decision maker, approver, recommenders and influencers) over several months. Usually two functions (i.e. IT, Sales, Marketing, Finance, HR, etc.) are involved in the purchase decision with one initiating and the other validating. Both functions typically have strategic and operational needs.
It’s important to remember though that enterprise selling does not mean the website and online content are not required to facilitate the purchase. The website is critical for presence, scale and efficiency.
Most SaaS enterprise selling includes an inside sales function to support the direct field sales reps and to close deals. These are large deals of a certain dollar value, in a specific geography, industry or company size. These enterprise deals can also be up-selling and renewing existing customers.
Price points for enterprise SaaS solutions are usually over $50K.
Go to Market Strategies: B2B SaaS Distribution Model Stats
- The 2016 median revenue growth rate was 48%, while the median projected growth rate for 2015 is 44% – ForEntrepreneurs
- The median cost for a SaaS company to acquire a dollar of new customer revenue is $1.18 – ForEntrepreneurs
- 55% of SAAS companies rate Customer Retention Cost as the key metric to measure – Totango
- It’s 4x cheaper to upsell existing customers than acquire new customers: costing just $0.28 to acquire an additional dollar of revenue – ForEntrepreneurs
- Unlike many other industries, if a software company grows at only 20%, it has 92% chance of ceasing to exist within a few years – Mckinsey
- Companies that spend more on sales and marketing (as a % of revenue) generally grew at a faster rate than those that spent less – ForEntrepreneurs
- It’s 9x cheaper to retain existing customers than acquire new customers: costing $0.13 to acquire any additional dollar of revenue – ForEntrepreneurs
- 86% of SaaS businesses treat “New Customer Acquisition” as their highest growth priority, both in terms of executive support and funding available – Totango
- SAAS companies invest between 80% and 120% of their revenue in sales and marketing in the first 5 years of their existence – Tomasz Tunguz
- The median startup spends 92% of first year revenue on customer acquisition, taking 11-months to payback their Customer Acquisition Cost – Tomasz Tunguz
- The fastest growing SaaS companies have an average Quick Ratio of 3.9: generating $3.9 in revenue for every $1 lost to revenue churn – Insight Squared
- Internet sales-driven companies have a much greater reliance on marketing, with 65% of the median company’s CAC budget devoted to marketing – forentrepreneurs
- The average company gets 16% of new ACV sales from up-sells and expansions, though companies with revenue between $10MM-$40MM are relying more heavily on up-sell and expansions – forentrepreneurs
- On average, deals ~$2,000 in ACV should close on average within 14 days – Saasmetrics
- On average, deals ~$5,000 in ACV should close on average within 30 days – Saasmetrics
- On average, deals ~$25,000 in ACV should close on average within 90 days – Saasmetrics
- On average, deals ~$100,000 in ACV should close on average within 90-180 days depending on # of stakeholders – Saasmetrics
- On average, deals $100,000+ in ACV will take 3-6 months to close – Saasmetrics