Software as a service is the new heroine.
Companies and individuals sign up for free trials and are instantly hooked. It is a hell of a drug.
For B2B customers this is especially true. Most businesses hate change. When the ball is rolling, the last thing you want is overhaul the entire new system. You stick with what is working, the easy solution. Even if it means a few more dollars. Dollars be damned.
Time is money to these guys and saving days, weeks or even months from switching software is usually a no-brainer.
If your product solves a pain point for companies and customers, you are in business.
Software is eating (ate) the world.
You have probably heard this. It is true. AWS, Salesforce, Slack, Shopify, Intuit…
These companies don’t have physical assets. What they provide and sell is a service, a SaaS product.
These are some of the most valuable and powerful companies in the world. They don’t focus on physical products. They aren’t buying real estate. They don’t invest in cars, gold or bitcoin. They build businesses others NEED to have and are willing to pay for.
The beauty of SaaS lies in the margins. Once a piece of code is built, it costs almost nothing to run and maintain. You can scale servers, bring on more devs and the costs never balloon out of control. They stay very small and manageable — a low percentage of the actual price.
And more and more, companies are moving towards these models. The reason: revenue. Recurring revenue is king. It is the thing all investors and VCs look for. It is the mark of a healthy business.
How consistent are your cash flows? That is business basics 101. Money in versus money out.
The 7 keys to killer SaaS
Part 1. Acquire more customers
In its simplest form, acquiring customers is a must for every business. How do you get individuals or organizations to pay? That is the big question.
And for every business this is different, not the approach but the end result.
To get customers, you need to get in front of prospective customers. You need to show the value of your product and explain how it will make their lives better, easier etc…
(For sake of argument let’s say you have an awesome product)
(If not, please stop reading and go talk to customers. Figure out what the heck they want and would pay for. Find their pain and fix it.)
Okay. So assuming you have a good product, how do we get you users, customers, etc…
The strategy depends on the product, the market and the price point. The higher the price, the more touch points you will need with prospective customers and the harder it will be to get impulse buys or downloads.
Let’s cover the strategies and pros and cons of each.
Ways to acquire customers:
- Paid Ads
- Social Media
- Content Creation
1. Referrals = Word of Mouth
This is the best, most popular and scalable way to build a business. When your product or service is EPIC and people love it, they talk about it. Every new user they bring is gold. $0 CAC.
But it is really goddamn hard. Things don’t just GO VIRAL. There is a science and a bit of luck involved.
Net Promoter Score or NPS is the best way to measure virality. It involves polling customers to find their thoughts and affinity towards your brand/product and how likely they are to share with a friend.
There are a lot of ways to increase NPS — the most obvious are a great product and killer customer service.
But virality can also be engineered.
Airbnb offers a free stay for any friend you refer. Groupon gave great deals for large groups. Facebook had an obvious network effect — the more users on the platform, the more valuable it is for you.
How can you engineer something like this into your own product?
That is the question. In most cases, it is the difference between greatness and obscurity.
2. Paid Advertising
Paid traffic is the fastest and most scalable way to grow. It allows for consistent traffic and specific targeting to grow your customer base. But it also costs money and is very challenging for all but the most experienced marketer.
Whether it is Facebook, Google, Pinterest, Bing or Youtube, there are tons of options for running ads. The problem is that it is all about optimization. You need to lose money to finetune the process.
But it allows for rapid scaling and testing. How else can you get hundreds or thousands of eyeballs on your offer the day after launching? Paid traffic is great early on for testing offers and saving time. As a long term strategy you want to replace as much as you with more sustainable, low cost options.
When advertising be sure to track CAC and LTV (cost of acquisition and lifetime value of customer). Many startups scale with unsustainable unit economics and never realize until it is too late.
You can sell $1 for 50 cents all day, but no amount of optimization or VC funding will make it worth your while.
3. Organic Social Media
Friends and followers are a great way to get the ball rolling. Whether it is an app or a B2B business, odds are you can get some early adopters, testers and traction by starting early with social.
Find groups and forums related to your product and ask for advice. Get feedback. Never push your product unless it is awesome, otherwise people will call you a spammer.
Instead offer special early adopter deals, share your story and goals and try to earn a little love with the community. Grassroots growth can build a viral movement.
Unfortunately it isn’t incredibly scalable. Building a social media following works, but it takes time. Start early, be consistent and perhaps a loyal Pinterest or Instagram following can propel your business in the future, not now though.
Giveaways with email optins however, that could work… NOTE: make sure the prize is relevant to the product or service you are offering or you will end up with a bunch of irrelevant leads and no interest in your product.
4. Affiliate Marketing
There are many types of affiliates. The most prevalent and important are CPA affiliates and content creators. These are very different business models.
Content creators are your traditional blogs, Youtubers and publications with product images or reviews on their site. When readers are interested, they click through to your offer and for every sign up, lead or sale they generate, they earn a commission. This is a great way to build your profile, get links and grow your distribution.
CPA affiliates on the other hand are mercenary advertisers. They run paid traffic to offers and receive a commission on every result. If you find your average LTV is $100, you could offer affiliates a $10–50 commission for every new user they bring. The affiliates would advertise for you, trying to spend less than the commission to build a cash cow for them.
Affiliates remove the ad spend from your company but can also expose your startup to less than stellar clientele, depending on the affiliates you work with. To learn more check out ClickBank and CJ.com, great marketplaces for connecting with affiliates.
5. Partnerships and Joint Ventures
Businesses are simple. They just want to make money.
Use this to your advantage. How can you help an existing company or organization add to their bottomline?
For example: Slack based companies need task management systems, email marketing and a whole list of other tools. Well early on, before being bigshots, Slack might have been able to partner with Asana, Trello, MailChimp or AWeber to grow together. Example arrangements:
- They could offer exclusive Asana only deals for companies.
- They could offer Asana $100 per organization that signs up for Slack.
- They could do a joint raffle where each company offers free services and they all drive traffic to a giveaway optin. Then they share the email list and all benefit…
The opportunities are endless. The point is, look at how your company aligns with others in the industry (both large and small). Perhaps you can help each other win and grow faster by working together. It just takes an idea, one cold email and everything might change.
PRO TIP: find tons of companies with similar concerns and goals and cold email ALL of them. The best way is to spray and pray. One or two might just come through.
That could make the difference.
6. Manipulating Marketplaces and Platforms
Most products have relevant marketplaces. Amazon and Ebay do physical products. The App Store and Google Play sell apps. Shopify even has their own store for addons.
The point is, most marketplaces are valuable. They have network of users which drives traffic to your offering early on.
Optimizing for each marketplace will be different though. But most are similar enough. Based on my experience selling on Amazon, SEO and rankings are all about: relevancy, reviews, sales/downloads and conversion rate.
Each marketplace wants to show the best, most relevant offers to the user.
Relevancy is all about SEO. Find the critical keywords and include them your listing. Google Keyword Planner is a great place to start.
For reviews, ask friends and family. If it is a good product, you will start to get more as you onboard users.
For sales/downloads, always start with a lower price. Lower prices get the ball rolling and boosts conversion rates which marketplaces love to see. The higher the conversion rate, the more sure they are that the customer got what they want. If your CR is 10% and another is 2%, eventually you will outrank them.
Give the customer what they want. That is how markets make money, on transactions fees. Help them make more money and they will help you.
7. Content Marketing & SEO
Content is king, or so they say. IMO this is bullshit. Good content combined with good marketing is the answer. Without marketing, content is meaningless noise that never gets on people’s radar.
That said, content is great for lead gen. From blog posts to podcasts, videos to Instagram, the more good stuff you put out there and promote, the more you are able to position yourself and your company as experts and people worth taking note of.
Content is slow though. SEO takes forever to deliver results. It IS NOT a short term solution. It won’t drive great traffic and sales overnight. It is worth investing in though.
And content, like referrals are a great and cheap way to get users. But it requires planning and long term commitment. You need a long timeframe to succeed. Most startups don’t have the time or money for this early on.
A better way: make 1–2 killer articles or videos and share them everywhere. Use these for lead gen and scream at the top of your lungs. If they are great, they will start to get some traction and can be used in the sales cycle. I would recommend explainer or sales videos without really selling — just demo and excite. That is the kind of stuff people will share, not sales pitches.
Part 2. Retain your Customers
There are two ways to build a bigger business: acquire more customers or increase lifetime value per customer.
The best businesses do both.
What is Churn?
Churn is the biggest problem SaaS companies faces. In case this is new to you, churn refers customers leaving your service. This can be deleting an app, opting out of Netflix or canceling an account.
Either way it spells disaster. You work to acquire customers so you better be able keep them. You spent time and probably money for that user and like a bad relationship, it is over.
If you haven’t recouped your costs, you lose. Even if their LTV is greater than the cost of acquisition, you are still missing out on money.
And in business every dollar counts.
Preventing Customer Churn
Churn happens. There is nothing you can do to completely stop it.
But, there are plenty of ways to minimize churn. And these are just as valuable, if not more so than acquiring new customers. Here are some tips:
- Make onboarding easy
- Offer incredible customer service
- Build an awesome product
- Continually improve your offering
- Keep your prices competitive
- Increase customer engagement
- Make your product mission critical for companies
- Incentivize longer contracts
1. Make onboarding easier
Every phase of the relationship is key to keeping customers. The most important is early on. Whether customers pay upfront or get a free trial, you NEED to get users hooked on your service from day one. That is hard to do.
Most powerful products require a bit of explanation to get the full benefit. Do WHATEVER is necessary to get users going.
Usage guides and tutorial videos are huge. They allow users to learn and get started at their own pace. And they are incredibly scalable from a cost perspective, both for reducing churn and decreasing customer service issues.
A few tips though. The higher the price point, the more hand holding may be required. For high value customers it may be smart to offer onboarding assistance if needed (and economically viable). Webinars work great as well. Webinars are a scalable one-to-many way to help users.
Record these sessions. Add them to your FAQs, it will make your life easier.
But keep it systematized.
If the system is somewhat complex, consistent email reminders and tutorials can take the hassle out of getting started.
Customer engagement should be a KPI. Remember that and reduce your churn.
2. Offer great customer service
This should be obvious but many founders mess this up. Don’t do what big corporates do. Dinosaur companies get by despite awful service.
Treat your customers like kings and they will stick around:
- Respond quickly to questions
- Have a sense humor and personality
- Add a personal touch to interactions
- Have FAQs and guides easily accessible on site
- Apologize when you screw up
- Underpromise and overdeliver
- Constantly survey customers and focus on net promoter score
3. Build an awesome product – DUH!
If your product sucks, no one will stick around. Again, underpromise, overdeliver.
4. Keep improving your product offering
SaaS is great because it is constantly getting better. Better functionality, more features, greater usability… these are the things customers love and a reason SaaS is eating the world.
There is no more one and done. Now you need not only to wow once but over and over again. Customers can quit anytime.
Competitors are constantly innovating, constantly pushing new updates. That is the beauty of software, it can be quickly changed, upgraded and improved.
For a startup that means always pushing code. You should have a set tempo to your dev schedule. If you are not releasing updates or enhancements every quarter at least, you are under delivering.
Wufoo does this wonderfully. They timestamp updates and inform users on changes and improvements since they last visited.
That company cares about me and is constantly making my subscription more valuable. Steal that strategy. Show customers a Since You’ve Been Gone status update and they will see you are working to wow them.
5. Keep your prices competitive
Scaling software doesn’t take much. With some set costs and small variable fees, you can easily grow a business with big margins.
But who is your ideal customer? That is the question.
High end and mass market are two very different animals. Either offer the best or offer the rest, there is little middle ground. Either way you need to stay competitive to compete.
How does your service compare to your competitors? Overpriced? Underpriced? Not sure…Find out.
If you are first to market, you set the standard.
Ask prospective customers about pricing? What matters for them? Is it cost, usability, support…?
Every company has different focuses. Find your users’ focus and align your pricing and offering accordingly.
Many businesses offer introductory low prices to attract users, which works well.
From a user perspective however, it attracts the wrong type of clients. Companies constantly looking for the best deal churn faster. There is always a cheaper offer.
Plus upping the price on a customer feels wrong. Whether they agreed to it or not, contracts like this incentivize the wrong things and misalign startups and their users.
Instead focus on value and free trials. Fully functional free trials allow customers to play before they pay. This gets them hooked on your product or service and drastically increases conversion rates. Most will stay on after the trial is over, assuming they are engaged.
6. Increase customer engagement & stickiness
Every product has a turning point. Users that reach this rarely quit and those that don’t are bound to leave.
It is different for every company.
For Facebook it was the Newsfeed. Once users had 10+ friends, stories would show up daily and they were hooked. For Pinterest it was similar. Over X number of categories and it was interesting, you had a user for life.
But what about B2B?
Slack needed just a couple employees before a company decides to join and take control.
And marketers know MailChimp. Once an auto-responder is setup, no entrepreneur wants to go back to manually sending messages. Automation saves time and money and is constantly working.
The examples go on and on.
Every startup has a turning point. In the beginning, EVERY interaction with new users should push them towards that pivotal point.
Figure out what this is for your business and find how to help users get there.
7. Make your product essential for companies
People hate pain. We avoid pain and discomfort more than we work towards health and happiness. That is just human nature.
How can you make a breakup painful? That is the question.
Companies that embed themselves in customers’ operations are irreplaceable.
Irreplaceable = incredibly valuable
How do you help your users? What value do they get from your service? What would losing your service mean for them?
Ecommerce sellers use Paypal and Stripe. They help small businesses get paid. Lose that and their business is bust. These companies HAVE TO HAVE their payment provider or they are SCREWED.
Hosting. Email Marketing. Advertising. All of these are integrally linked to business. Any one of them is critical to company success and losing it would spell disaster, at least for awhile.
And there are tons of others just like them. Booted from AirBnB or Uber…so long side income.
Kicked off Amazon — shit.
All of these are examples of mission critical services. Users almost never leave. Churning would be suicide.
This is the ultimate addiction. Build your business towards this and you will be successful.
8. Incentivizing longer term contracts
Cash is king. Money in the bank means you can grow and scale without worry. For now at least your startup is safe.
One way some companies create value is through longer contracts. Look at mobile carriers. AT&T and Verizon build mega empires around cell phone contracts. Sign up for 24 months and get a free phone!
And a better rate…
That is the key, the better rate. Not all companies have sexy bonuses for extended contracts but all startups can offer a deal. And a deal is often ideal for you. It means upfront cash, even if a user decides to leave.
The key is to focus on LTV, or lifetime value of a customer. Set your plan to outlive your average customer retention and LTV.
For example, if an average customer sticks around for 7 months at $100 per month, that is $700.
But what if you offered a yearly price at 25% OFF. That is a HUGE DISCOUNT. And it is also $900.
How many potential users would take you up on the bargain? Probably a lot. It may even improve overall conversion rates.
That means $200 more than your average user. And it means more money now.
These type of extended incentives drive profits.
Plus your fixed costs hardly change. That means increased LTV. But that is not all.
More users probably means more referrals
If a user sticks around and benefits for an extra 5 months, that is 5 months more they might promote your product. Any extra referrals are icing on the cake.
It is a win-win for you and your users.
SaaS is Amazing
Low fixed costs, near infinite scalability and an addictively attractive recurring revenue model have made software the sexiest thing since sliced bread.
Around the world SaaS companies are starting, growing and raising around the idea of recurring revenue. The competition is fierce. The rewards, enormous.
Ideas are worthless and execution is everything
Again and again and again it comes back to this. You have your ideas, now you need to execute.
Nothing else is important. Do that and VCs will come knocking.
You know what to do, now go make it happen.
What do you think?
Built a killer SaaS startup? Invested in a dud? What are your thoughts on SaaS, the article, the future of tech?
As always love to debate and hear other smart people’s perspectives.
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