Acquiring customers is the key to any business that wants to grow; with software-as-a-service (SaaS) businesses the rush to scale to cashflow neutral puts a lot of attention on how this is achieved. Two of the industry’s leading CMOs, Tom Klein from MailChimp and Janine Pelosi from Zoom discussed the considerations at WebSummit 2019. This is what we learnt from this talk and some of our opinions, on the considerations and impacts of changing emphasis between what you may consider sales vs marketing activities in acquiring customers.
Sales & Marketing are the same, but different
Sales and marketing have the same objective; acquiring customers. The business wants to acquire these customers at the best possible blend of cadence (speed) and cost per acquisition. The question then is how best to do this. When SaaS companies refer to sales and marketing functions the split is typically assumed to be that a direct (1-2-1) conversation with a specific prospect is sales, and communication to a prospect audience is marketing. Marketing can have tailored conversations but usually this is tailored to an identified group. Direct sales can engage with a prospect person to person and answer questions as they occur in the buying process. However, sales usually starts with marketing to acquire the lead for sales to talk to in the first place.
Marketing handing off to sales
With marketing starting the process and sales being viewed as the end of the process; the emphasis split can be interpreted as to when the prospect goes from talking to marketing to talking to sales. Taking Zoom and MailChimp as examples this can be very different. According to CMO Tom Klein, MailChimp has no direct sales teams, so there is no hand off. They believe that the conversion of prospect to customer can be handled entirely without a direct 1-2-1 contact with the business. Zoom on the other hand has a very significant direct sales team that are active early in the prospect’s journey, according to Janine Pelosi. Both SaaS companies are hugely successful so why do they have such different approaches?
The need for more sales involvement driven by complexity of the SaaS product?
How easily can your audience understand what problem you solve for them and how you solve it? Do you struggle to articulate this quickly and concisely? Is the solution customised for different people / situations? Where your offering is more complex it can require a direct conversation to communicate the detail to a prospect. MailChimp’s email marketing service is quite simple to understand. Zoom on the other hand provide solutions that can run across whole enterprises and be customised to the specific problem that the prospect is trying to solve. This makes the Zoom solution that is bought more complex.
How complex is your solution in the minds of your prospects? Have you tried putting a single page written explanation in front of a potential prospect and then asking them questions to judge how much they understand? This can be a useful way of understanding, from your audience’s perspective, how much they understand without a 1-2-1 conversation.
Is the need for more sales involvement driven by product cost? Or by risk?
I bet you have bought a book online just from reading a summary and some reviews. Would you buy your next car or even a house without seeing it? Probably not because these are higher value purchases and the higher the cost the higher the perceived risk. However, people will now buy expensive 4K TVs or holidays online without talking to a sales person or seeing them. Therefore, <strong>when considering the need for sales involvement we would be better thinking of the risk associated with purchase</strong>.
If you consider Zoom vs MailChimp as the examples the adoption of a new SaaS tool in your business:
- A new company wide video calling platform which will touch on both internal and external communications would be a complex and risky undertaking if it was to go wrong. Annoyed employees, frustrated customers and a situation that takes a lot of time to roll back from including changed processes and training.
- The risk of purchasing the wrong email marketing platform however, is perhaps frustrated members of the marketing team, emails not going out on time or with the correct formatting. Rolling back from that decision? Export the data, choose a new platform, upload contacts and go again (in very broad terms!).
So the risk associated with the choice of email marketing platform can be seen as lower risk. Therefore there is less need for a sales conversation to put-to-bed the buyer’s fears.
So when looking at your SaaS business what are the risks associated with its purchase? It is not just the value of the contract that the customers might be tied into, it’s the organisational change factors, how much investment is needed to implement and how easy the decision can be rolled back from. You need to think about this from all of the decision makers’ views, not just the primary buyer within the DMU (Decision Making Unit).
Sales vs marketing limiting your ability to scale your SaaS Business
So far, the considerations have been coming from the product and the prospect perspective. But what about the company’s growth ambition? Sales people can only deal with a finite amount of prospects in any period. If a sales person can close 10 deals a month and you want to be closing 100 deals a month then you need 10 sales people. Marketing however, because it is communicating to many in an audience group, can scale more easily.
Again, it doesn’t have to be an either or, it can be about when the handover occurs. If you can use marketing to move people further down the funnel so that single sales person can close 20 deals a month then you only need 5 sales people to do your 100 deals a month. That is half the number of people you need to recruit, train, manage, monitor and develop. For a company that wants to grow fast needing fewer sales people per £1 of revenue delivered can be crucial. This is especially important where labour markets are tight such as cities like London, San Francisco and Boston where good SaaS sales-people are in very high demand. High demand also means high premium on the wages and wages need to be considered when calculating cost per customer acquired.
When building a SaaS business the difference between sales and marketing is then also shown by head count within the organisation and the investment in the external resources to support those functions. Increasing headcount is slower than simply putting more emphasis into marketing, especially when increased marketing activity can be outsourced to capable external agencies. There are few SaaS markets that don’t have multiple players in them so if you are looking to grab market-share early as the market is maturing then speed of results will be front of mind. There is also a risk associated with rapid internal hiring: in the desire to get bums on seats compromises may be made on candidates which can cause more problems than they solve and also erode the precious company culture that has been built with such care.
More sales to push growth harder?
If you can scale a quality sales team quickly and push those sales numbers faster by doing it, why wouldn’t you? Probably down to money as you may need to sacrifice cost of customer acquisition in order to drive this faster. If you have a large capital / cash reserve, you may choose to do this in order to move towards a dominant market position quicker. However, sales will still rely on marketing to deliver leads to the sales team to convert, even if you chose to handover from marketing to sales earlier in your sales process.
A word of caution though as it can be harder particularly, in European nations, to scale back sales employee numbers quickly and less financially painfully than to scale back marketing expenditure. If numbers aren’t reached by the sales teams and the need to get to cashflow neutral becomes more pressing you may need to re-evaluate your sales – marketing balance.
What balance of marketing and sales is right to scale your SaaS business?
You need to figure this out, although you can turn to experienced people and agencies in the industry that have figured this out for others. The important considerations that you need to examine in an objective way are:
- How complex is the problem my product is solving and the way the solution works?
- How risky, financially and organisationally, is buy a solution like yours? (honestly)
- What is the financial investment that you require from your customers?
- Can you offer a free trial or does your solution require you to on-board clients?
- How much money do you have available for sales and marketing after all of the other budgeted costs and your product development programme?
- How quickly can I recruit and train sales people?
- How costly are the sales people I need that are capable of doing the required numbers, and are they available in a geography that works for me?
- Can your current marketing activities generate enough leads to supply a scaled-up sales team?
- What is your current website visitor to lead ratio?
- What is your current lead to opportunity and opportunity to sale ratios?
- How much more investment in digital and other marketing activities would you need to increase the average sales person’s close rate & value?
- Have you evaluated how your ratios could be improved and are you sure they are being measured accurately?
- How visible are you in organic search for relevant terms? How many more prospects could you get if you were getting found more for what you do?
- When do I need to get to cashflow neutral?
- What are your competitors doing in terms of sales – marketing split? Do you need to emulate or differentiate from them?
- What are your competitive advantages and do you need direct conversations with prospects to explain these?
- Are you looking for profitability, company valuation, or market domination as your primary goal?
We suggest that you actually write these answers down and then as a senior management team discuss them objectively. It can be helpful to then bring in specialist external help to answer some of the questions more deeply and apply their knowledge to your specific business.
Further knowledge and help in growing SaaS businesses
We hope that this breakdown is useful for you and has got you thinking. With our depth of experience in SaaS and recurring revenue businesses we might be able to help answer some of these questions or help you build the marketing & sales structures you need. We are always happy to have conversations and discussions without any obligation or cost so please feel free to get in touch with us on 0333 772 0509 or firstname.lastname@example.org