According to Cisco’s Global Cloud Index for the period 2013-2018, 59% of all cloud workflows will be delivered as software-as-a-service (SaaS) by the end of this year. A study conducted by Compass confirmed this trend: the SaaS industry is growing almost three times as fast as the software market and 72% of all SaaS startups partially funded. SaaS market is predicted to grow over $33.2 Billion in 2022 (Total Retail SaaS Market Report 2018)

The 2017 State of the SaaS-Powered Workplace Report - BetterCloud
The 2017 State of the SaaS-Powered Workplace Report – BetterCloud

The main beneficiaries, as expected, are small and medium businesses, which also have the best growth forecasts for 2018. That’s basically good news – for SaaS newcomers as well as experienced big players in the industry. However, there is also a downside. More and more companies want a piece of SaaS success cake off and the competition is constantly growing. What opportunities do founders and managers have to become the top provider in the market and to defend their position.

The challenge for SaaS providers

Most CEOs in a SaaS company have a big problem: there is no shortage of options, just time. From the day of inception to the moment when the first blacks are written, the company is forced to generate recurring monthly revenues to cover the costs of acquiring new customers and emigrating before the precious seed capital is exhausted. David-Skok calls this deficiency “cash flow gap“.

The success of a SaaS company in the all-important initial phase depends on these three essential questions:

  1. Is the acquisition of new customers fast and cost-efficient?
  2. Are customers bound to the company in the long term?
  3. Will existing customers be reached with upsells, so that the LTV increases in the long run?

team effort to build customers

How can you quickly build a customer base?

Let’s start with the product:

Successful SaaS companies, such as Salesforce or Shopify, are not just inventing something cool or unique that does not yet exist in this world.

They go one step further and develop products that are loved by customers because they offer considerable added value. 

Before such companies try to sell something, they first deal with their future customers. Who are you and what do you wish for? The main goal is to find a clever solution to the BIG problems of their customers. Salesforce, for example, has made managing the entire distribution structure extremely easy by inventing and launching the first cloudbased CRM. It was the same with Shopify, just in the e-commerce version. The founders developed an affordable platform where small businesses could sell their goods online. Other companies, such as HubSpot, had the vision of revolutionizing the marketing world from the ground up, and no longer bothering the addressees of advertising messages with unwanted advertising: they did that with their forward-lookingInbound marketing concept! 

But what is the challenge for SaaS providers now?

For example, suppose you’ve developed a great product that excites your customers, you’ve got it up and running fast, you’re generating a lot of revenue, and you’re in the black even before your starting capital is used up – that sounds pretty promising, right? 

Successful SaaS companies go one step further, using a combination of inbound marketing, influencer marketing, and growth hacking to empower developers and user communities to test their products, evolve, and distribute across their networks use. But what is going on for these people? Often, as brand ambassadors, they become directly involved in sales success stories, become distributors or channel partners, and then build their own business on these relationships. For example, Shopify has developed the Shopify Expert marketplace for the promotion of freelancers and an affiliate program for agencies.

What about the CAC and the LTV?

The next challenge is the cost per customer (CAC or Customer Acquisition Cost). If you spend all of your available capital on many expensive ads and a whole bunch of salespeople doing planless and headless cold calling, you will not survive long in this market. But what are successful SaaS companies doing differently? They use the concept of inbound marketing to generate qualified leads. The further course of the customer lifecycle is then handled by sales employees who act more like consultants. Thus, the completion rates increase while reducing the cost per lead. 

On the other hand, there is still the customer earnings value (LTV or Lifetime Value). The magic word in the SaaS industry is “monthly recurring revenue” over a (hopefully) long period of time. You reduce the costs of recruiting new customers and increase your profitability. When maximizing LTV, two aspects are of particular relevance: minimizing the churn rate and generating upsells .

High-volume SaaS companies put together informative resources and training opportunities for their users . These include best practices, information about new features, and tips and tricks for using software so your users get the most out of their product. HubSpot, for example, launched the HubSpot Academy with its own certification program. There, users learn the tools for inbound marketing and how they become recognized experts in their field. Successful companies also hold meetings of local user groups to discuss issues and their solutions. 

This allows companies, in combination with superior customer service through their internal staff and a working partner network, to turn satisfied users into loyal customers who remain loyal to their brand for a long time. And a happy customer ideally buys more licenses or uses new features – as in HubSpot’s example a CRM – which increases the LTV: a win-win situation for both sides.

The secret of successful SaaS companies 

It’s actually pretty easy. Successful SaaS companies know how to properly run marketing. They believe in what they do, and that is really well received by customers. They recruit only the best people and, above all, invest in customer satisfaction, which ultimately increases revenue and profitability. But most big players and newcomers in the SaaS sector need to learn how to properly address and support inbound marketing, content marketing, influencer marketing, social media marketing, and a working customer service strategy. to become the ambassador of a brand. They do not know what basics are needed and which components come into play at what time.

Is there a market leader?

Having a dominant market leader will obviously make it harder for you to get a share of the market. On the other hand, if you are able to follow the directions and roads already open, the presence of a dominant company could become an advantage as it will not be necessary to educate the market, remembering that the education of the market is one of the most expensive. If there is a market leader it is necessary to perform a “Blue Ocean” analysis and create its own market segment. But remember to define your budget and marketing strategy well.

Are you an expert in SaaS Marketing?

The SaaS marketing is unique, not only for its intrinsic requirements of carrying out marketing activities looking for significant growth with low budgets, but also in the way in which the return on investment should be attributed to each activity. Partly because every marketing expense is difficult to calculate, especially at the beginning when the hypotheses have not yet been confirmed. Scalability should also be taken into account when building marketing channels, so that for every € 1 in marketing costs, you can predict the sales factor X.

Is your product scalable?

The scalability concerns the cost of software development, and above all the price of the new additional pieces. In the old days, in the glory days of Microsoft, generating the initial product cost a fortune, but in today’s world, the flow of information and low-cost access to cloud-based infrastructures drastically reduces initial costs to start development . If the software is too complicated to develop or requires an ad hoc code for the customer, you may be in trouble as a potentially profitable SaaS company.

Does your company build a product that is essential for business activity?

If the product is essential for a business activity (which could also apply to marketing and sales operations) you are in the right direction, making your product a “must have” rather than a “nice to have”. Some examples of success are: Salesforce – Customer Relationship Management (CRM), an essential element for sales teams, Zendesk – ticketing and support system and Marketo – a system for automated management of e-mail campaigns.

Is your product unique / cheaper / better?

Each of the examples mentioned has its advantages and disadvantages. However, if your SaaS product does not meet any of the features mentioned above, you need to do your homework better. There are some additional benefits that your business can get in cases where the network effect brings more value (either for the customer or for the company in terms of data).

secret recipe

The secret recipe for the success of a SaaS company

In reality it is very simple. Successful SaaS are such because they do marketing in the right way. They manage to break through because they believe in what they do, hire the right people and continue to invest in customer happiness, which increases revenues and profitability.

The challenge for start-up SaaS entrepreneurs is to understand how to start inbound marketing , to exploit influencers, social media and to provide customer service that is at least as much as expectations. If all these components are in place, customers will soon turn into “brand advocates”, becoming their own marketing engines for your SaaS. 

Building a large SaaS company is a challenge, but it is above all a viable business that at some point could be highly rewarding. If you’re still not comfortable, you can seek advice from the founders of one billion dollar SaaS companies.

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