You don’t have a lead gen problem: Work backward to grow your SaaS
In 2014, something clicked and our revenue went from under $1,000/month where it had stayed flat for 17 months since launching, and suddenly we were doubling our MRR every month.
Prior to that, our investors had been encouraging us to spend more on advertising and to hire a salesperson, but I knew we weren’t ready.
We had some leads already, but few were converting to a paid plan, and the ones who were left after a few months.
I knew we couldn’t afford to spend money on sales and marketing until our bottom-of-the-funnel metrics were tighter. We had to make our product stickier.
Once we started to grow you’d think it came from lots of marketing, but the truth was, the traffic and leads were the same, we were just converting and keeping more customers. That’s how our MRR grew.
I talk to a lot of SaaS founders and most feel that a lack of leads is their biggest problem.
A lot of times they don’t know their numbers across the entire customer lifecycle.
In SaaS, retention is the name of the game.
You want to maximize the lifetime value of your customers.
What is the average dollar value customers pay you every month
What is the average number of months customers stay with you
For example, if the average spend is $50/month and customers stay with you on average for 24 months, then a customer is worth $1,200 in their life with you.
Knowing that means you have to find ways to acquire them for a whole lot less.
If you calculate your sales and marketing costs in a month and divide it by how many new customers you acquired, that is your customer acquisition cost or CAC.
For example, if you spent $5,000 on marketing and acquired 20 new customers, your CAC is $250. At nearly 5:1, that’s a pretty good LTV to CAC ratio. You spend $1 to get $5 back.
But if it only brought in 2 customers, then you’re spending $2,500 to make $1,200. It doesn’t make sense.
How well do you know these numbers?
If you know your retention numbers inside and out, and they are solid, congratulations.
But many don’t know these numbers, and so all they look at is their topline MRR and say “I want more of that” without looking at the underlying numbers that tell them whether or not they have a scalable, profitable model.
A lack of leads is usually not the biggest problem SaaS founders face.
People typically think of sales and marketing as a funnel. You start with a large number of leads and as people filter out of the funnel you’re left with a smaller number of new customers.
But for SaaS, I like to think of it more as an upside-down funnel:
You start with a solid foundation of retention and referral.
Look at the customers you have. Do they love the product? Do they use it a lot, get value from it, and tell others about it?
How would you go about measuring this?
Here are a few things you can look at:
Measure your churn rate - both the percentage of customers who cancel every month (logo churn) and the amount of MRR you lose to churn (Net MRR churn).
Logo churn = % of customers who cancel in a given period of time.
If you started the month with 100 customers and end the month with 90 customers (don’t count new customers who come in during the period), you have a 10% churn rate.
Ouch! You’ll need to replace your entire customer base by the end of the year.
What about referrals?
You can measure your Net Promoter Score (NPS) which tells you whether or not your customers would recommend your product to someone else.
You can also look at social media mentions, conduct customer interviews, G2 reviews, and in-app virality (are new people being brought in through invites through your product?)
The point is if you want to start here and if the numbers aren’t great you should spend as much time and effort as possible on it until your product is sticky, customers are staying, and they love it so much they’re telling others.
Otherwise, your lead generation efforts are a waste of time and money since you’ll be spending $10 to make $1.
With a solid foundation, you can work your way up the pyramid.
Look at revenue and expansion.
How much are customers paying you, and how much are existing customers buying more from you every month?
Look at your pricing model. Since your product is clearly valuable to the customer (they are sticking around and telling others), is there a fair value exchange? Are you extracting as much value from them?
Again, many founders focus so much on lead generation that they haven’t spent nearly as much time looking at their pricing.
Should you price with a consumption model or a per-seat model?
Is there a pricing plan for each of your target personas?
Are the right features being added to the right packages? Will customers upgrade plans to get access to certain features? Should others be offered as an add-on instead?
Is the dollar amount you're charging the right amount? Founders almost always underprice thinking they’ll turn away buyers, but end up attracting the wrong customers and leaving tons of money on the table.
Are you incentivizing annual terms to your monthly users?
The point is, this will all add to the lifetime value of your customer.
When this is solid, you can move your way up to the next rung of the ladder.
How well are you converting the leads you have?
Does your website convert visitors to trials or demos?
Do your demos turn into opportunities?
What’s your opportunity close rate? In SaaS, anything less than 20% should be optimized.
Do your free trials convert to paid accounts? What does the onboarding process look like? Are they getting stuck? Do they need assistance to get set up?
Again, very few SaaS founders I talk to know these numbers, and they can’t manage what they don’t measure.
So now you’ve got a high retention rate, and customers are sticking around and telling others.
You have a pricing model that works to drive up your average revenue and customers are growing their spending over time.
You convert the hot leads into customers.
Now it’s time to drive up the lead volume, right?
Hold on.
People don’t just sign up and buy your product in one shot. There is a journey they go on first.
Awareness
The person is just becoming aware they have a problem and start consuming content.
Education
The person is becoming aware of solutions to their problem and starts researching products.
Selection
The person is in the process of evaluating solutions in a trial or demo.
Another way to think of it is Cold > Warm > Hot.
Again, driving more cold leads into your funnel isn’t going to help you much if you aren’t nurturing the leads you have. Start backward.
In the last phase, you focused on converting the hot leads you have - people in the selection process.
But how do you move a warm lead to a hot lead?
Most of our marketing fails because we’re trying to close leads that aren’t ready to buy yet.
Warm leads are interested in your company. They are becoming aware of solutions to their problem and researching solutions. They want to be educated about solutions to their problems and they may have given out their contact information in exchange for content.
Tactics that may work here include emailing helpful content, offering free webinars, and buyer guides that show them how to evaluate your category of software (‘What massage clinics should look for when evaluating scheduling software’).
How do you convert cold leads to warm leads?
Many try to convert cold traffic to trials or demos right away without warming them up.
A lot of people who land on your blog or see your social content are just becoming aware they have a problem and start consuming content. They have never heard of you before now. What do you have in place to warm them up?
Strategies can include lead magnets like downloadable assets, free trials, calculators, email newsletters, webinars, or hosting a conference. At this point, people want to learn how to solve their problems, they may not even be thinking about buying software just yet.
The beauty of taking this backward approach - starting at the bottom of the funnel and working backward, is that once you have optimized each of these stages in a systematic way, and you feel the numbers are as solid as you can get - now all the leads you generate are going to be 10x more profitable.
You won’t be wasting your time writing blog posts, running Facebook ads, or paying affiliates to send you traffic.
You’ll capture the attention of the people who visit your website and will have programs to nurture them through each stage of the buying process, and know that they will have a high enough LTV to scale profitably without needing to raise cash from outside investors.
When you work this way, you may find all of a sudden your revenue starts spiking even though the same amount of leads are coming your way.
You just need to work backward.