It is a great time to be a software-as-a-service company. The worldwide software market has an estimated value of more than $400 billion.
However, the cloud software market (SaaS/PaaS/IaaS) makes up only $48–$56 billion, meaning that "cloud-based software accounts for no more than 15 percent of the value of the total software market," but this distribution is quickly changing, according to Altos Ventures.
Not only that, but the channels of customer acquisition have become more efficient due to innovations in freemium and free-trial models—plus more sophisticated pipeline-marketing efforts. Software startups are also much more capital-efficient today than ever before, causing startups to require less capital for growth.
This is great news for SaaS startups. As a founder or marketing leader, the question today is: If there are nine marketing disciplines of great SaaS companies—all ranging from paid to content to lifecycle—which ones should I be investing in now? In today's post we're going to answer just that.
Early-stage SaaS marketing strategies
Before you worry too much about scaling your business, it's critical that you have a product that your customers are excited about—and willing to pay for. You should also have founded a scalable and repeatable sales model so that early-stage inefficiencies within the marketing and sales departments don't cause problems as these departments grow. This milestone is generally seen when a company has reached the $1 million–$1.5 million ARR run rate.
As you work toward this milestone, force yourself to have a low-cost marketing model as a startup. You can always spend more on paid later. Building a model with a lower cost of customer acquisition will pay dividends now and down the road.
Focus your marketing strategy to these areas:
1) Inbound and content
You've founded a company that is building a solution to solve an important problem you've identified—now start writing about it. More often than not, your passion and expertise will come through and result in amazing content to drive lead generation.
Answer questions on Quora, engage on Twitter—or wherever your buyer personas reside online—and focus relentlessly on adding value to the conversations in which you want your company to participate. In addition, highlight premium content that will convert visitors into leads at the top of the funnel.
Ultimately, this investment in content will allow you to attract the right traffic, drive engagement, and have compounding returns over time.
2) Product marketing
With a growing audience, focus on removing any barriers to perfecting the customer experience. Now that you have prospects' attention, it's time to convert them and show them the value of your product.
Focus on providing a clear value proposition and conversion path into a free trial or demo of the software. From there, make sure that their first in-app and onboarding experiences clearly direct them to the features they will find most valuable to them and/or their business.
Jason Lemkin has argued that first-order lifetime value (LTV) can underestimate true revenue generated by customers by 50-100 percent in most SaaS models. Referrals and growth via word of mouth are some of the best ways for SaaS businesses to increase LTV, create second-order revenue, accelerate growth and lower customer-acquisition cost.
As Slack's founder, Stewart Butterfield said, "Every customer interaction is a marketing opportunity. If you go above and beyond on the customer service side, people are much more likely to recommend you."
By focusing on the tactics that will pay dividends over time, you should have an established inbound lead velocity and be able to forecast predictable revenue growth more accurately as you exit this initial phase. The key now becomes, as you move from $1.5 million–$2 million in ARR, reaching $10 million in six quarters or less and hitting a $10 million ARR run rate with momentum to carry you through your next rounds of financing. This means an annual revenue growth rate of about four times your ARR or more than 15 percent of month-over-month MRR growth.
Growing Your Business
This can feel like a daunting task, but it's one where your new predictable marketing and sales engine will continue to pay dividends. To help SaaS business leaders on this path, we just released our Definitive Guide to SaaS Marketing.
In the guide, we will take you through a number of comprehensive and actionable ways you can create a highly effective marketing strategies to grow your business. We hope you find it useful, and look forward to continuing the conversation as your company grows.