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SaaS nirvana is a tempting, alluring place. Stories abound on TechCrunch, Forbes and other tech business press about the fortunes of those who make it. Multiples for SaaS IPOs tend to be among the highest in the tech industry. So there is a palpable pressure in a SaaS marketer to get there as fast as possible. But pushing against this headlong rush to El dorado is another force, a discipline required to get it right before growth – the ramp – kicks in. You can burn a lot of money if you don’t get it right.
Here’s a model I’ve developed after three SaaS head of marketing gigs. The idea is to demark what stage the company and product are in, and therefore what is required of marketing. It can feel like a chicken and egg problem, and there can be a lot of finger pointing. Is it the marketing or the market? Do we need to change the product or get more people to try it? Why can’t sales close more deals?It’s important to understand the stages of SaaS sales maturity and communicate them to everyone in the organization. Knowing what stage you are helps focus the team on the goals that are important, and put off those things that are not.
In order to achieve better team alignment, I recommend using these five stages. Agree what you are trying to solve for, and agree when you are ready to move from one phase to another. In general, marketing will need to provide content, some degree of awareness, and some demand generation in all five phases, but your level of investment and tactical focus will vary. Demand generation in the Product/Market Fit phase may simply be getting meetings for your CEO and head of product to discuss possible directions with prospective customers, for example.
The SaaS Marketing Maturity Model
Product/Market Fit – Finding buyers who want your product is the goal of any business. SaaS is no different, except the online delivery model affords faster product changes. During this phase of growth, the whole company needs to make whatever changes are needed to make the product indispensable to an identified set of buyers. Marketing should focus on market and buyer research, customer interviews, and competitive analysis during this phase.
Exit Criteria – A company can exit this phase when a significant percentage of customers finds the product indispensable and marketing can identify the profile of an ideal customer. (Sean Ellis, a well known SaaS marketer, uses less stringent criteria, requiring 40% of your customers to be “very disappointed” without your product.)
Timeframe – 6-18 months. Some companies will find product/market fit faster than others. Many will need to significantly change the product – referred to as a “pivot” – at least once. Forbes has a great article about business pivots, including Twitter’s transformation from podcast finder to microblogging service, and PayPal’s move from beaming payments from PDAs (digital handheld computers) to helping eBay users pay sellers over the Web.
Experimenting for Growth – Once you have product market fit, you need to figure out the best way to reach your ideal customers. Marketing should focus on crystalizing the value proposition, gleaned from discussions with existing customers. Close interaction with the sales team is really important – interview them and also sit in on sales calls to find out what really resonates with customers. The team should also begin marketing via a few different channels and do some rough A/B testing experiments to see what works best. The goal is to supply enough leads to feed the sales team.
Exit Criteria – A company can exit this phase when it can demonstrate a few marketing channels and marketing pieces that demonstrate superior performance in closing deals.
Timeframe – 3-12 months.
Optimizing for Growth – Building on successes, optimize conversion rates at all possible points. Invest even more money in channels that are generating the highest conversion rates. Get even more aggressive with A/B testing: conduct more tests, make the experiments finer grained, and get into a continuous improvement cycle. Evaluate each channel in the context of your business economics. Some channels may convert well but cost more. Make sure you can “afford” each channel by comparing it with your CLV. Throw out any channels that are ROI negative over the customer lifetime, and shift investment into those that are ROI positive in the shortest timeframe. The goal is to move beyond just supplying enough leads, but to mature to know which channels produce the best leads.
Exit Criteria – Organizations can exit this stage when they know their top converting channels and marketing assets, and know that money invested in these top channels will produce more demand and profitable customers.
Timeframe – 6-12 months.
Predicting Growth – With top channels and conversion rates known, marketing can predict future revenue based on marketing activity. Testing and optimization can continue, but a head of marketing should invest in people and tools with a focus on metrics and reporting. Marketing may begin to pay more attention to churn rate here, keeping a close eye and putting in place programs to reduce churn as much as possible. By this stage of maturity, the ARR has become a big enough number that a high or growing churn rate would be a problem. To reduce churn, marketing might invest more in a customer marketing function to improve customer satisfaction, or work with the product team to figure out features that increase the product’s stickiness. Achieving negative churn through aggressive upsell and cross sell might even be possible. By this stage, marketing should have matured to measure leads by channel and by cohort.
Exit Criteria – Organizations can exit this phase when they have two or three quarters of accurate revenue prediction by marketing and there is alignment that churn rate has settled at an acceptable level.
Timeframe – 6-9 months.
Driving Growth – With a tuned and predictable demand generation machine, the marketing team can be a growth driver. ARR should be well understood, and churn should be stabilized.
The timeframes above are general, but based on discussions with several SaaS CEOs and CMOs. Heads of marketing should focus on gaining consensus on what phase of growth the company is in and the activities marketing is focusing on. Maturing takes time. Executive teams may grow restless and want to move on, but until you have the time in the market and the data to back up your experiments, forecasts and predictions, you just won’t know if you were right. Marketing may need to stand tall and insist on discipline from other teams that want to skip phases or are looking for magic to happen.
Have thought on the model? Were your experiences different? I’d like to hear.