Seven Essential B2B Marketing Strategies For 2021

Finding the right mix of B2B marketing strategies to grow your company is a critical decision. The marketing strategies outlined below will equip you to hit your goals like more leads and ultimately more B2B buyers.

Refresh your mix of B2B marketing strategies to grow your leads.

Pick and choose from this menu of B2B marketing strategies to get all of the buyers you need. Generally, each of these strategies supports other strategies. For example, event marketing can boost your network and brand recognition, boosting your account-based marketing campaign results.

Business to Business Marketing Strategy #1: Account-Based Marketing (ABM)

Account-based marketing (ABM) is an excellent way to support a B2B sales team. For instance, your account executives might have a territory such as “enterprise technology companies in the Pacific Northwest.” On conducting further research, you find out that there are 50 high priority accounts. This narrow focus means it is easier to research and define your buyer personas.

Using account-based marketing, you will produce marketing content and campaigns directed at the specific needs of accounts. This might start with market research to identify common problems for the list of accounts. You might also decide to run virtual events tightly focused on the Pacific Northwest.

The advantage of account-based marketing is two-fold. First, using this strategy guarantees a high level of alignment with the sales team. Second, measuring and achieving success may be higher because you have a tight focus.

The disadvantage of account-based marketing includes tools and effort. There are emerging tools like Influ2 that make account-based marketing easier. However, there are relatively fewer account-based marketing software tools, and they can become quite expensive. Also, ABM tends to require a reasonably high level of effort to tailor messages to the accounts and maintain alignment with the sales team.

Tip: Use social media channels to support your account-based marketing efforts. Your B2B customers are on social media, so you need to be there as well.

Business to Business Marketing Strategy #2: High-Value Long-Form Content

Do you want to be found with organic search and more website visitors? Then you need to publish high-value long term content.

In the B2B world, long-form content has been one of the most enduring B2B marketing strategies. When I wrote about content marketing examples, I highlighted the excellent reports and articles that consulting firms like McKinsey and Deloitte publish. The commitment to high-quality content isn’t limited to consulting firms either.

B2B software companies tend to invest heavily in long-form content. For example, Mailchimp publishes multiple podcast shows. Unbounce, a marketing automation platform, produces high-end reports like the Conversion Benchmark Report. This in-depth report is based on original research and distinguishes Unbounce from other marketing automation software companies.

The advantage of high-value long-form content includes positioning and longevity. By dedicating the effort to produce this content level, your B2B brand will be seen as a thought leader by buyers. Further, many types of long-form content are evergreen which means that it can drive traffic and leads for weeks, months or even years after publication. That long term advantage offsets a key disadvantage of paid media (e.g. Google Ads, Facebook Ads and LinkedIn Ads), which stop when you pause the campaign.

The disadvantage of high-value long-form content comes down to talent. Working with a content marketing consultant is one way to solve the content creation process. If you take this B2B strategy in-house, ongoing effort and monitoring are still needed to hit your goals.

Business to Business Marketing Strategy 3: B2B Email Marketing

Some consumer purchases are an impulse buy. You see a product on sale on Amazon and buy it seconds later. B2B buyers might get excited quickly, but the purchase takes longer. For example, if you choose to work with a content marketing consultant who doesn’t know B2B markets, there is a higher risk of marketing failure.

Email marketing plays a vital role in maintaining a relationship with prospects over time. In fat, this digital marketing strategy is a must have if you are serious about effective B2B marketing. For example, a prospect might download a resource from your website and then forget to use it. Companies that follow up with a series of helpful emails will ultimately see a better conversion rate than those who do not connect with their audiences by email.

By staying in touch with regular valuable messages, your B2B buyers will keep you in mind. If the in house marketing team is focused on other projects, consider working with an email marketing agency.

What if your website doesn’t have enough traffic to build your email list? That’s a common problem. Publishing more content that speaks to your customer’s problems and goals will help.

Business to Business Marketing Strategy 4: Building Authority Through Thought Leadership

This strategy may look similar to strategy two above. There is some common ground because both of these B2B marketing strategies involve publishing and promoting content. Thought leadership content achieves a different goal.

Instead of driving traffic from search engines and social media, thought leadership is about creating new ideas and research. Publishing a book is one way to express thought leadership: you can see my marketing book here: The Marketing Blueprint: Scale Your Startup Business To 1000 Customers. In the sales world, books like “The Challenger Sale” by Matthew Dixon and Brent Adamson and “How to Get a Meeting with Anyone” by Stu Heinecke are great examples of sales thought leadership.

Thought leadership sets you apart from your competition because you are bringing new insight to potential customers. It is best used to enhance a premium position in the market so that you can charger higher prices and deliver more value to your customers.

Business to Business Marketing Strategy 5: Marketing Automation To Target Your B2B Messaging

Marketing automation is a marketing strategy that increases the relevance of your marketing using technology. For example, you might use marketing automation to segment your audience into three categories: highly engaged (e.g. a potential B2B buyer who has viewed a webinar), past customer and new leads (i.e. a person who signed up for a free trial or email list).

When it comes to marketing automation, it is easy to get excited by technology. For example, you might notice that your platform integrates with Zapier, and then you imagine coding together dozens of automation. Whoa! Slow down. It is better to build one or two automation per month, measure their effectiveness, optimize them and build from there.

Marketing automation works best if you are at an intermediate or advanced level of B2B marketing. If your company already has thousands of email subscribers, a significant following on social media and the budget to pay for marketing automation tools, then go for it!

Business to Business Marketing Strategy 6: Using Paid Media To Get More Traffic Fast

In the last quarter of 2020, Google earned $46 billion in advertising revenue, a major increased from the $37 billion the search giant earned at the end of 2019. B2B companies can use paid media like Google ads, Facebook Ads and LinkedIn ads to drive more leads.

The most significant advantage of paid media for a B2B company is speed. You can start running this strategy and start to see activity in a matter of hours or days. Note that I said “activity”! Paid media, especially when you are first getting started, takes time to optimize. Depending on your budget, optimizing paid media in B2B can get quite expensive.

According to Wordstream data, the average cost per click for B2B keywords can be relatively high: cloud ($49.52 cost per click), insurance ($54.91 cost per click) and conference call ($42.05 cost per click). Let’s say it takes you 1,000 clicks to optimize your landing page. That means you might end up spending tens of thousands of dollars to achieve your goals.  

Fortunately, there is a potential shortcut to reduce the high costs of paid media: retargeting. With a retargeting tactic, there are a few steps. First, users come to your website, and then you use a retargeting pixel to build a list of those people. Second, you run an ad specifically to people who have previously visited your website. Conversions tend to be much better because these people already have some level of awareness about your company. As a result, it gets much easier to reach your marketing goals because you focus your marketing efforts.

Business To Business Marketing Strategy 7: Event Marketing

As I write this article in February 2021, businesses have largely cancelled all of their traditional events due to the COVID-19 pandemic. However, millions of vaccines have already been distributed worldwide, so there is some hope that events will return this year or next year.

Done right, events offer a robust ROI because you can talk to people and quickly identify qualified leads. Further, money is less likely to be a problem because these potential buyers have spent the time and money to attend the event. Further, potential buyers often attend events to do deals, attend parties and discover new business opportunities.

The disadvantage to formal business events includes high costs (ten of thousands of dollars), long lead times (i.e. months to arrange the event) and identifying the right target audience. Even if an event offers plenty of great information, networking opportunities and free perks, your target audience may not show up. These disadvantages can be reduced by organizing a smaller-scale event or moving an event to an online format.

How To Attract The Interest Of Potential Customers With Your B2B Marketing Strategy

Knowing is half the battle. The other half? Focused execution on the marketing strategies you select. If you are not hitting the marketing key performance indicators you’ve set for leads and traffic, you might need external help. Find out more about how I help B2B software companies grow with inbound marketing services.

The 6 Must-Have Skills For A B2B Content Marketing Strategist

Discover the 6 must have content marketing strategist skills to reach success.

Content marketing is getting more expensive and difficult every year. There are millions of videos and blog posts published each month. That is why more companies work with a B2B content marketing strategist to meet their goals.

Choosing the right B2B content marketing strategist to grow your business doesn’t have to be confusing. Start by checking if they apply these critical skills.

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1 Setting Effective Marketing Goals

Before a content marketing strategist does anything else, they need to have good goal-setting skills. Specifically, strategists know how to set measurable and realistic marketing goals for their engagements. If you are a unicorn startup with 100,000 people on your email list, adding 1000 customers might be reasonable. Alternatively, a B2B consulting firm like Deloitte or McKinsey will have different marketing goals entirely.

Do not settle for vague goals like “growth” or “more sales.” Such ambiguity will doom your content marketing strategy to frustration.

Bonus: A content marketing strategist will tend to be more successful if they use a proven goal-setting methodology like OKRs as defined in the book “Measure What Matters: OKRs: The Simple Idea that Drives 10x Growth” by John Doerr.

2 Listen To Multiple Audiences

In Star Trek The Next Generation, Deanna Troi served as the Enterprise’s counselor and a key advisor to Captain Picard. As an empath and counselor, she was highly skilled at listening to people. That’s one of the reasons why Picard was often able to solve problems through negotiation.

An effective content marketing strategist knows how to listen effectively to their client, whether they are in house or acting as a consultant. They can meet with your company’s subject matter experts, ask the right questions and draw out compelling content ideas. Without a high degree of listening skill, the strategist will struggle to maintain the positive working relationship required to achieve long term results.

The second layer of listening for marketing success requires market research skills. A strategist might engage in social listening by reading comments on its LinkedIn page or Capterra reviews. This type of listening helps to ensure that marketing content is relevant to your target market’s needs.

In my content marketing efforts, interviewing has played a crucial role in the content creation process. For example, an interview formed the core of one of the most popular articles in 2020: “We Close 60% of Our Inbound Leads”: Inside JustCall.io’s Marketing.

 In contrast to a journalist, interviewing for marketing content requires a different approach. Content marketers with good interviewing skills can balance two objectives. First, they speak and listen in ways to maintain a positive relationship with clients. Second, they interview based on the needs of the company’s audience.

Let’s illustrate with a quick example. Your content marketing efforts next month are focused on driving sign-ups for a webinar. You work with the content team to produce blog posts and social media content to connect with the audience. Interviewing skills help the strategist understand the content marketing efforts’ goal and then develop meaningful blog content and social media posts. At the end of the process, the strategist has a better working relationship with the client, and the webinar attracts 100 sign-ups from your ideal target audiences. That’s how interviewing produces a win-win result.

3 Good Content Marketing Strategists Know Copywriting Like Claude Hopkins

Content marketing is not journalism or creative writing.

Instead, it is using aspects of storytelling, reporting, and creativity to achieve a business result. That’s why content marketing professionals need to develop copywriting skills. At a minimum, studying copywriting giants like Claude Hopkins, Dan Kennedy, Joe Sugarman, and others should be part of your skillset.

Let me demonstrate copywriting in action:

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4 Use Storytelling To Make Your Content Memorable

You might not be a novelist but storytelling vital for success as a content strategist. Sure, you can gather exciting statistics for your blog posts. Like it or not, data on its own doesn’t create a feeling or that much of an impression.

Instead, look for ways to tell a story.

Let’s say that you are promoting a product like CoSchedule. It is a helpful tool to promote your business across multiple social media channels consistently.

What’s the story, though? If I were marketing CoSchedule, I would look for a customer story about its difference in customers’ lives. For example, “Jane used to spend 10 hours per week on social media posts. She barely had time to respond to comments and likes. By using CoSchedule, her social media posts only take 2 hours per week, and she has much more time to focus on fully executing the company’s content calendar without working past 5 pm, ever.”

Tip: When it comes to developing a compelling business story, I like the model that Matthew Pollard mentions in his new book “The Introvert’s Edge to Networking: Work the Room. Leverage Social Media. Develop Powerful Connections.”

5 Use Search Engine Optimization (SEO) Skills To Attract Traffic

Content marketing is closely linked to search engine optimization. That’s why a content marketing strategist needs to be familiar with SEO tools like Google Analytics, Google Search Console, UberSuggest, Moz, Semrush, and Ahrefs. Without this grounding in SEO, your content marketing outcomes are likely to be random rather than predictable.

Your content marketing process should not be limited to SEO research. However, I recommend including SEO as a research input and then optimizing SEO from time to time. Ultimately, SEO remains one of the best distribution contents for marketing content.

6 Reporting To Measure Progress And Clarify Next Steps

Producing reports may not be sexy, but it matters! Without regular progress reports, it will be all but impossible to know whether you are making progress towards your goals. Reporting skills mean that you can prove which marketing content is performing and the value of those results. If the report shows a disappointment, then a strategist will look for ways to optimize your conversion rate.

Can A Content Marketing Strategist Grow Your Business?

Content marketing is a powerful marketing strategy. Yet, it is not right for every business. Some companies are uncomfortable with publishing. Others are more excited about the potential offered by other SaaS marketing channels. To discover if content marketing is a good fit for your business, contact me today for a free assessment.

Annual Recurring Revenue: 7 Insights You Need To Grow Your SaaS Company In 2021

Annual recurring revenue

Annual recurring revenue, also known as ARR, is one of the most commonly used success metrics in the software as a service industry. Keep reading to calculate ARR and increase it over time so that you can build a unicorn startup.

1. Annual Recurring Revenue (ARR) Definition

Let’s take a simple SaaS business example. The company has ten enterprise customers who all have annual contracts worth $100,000 each. In that case, the company’s annual recurring revenue would be $1 million. Few companies have an ARR that simple, however. You might have a mix of monthly contracts, annual contracts, and one-time sales revenue (e.g., consulting fees to help with implementation).

In those situations, a more sophisticated formula is helpful.

2. How To Calculate ARR with the ARR Formula

Calculating ARR in a subscription business is simple. You only need a few elements to put together this critical measure.

The ARR formula is: ARR = (Total Subscription Revenue Per Year + Recurring Revenue From Upgrades and Add-ons) – Revenue Lost From Cancelled or Churned Customers.

For instance, let’s say we want to do an ARR calculation example for a company that earns an average revenue of $12,000 per year per customer. Further, suppose the company has 500 customers. In that case, you would have an ARR of about $6 million. This simple calculation assumes no lost revenue. In reality, you will almost always have some amount of churn.

The last element of the formula is vital. If a customer cancels their service after one or two months, that fact needs to be included in your revenue. If you keep losing customer subscription revenue, then your business model may have problems.

3. What Isn’t Included in Annual Recurring Revenue?

Fundamentally, ARR focuses on subscription revenue. Therefore, if you earn a one-time fee from consulting or training, those amounts do not contribute to ARR. Also, a one time charge for onboarding would be excluded from your subscription-based billing. Further, ARR is a revenue measure alone. It does not look at expenses or profitability.

It is also critical to note that ARR is a lagging indicator of success. This SaaS business metric tells you how you performed in the past. Sure, it helps measure your revenue performance, and investors will probably ask you about ARR. On a day to day level, sales and marketing measures like customer acquisition cost (CAC) are more valuable to track.

A multi-year contract requires special treatment. Take a simple case where you have a fixed contract value of $100,000 per year. In that case, I suggest including one year’s worth of the multi-year contract into your ARR calculation. Long term contracts have an essential role in subscription-based pricing because they make it easier to forecast your revenues over time.

To reach your long term growth goals, I recommend minimizing the focus on one-time charges. Sure, those charges can boost average account size. Unfortunately, they make it far more challenging to build a realistic annual revenue forecast.

4. Should you use annual recurring revenue or monthly recurring revenue?

In the abstract, I recommend using monthly recurring revenue if possible. The monthly view provides a better picture of the performance of your subscription model. Further, you may manage expenses every month, so it makes sense to track monthly revenue.

In practice, your subscription model will probably include a variety of term contracts. For example, it is common in the SaaS business to offer both monthly and annual term contracts. In that case, it is helpful to look at monthly customers and annual customers differently. A monthly customer sees a charge come through every month, so there is a shorter runway to deliver value. With an annual contract, you have more time for your customer success department to help customers achieve their goals.

5. What about one-time sales revenue?

ARR excludes one-time sales revenue. That said, such revenue still counts, and it can make a critical difference in helping you pay the bills.

Your income statement will probably not be limited to recurring revenue. For example, what if you charge professional services fees to help enterprise customers with training and setup? That is valuable one-time sales revenue that helps your customer to succeed.

By the way, one-time sales revenue exists in the SaaS business outside of the enterprise world. Take ClickFunnels as an example. The company fundamentally sells marketing automation software. However, they use the one-time sales revenue to reduce their customer acquisition cost. Specifically, the company sells books like Dot Com Secrets, Expert Secrets, Traffic Secrets, digital training, and services. These services help customers to succeed and keep lost revenue to a minimum.

Offering training and professional services are also a win for your customers. They’re busy people. Do them a favor by guiding them through your product in depth.

Let’s illustrate the balance between professional services and subscription revenue with an example from Salesforce. In the company’s report for nine months ended on October 31, 2020, the company reported earning $14.5 billion in revenue from subscription and support and $935 million from professional services and other. In this case, Salesforce earned 94% of its revenue from subscriptions.

6. How do you balance ARR with other growth goals?

Driving ARR higher and higher sounds like a good goal. However, the pursuit of ARR growth above everything else can lead to an unhealthy business. Specifically, your expenses like customer acquisition cost may get out of control. To give an extreme example, you could spend $1 million to land a $100,000 per year customer. Theoretically, you might keep growing ARR, but such growth would place a tremendous strain on your cash resources. Even worse, profitability would become less and less likely over time.

7. What is a reasonable ARR growth goal?

Your ARR growth goals need to match your company’s current situation. Giant software companies like Oracle, Salesforce, and Microsoft will be happy if they can grow subscription revenue by 10% or 30%. On the other hand, a post Series B startup should probably need to set their sights higher.

For inspiration, take a look at the software companies on the Inc 5000. You’ll see companies that are reporting growth rates over 100%! That level of annual recurring revenue growth is certainly possible in a startup. Now, let’s say that you set a company goal to grow ARR by 100%.

Your sales and marketing teams might not be sure how to translate that company into a personal goal. For personal goal setting, I recommend two resources. First, reading Michael Hyatt’s book “Your Best Year Ever: A 5-Step Plan for Achieving Your Most Important Goals.” Second, consider using his paper planner: the Full Focus Planners. I’ve used these resources to keep my business growing over the past few years.

How To Get Marketing Support To Achieve Your ARR Goals

You don’t have to grow your business alone. Meeting your ARR growth goals is much easier when you can partner with a growth expert. Contact me to discuss your growth goals, and let’s see what we can achieve together.

7 Unicorn Startup Questions Answered

Unicorn Startups

You’re probably wondering what makes a unicorn startup. The simple answer is financial: reaching a $1 billion valuation. You can reach that milestone through the public markets when you complete an IPO (initial public offering). Alternately, some unicorn startups achieve this special status while seeking funding from venture capitalists.

1 How is a unicorn startup valued?

That is the billion-dollar question!

There are two approaches to valuing a company. The best approach is to estimate a value based on earnings. This is the valuation approach used for publicly traded companies like Salesforce ($199 billion market capitalization), HubSpot ($18 billion market capitalization). Find out how Salesforce’s growth combines paid and organic marketing. Unfortunately, a large number of startups lose money, so there are no earnings to analyze. Further, the conventional definition of “unicorn startup” focuses on private companies that usually do not disclose their financial data, so we can’t use audited financial statements.

The alternate approach is to value a startup based on different factors such as investor willingness to pay for a share in these companies in the private market of venture investing. That’s why you often see headlines about Series A, Series B, and Series C transactions involving private capital articles announcing that a particular startup has a “valuation” of a billion dollars. Private market investors, in turn, base some of their decision on a company’s future prospects for growth and other factors like the quality of the startup founder’s vision. For example, if a startup is adding users at a high rate, it might be valuable.

2 How many companies are in the unicorn startups club?

CB Insights estimates that there are 518 unicorn startups globally, with a large amount in the United States. That means that unicorn status is a statistical rarity out of the thousands of startups founded every decade. In early 2021, the following companies joined the unicorn startup club:

  • MadeiraMadeira, a Brazil-based e-commerce company, has an estimated valuation of $1 billion. The company was established in 2008.
  • Lacework, a US cybersecurity startup, has an estimated valuation of $1 billion. Lacework was established in 2014.
  • Quantum Metric, a US data management startup, has an estimated valuation of $1 billion. The cybersecurity startup was founded in 2011.
  • Dremio, an American startup in data management and analytics, has an estimated valuation of $1 billion. Dremio was founded in 2015.

Did you notice a trend in the above examples? The average age of these companies is over five years. Chasing such a valuation might be a worthwhile long-term goal. However, it will not guide you on what to do this year or this quarter. Attaining a billion-dollar valuation is much easier if you have an engine of growth in place to bring more users and customers to your platform.

There are also “mega” unicorn startups like Airbnb and Uber, which were valued at tens of billions of dollars while still private companies. These firms are sometimes called decacorns (i.e., a valuation over $10 billion). Today, these companies are more concerned about their stock price because they’ve moved to the public markets.

3 What percentage of startups become unicorns?

You’re not going to like the answer. Please sit down and take a deep breath.

Startups have approximately a 1% chance of achieving a billion-dollar valuation, according to research cited by EJ Insight. Yes, it is true that TechCrunch has observed the total number of unicorn startups has increased in the 2010s in absolute terms.

Out of every 100 startups that are founded, outcomes may include:

  • 1% of startup companies achieve a billion-dollar valuation
  • 30% of companies exit through an initial public offering (IPO) or merger and acquisition (M&A) deal
  • 67% of companies “become self-sustaining” or “end up dead.”

I don’t know about you, but I would be happy with building a business worth tens or hundreds of millions of dollars. No law states you must aspire for a billion-dollar valuation.

4 What regions have the most unicorn startups?

San Francisco and California are home to the largest number of unicorn startups. Zooming out a level, the US remains one of the best places to create fast-growing technology companies. That said, I’d be remiss if I didn’t mention Shopify, a Canadian e-commerce software company, here.

There are also growing numbers of unicorn startups in China. CNN has reported that there are more than 200 such companies in China as of 2019. That means more competitors for investor time and capital.

5 Are there unicorn startups outside of California?

Yes, there are unicorn startups in other regions and countries. Here are some examples to prove it:

  • Checkout.com (United Kingdom) – reached a $15 billion valuation in fintech (i.e., payments)
  • Grab (Singapore) – reached a $14 billion valuation
  • Canva (Australia) – a graphic design software tool that has an estimated value of $6 billion
  • TransferWise (United Kingdom) – a payment technology company estimated to be worth over $5 billion
  • Pointclickcare (Canada) – this startup is worth over $4 billion. Pointclickcare also regularly makes headlines in Canada as one of the country’s fastest-growing companies.

Dozens of Chinese startups have reached a billion-dollar valuation.

6 Are there B2B unicorn startups?

Many of the best-known startups with a billion-dollar valuation are aimed at consumers. However, the tech industry also has plenty of successful B2B software startup companies worth billions of dollars.  Let’s take a look at some of the market’s most successful B2B startups

  • Klaviyo, a marketing automation startup firm, is worth over $4 billion
  • Freshworks, a customer service cloud startup, is worth over $3 billion
  • SentinelOne, a cybersecurity startup firm, is worth $3 billion

B2B software companies have a growth advantage. If you follow in the footsteps of companies with $100,000 annual contract value (ACV) like Braze and Lotane, it is much easier to reach $1 million and then $10 million in annual recurring revenue.

7 Are you building a real business model?

Chasing unicorn status is tempting. After all, it is one of the best ways to get media coverage in outlets like Tech Crunch. That’s not all. Unicorn status may help you recruit talent from other businesses and impress venture capital funds. However, a “growth at all costs” mindset may lead you to develop unhealthy habits like discounting your product. Ultimately, you might fail to build a sustainable business.

Building a business that hits the $1 billion valuation mark is difficult. However, the single-minded pursuit of “unicorn startup status” is unhealthy. After all, you could achieve that milestone by spending hundreds of millions of dollars on your cost of customer acquisition. Or you might reach unicorn status by telling a good story about your startup.

Ultimately, my definition of a real business model comes back to the fundamentals. First, does the product add value or solve problems for real people? Second, can the company operate at a profit? Profitable software companies like Oracle, Microsoft, and Salesforce pass those tests.

Aspiring Unicorn Startups: Do This Next

Tech companies cannot assume rapid growth will happen automatically. Sure, charismatic leadership and ideas helped WeWork to grow. However, the company’s pursuit of growth and leadership problems contributed to its collapse. If you want to build a more valuable business over time, it is vital to invest in marketing to create value. Yes, hiring a small army of sales professionals will help you to attract customers this quarter. However, you also need marketing to inspire people to contact you. If you want more inbound leads, contact me to discuss your marketing goals.

How To Use The Freemium Model To Get Customers

The freemium model is a proven model to boost customer acquisition. Instead of asking customers to imagine using your product, you let them use it for free. Once they see the value, they will happily pay more for added features. Last year, I briefly used Duolingo in the freemium version before paying for the premium version to remove ads and access a better learning experience.

Freemium Model: A Simple Definition

Also known as the freemium business model, the freemium model is a digital spin on one of the oldest marketing ideas: the free sample. For more than a century, businesses have given away free samples of their products to attract customers. The logic is simple. Sidestep the discussions of price and risk of loss and let a customer directly experience the product. Once a customer sees the basic version’s value, they are more likely to be open to paying more for a premium edition.

In the tech and start-up world, there are many different kinds of freemium business. Older readers might remember the days of “shareware” in the 1990s. The modern freemium model has deep roots. If you’re still skeptical about its merits, multiple high growth companies have used this model successfully.

For further reading on the free as a business model’s fundamental principles, I recommend reading “Free” by Chris Anderson. I recommend picking up the book at an airport bookstore years ago, and it made quite an impact on me.

Which Companies Succeed With The Freemium Model?

There are multiple software and start-up companies currently using the freemium model. My favorite example is Mailchimp, which offers a free email marketing plan. Mailchimp’s freemium strategy has helped it become the default choice for many email marketers. Other marketing automation companies like Yoast SEO, HubSpot, and Yesware have used the freemium model to attract attention.

The freemium model has exploded in popularity in part for economic reasons. Thanks to cloud computing resources, the marginal cost for one more simple user account is close to zero. On the other hand, the value of acquiring a customer (i.e., converting a free user to a paying customer) is high. To demonstrate the value of the model, check out these examples.

  • Evernote. The note-taking app used multiple strategies to achieve tremendous growth. One of the company’s most successful strategies focused on acquiring free users. In a 2010 article in Fast Company, Evernote CEO Phil Libin said, “the easiest way to get 1 million people paying is to get 1 billion people using.” Later on, Evernote developed multiple tiers where users can pay for additional features.
  • Dropbox. The cloud storage company’s growth is legendary. One aspect of the company’s growth lies in referrals – the company rewarded users with more free storage for each new user they brought to the platform. However, that referral engine worked so well because Dropbox offered a free user account that provided real value.
  • Mailchimp. Best known as an email marketing platform, Mailchimp has grown fast, thanks partly to its decision to offer free user accounts. Mailchimp’s strategy is to limit the free account in terms of volume (i.e., a maximum number of subscribers) and access to advanced features (e.g., want to send advertising postcards directly from Mailchimp? You’ll need to pay for the premium version of the product).

From Freemium to Revenue: The Key Marketing Challenge

Giving away a basic product is a starting point. It is not enough to establish a business. At a certain point, customers need to pay you, or you will not cover your costs. Let’s look at some of how software companies have developed a premium service to grow their customer base. Pay careful attention to the presentation of different features, users, and volume restrictions. A user on a free account needs to experience some value and satisfaction certainly. However, there also needs to be clear benefits to upgrading to a premium plan.

Notion’s Freemium Model

Free Plan: the free plan is named “Personal,” and it is limited to sharing with “5 guests.”

Premium Plan Difference: the company offers three premium plans, including “Personal Pro” ($4 per month), Team ($8 per user per month), and Enterprise (pricing on request). Aside from the premium plans offering better collaboration options, the distinction between the free and paid plans on the pricing page could be better. For example, the Team plan offers “advanced permissions.” Why is that valuable? It is unclear. As a result, the company’s limited presentation of its premium features may reduce the number of users who upgrade to premium.

freemium model for Notion

Mailchimp’s Freemium Model

Free Plan: the free term is labeled “Free,” and it has both volumes (i.e., 2,000 contacts) and features limitations.

Premium Plan Difference: there are three paid plans: $9.99 per month and up to $299 per month. The Mailchimp pricing page does a great job explaining the differences in features and volume limits that distinguish between the different tiers. Bonus points for using “New” to highlight recently added features to each plan.

freemium model for Mailchimp

Freemium Plan: 5 Key Growth Challenges To Solve

Like any customer acquisition strategy, there are risks associated with using a freemium plan, even though it is a popular model. It is critical to understand these risks so that you can manage them effectively.

  1. Analytics. Before you can answer questions about acquisition cost and your pricing strategy’s effectiveness, you need analytics—specifically, the ability to track free users and their conversion to paying customers. In the long term, you will have enough data to evaluate Tactic A (e.g., send an email sequence) vs. Tactic B (e.g., ask customer success to offer one on one help to free users) to see which measure grows your customer base faster.
  2. Cannibalization. The risk that customers will use your free product to achieve their goals and never pay you for anything. This risk can be managed in a few ways, such as making a clear value distinction between free and premium plans (e.g., limits on the number of users, data volume, reporting, automation, or support)
  3. Conversion Rates. Converting a free user to a paying customer is a crucial challenge for a freemium business. Without a conversion process, the economics of the freemium strategy doesn’t make sense. Hope is not a strategy for your freemium acquisition model. If you’re unsure what to try, I suggest using a volume limit (e.g., free account limited to 100 records while a premium account is unlimited). For more guidance on SaaS conversion rates, see my article: How To Increase Your SaaS Conversion Rate: 7 Practical Ideas.
  4. Customer Success. If a million people sign up for your freemium product, should you celebrate? It depends on whether you have a conversion process to transition those users to paid plans. There are multiple problems to solve here. Start with the first step – getting users to log in to the product and use it to complete a task. There are an entire customer success and onboarding challenge involved to help new users successfully onboard. Hands-on training from customer success can quickly get expensive. If you are funneling hundreds or thousands of customers through your free to the paid conversion process, choose carefully where you apply customer success attention.
  5. Email Marketing. When new users sign up for your freemium product, they are probably excited to solve problems. However, your users have plenty of other activities and habits already in place. Therefore, it is essential to use best practices for email marketing to engage new users. Even if a free user isn’t paying you yet, there is still a marketing challenge at play. Email marketing is the best approach because it can be customized (e.g., one email sequence for free users and one email sequence for your entry-level premium plan and so forth).

By the way, you can use other marketing assets like your Facebook posts or a new blog post in your email sequences. The content you published last year as part of your organic search marketing campaign can be repurposed to help free users get to know the product.

Growing Your User Base With Referrals and Affiliates

Once you have a proven process to convert free users to paying customers, you need to get as many free users as possible. That’s why so many freemium software products include referrals and affiliate options. These programs give your current users a reason to spread the message. You could offer a financial reward like Freshbooks and ClickFunnels. Alternatively, you can take a page from Dropbox that offered additional product access (i.e., additional free storage) to customers who referred other users to the platform.

What To Do Next

You’ve learned the fundamentals of making the freemium model work. However, this model is just one part of a successful customer acquisition strategy. You also need content to attract the right people to your brand. Contact me today to discuss your content marketing strategy.

The Three Engines of Growth

With so many ways to acquire customers and hit your growth goals, simple models are helpful like building an engine of growth.

In his classic book, The Lean Startup, author Eric Ries describes three engines of growth. Whether you have a fully defined B2B SaaS marketing plan or not, this three-part model will help you.

engine of growth

1) The Paid Engine of Growth

Definition: Get customers through marketing and sales. This is the traditional ways that all businesses use to hit their growth goals. Ultimately, every startup has a paid engine of growth to some degree. For example, if you outsource “growth hacking” or other tactics to a content marketing consultant, you have a fee to pay. If you are paying sales and marketing employees to create content, make cold calls, and prospect, then you are paying for that as well.

Advantages:

The main advantage to the paid engine of growth is that it is a proven and predictable way to grow. It is also a useful engine of growth when you are starting from ground zero. When in doubt about customer acquisition, this is the best way to go. The key metric to track here is your customer acquisition cost. If you use traditional advertising, aim to use direct response methods to see which advertising grows your user base. Finally, this growth engine lends itself easily to fit into a marketing strategy.

Disadvantages:

The disadvantage of this growth engine is achieving sustainable growth. With a sales team, you will need to manage your sales staff effectively and optimize staff productivity. If you sell your product directly online like Mailchimp or ClickFunnels, you will have to monitor your advertising and marketing performance. In the early days of building your paid engines of growth, there will be many trial and error to find tactics that work.

Tactics

  • Start with outbound growth. Outbound methods like sending cold emails or making cold calls have a place in every company’s growth engine. If you use these methods, it is essential to track your numbers over time. I recommend Close.com’s blog post for insight on this front: Sales Benchmarks: The 30/50 rule for cold emailing & cold calling.
  • Enhance further with inbound growth. The dream of having leads come to you is real! Whether you use a content marketing consultant, a full-service email marketing agency, or an in-house team, inbound growth is valuable. Keep in mind that it can take a year or more to establish inbound growth. However, the long term benefits of inbound are fantastic. A high-quality ebook or blog post you publish today can continue to attract traffic and leads for years into the future.
  • Launch small experiments with online advertising. When you enter the world of online advertising, it is straightforward to spend money fast. That’s why I recommend starting with a small budget of $500 or $1000. Marketing author Russell Brunson likes to test new marketing offers with 1,000 clicks (i.e., 1,000 people). That’s a reasonable advertising idea. Unfortunately, today’s cost per click prices for online advertising means that you may end up paying several thousand dollars to get one thousand clicks.

2) The Sticky Growth Engine (i.e., the customer retention model)

Definition: Many of the world’s most successful subscription businesses like Netflix and Amazon rely on the sticky engine of growth. The focus on this growth engine lies in optimizing customer loyalty and engagement. Managing for low churn rates is critical for this strategy. If your business model involves recurring revenue, this method is vital to achieving a sustainable business model.

Advantages:

The advantage of this strategy is that it encourages long-term thinking. To retain customers on a subscription basis, the overall customer experience (or customer success in the SaaS context) becomes critically important. Customers will not keep paying if the product doesn’t work for them. Second, this growth engine also encourages companies to focus on making the product excellent continuously.

Disadvantages:

This engine of growth assumes that you have a customer base in place already. If you are just getting started, you will need to use the paid engine for growth and understand your SaaS marketing channels. The other disadvantage of this model is that it may discourage innovation to a degree. This engine encourages you to take steps to keep current customers happy and engaged.

Tactics

  • Measure and improve churn rates for exponential growth

To grow through retention effectively, you will need a clear understanding of your churn rates. For the best results, consider measuring churn in more sophisticated ways (e.g., cohort analysis – how do customers acquired in 2017 perform with customers acquired in 2019?). Further, it may be helpful to increase the frequency of churn monthly. When customers leave, it is critical to understand why and act on that knowledge.

  • Develop a referral program to increase your rate of growth

Word of mouth is great! Unfortunately, too many companies rely on word of mouth referrals accidentally. That would be like putting fuel in your vehicle only occasionally and then wondering why it is difficult to go anywhere. The better way is to build a referral program that rewards customers for growth. Rewards could be monetary (e.g., the Freshbooks affiliate program) or take other forms (e.g., get a free month of access).

  • Invest in customer service, customer success, and training programs.

Many of the world’s largest technology companies have something in common. This common feature isn’t product or staffing. Microsoft, Google, IBM, Salesforce, and Cisco all offer training programs on their products. In some cases – like Cisco’s legendary advanced certifications – the certifications become an essential contributor to the brand. By equipping your customers to develop a high level of proficiency in your products, they may be less inclined to seek alternatives elsewhere.

Tip: Track product usage as well so that you can determine which features attract the most attention.

3) The Viral Engine of Growth (i.e., the viral growth engine)

I’ve saved this engine of growth until last for a reason. It is exciting, but it tends to be the most difficult to develop. Yes, there are success stories like the major social networks. Yet, the industry is littered with far more attempts to “go viral” than successes. That all said, it is still worth understanding this engine of growth.

Definition: the viral engine of growth is a situation where other people spread the word about your product. This is how I first learned about the Google search engine – a favorite high school teacher told me about it.

Advantages:

When it comes, viral growth can be almost magical! Each customer then comes into the business can bring more. My favorite example of the viral engine of growth is Hotmail. The company included a link to joint Hotmail in every outgoing message. At the time, free webmail was a relative novelty as well. Therefore, Hotmail was positioned to stand out as a novel offering and use a viral mechanism.

Disadvantages:

Of all the growth engines, the viral engine is the most difficult to design and build. It tends to be most common in consumer-facing products like social media platforms. To a degree, you might consider Slack – acquired by Salesforce for billions of dollars in 2020 – as a B2B example of viral growth. If you are running a B2B startup, the viral growth engine probably should not be your focus.

Tactics

  • Go back to the basics of your target audience.

To have any hope of triggering a viral growth engine, knowing your target audience inside out is vital. For example, a B2B startup founder might think through the levers of influence outlined in “Influence: The Psychology of Persuasion” by Robert B Cialdini and choose authority. In that situation, your marketing strategy will focus on getting reviews in Capterra and recognition from Gartner. You might also make some targeted purchased of banner ads to increase brand recognition.

  • Track and measure your viral coefficient.

For a viral engine to work, you need a way to track it. Indeed, traditional SaaS metrics, like customer acquisition cost (CAC), will help. However, the viral coefficient tells you how well your customers are spreading the news about your product.

The viral coefficient is the average number of customers each customer brings you. If you achieve a viral coefficient of two, each current customer will bring you two more customers. To get these answers, train your sales team to ask customers how they heard about your company. If you have a self serve product, encourage current customers to use tracking links through an affiliate program.

  • Build a viral factor in the product

Your customers are not interested in your rapid growth goals. Therefore, you cannot expect them to hunt for ways to share your product with other people. That’s why I suggest looking for ways to build a viral factor or network effects into the product. For example, a social media platform or communication platform like Slack becomes more valuable as more people use it. In addition, consider offering free invite codes.

What To Do Next

At this point, you’re probably considering two questions.

1) Which engine of growth is right for my B2B startup?

2) How do I increase the effectiveness of my customer acquisition and marketing?

You might continue your research further by reading up on SaaS marketing channels. Or you could do yourself a favor and contact me today to discuss your marketing needs.