Optimizing Your Business Model For SaaS Success: 11 Levers To Pull For Hypergrowth

Developing a business model for SaaS is easy when you know the recipe. Use these ideas to fine-tune your SaaS business model and grow your recurring revenue over time. Each of these strategies is critical to increase SaaS revenue and get more users on your applications.

If you hit income growth challenges, use this article as a resource to give your sales teams and marketing team a boost.

1) Software As A Service: Offer Software By Subscription (i.e. The Core Business Model)

The foundation of your business model for SaaS is to create a software as a service or a similar technology offering (e.g., platform as a service or infrastructure as a service). You can leverage cloud computing from Google and other companies to build it. Instead of emphasizing downloading and installing the product once, the customer relationship involves a monthly revenue stream. A potential customer needs only to enter payment details and start to use the product right away.

With a monthly revenue stream coming in, you will have more resources to invest in improving the product’s impact. You might build an integration with Slack or Salesforce or boost your marketing to get more customers. If you’re not interested in growing through an integration, you might decide to apply your revenue to recruiting new talent.

2) Recurring Revenue Billing: Customers Pay You Each Month Is Critical To Business Model

A successful business model for SaaS requires that your customers pay an ongoing revenue stream. Assuming you manage churn rates successfully, you will automatically see growth in your revenue stream month after month. You can use a service like Stripe to process payments for you.

There is a downside to having customers pay you every month. Like it or not, your customer will see those charges come in and wonder if they should keep paying for the product. That means you have to invest resources into improving the customer relationship by offering training, top-notch customer service, and constant product improvement.

3) Customer Acquisition: Predictably Acquire New Customers Every Month

Growing your software company ultimately comes down to your ability to pull in new customers. You can use email marketing best practices to convert site visitors to paying customers. In addition, your approach to social media and Google needs to play a role in attracting your target audience over time. Finally, you need to have a process to convert free uses to a monthly subscription. Finally, your sales team must be disciplined about using outreach, retaining your existing customer base, and finding out more about customer needs.

Tip: Make sure you are spending enough to stay competitive. A 2017 CMO survey found that companies spend a minimum of 11% of company revenue on marketing. If you have $1 million in SaaS revenue, you need to be spending $100,000 to keep up with other Internet companies.  

4) Achieve Real SaaS Scalability: It Is More Than Using Web Services

Adding a new customer should not break your company’s infrastructure. Instead, using web services like Amazon Web Service to maintain your software company’s stability. Scaling in terms of technology tends to be the first point that founders consider. No doubt, it matters!

However, what if you are worried about meeting your investor’s expectations for growth? You might have promised that you would reach a billion-dollar valuation within five years. To have any hope of reaching that goal, your scalability ambitions have to go beyond fancy ways to use a cloud service.

The next part of the equation is to find a predictable way to get more customers. Start by figuring your customer acquisition cost. For example, do you have a solid onboarding plan so that your customers can achieve quick wins? If not, achieving scalability will become quite challenging.

5) Pricing Strategy: Thinking Creatively About Margins and Value

If you are a small business owner used to buying software with a credit card, you need to think bigger. I have found multiple software companies that charge customers over $100,000 per year for software in my research. Even better, charging a high price doesn’t mean you will lose customers either. For more insight on this point, check out my past article: SaaS Churn Metrics: Insights From 16 Companies with ACV Over $100,000.

To reimagine your pricing strategy, use these questions:

  • What could we provide to customers if we charged ten times more than we charge right now?
  • Can we offer a self-serve option (i.e., pay with a credit card) for smaller accounts?
  • Do we have enough customer success stories to win attention from larger companies?
  • Does our inbound marketing compare well to the software industry’s giants like Salesforce, Microsoft, and HubSpot?
  • Could we offer a new time-based pricing tier (e.g., buy the annual plan and save 10% vs. the monthly plan cost)?
  • Should we have a different price for each operating system?

If you can improve your user pricing model, developing a more profitable customer acquisition cost will be much easier.

6) Does Your Freemium Model Have A Clear Value Proposition?

“Use our product for free for 14 days!”

You see this type of freemium model every day in the software industry. The thinking is simple. If a customer can achieve something for free, they might be more inclined to pay for access. One of the best-known examples of the freemium model is Mailchimp

Giving away their product with a freemium model has been a winning business model for SaaS. Don’t believe me? Look at Mailchimp’s business’s size – they have reached approximately 700 million dollars in revenue, which makes them a bit larger than HubSpot.

In the case of Mailchimp’s approach to freemium, you can use most of the product’s core functionality for free. Specifically, you can get subscribers and send emails to them without a paid plan. Even as you use the free version, the product introduces you to other parts of the value proposition like:

  • Remove Mailchimp branding. That’s attractive because it means you can reinforce your branding on all of your emails.
  • Get more than 2000 subscribers. This feature is appealing because you might be planning a big advertising push to grow your email list.
  • Run Facebook Advertising campaigns right from Mailchimp. If you prefer to work inside the Mailchimp interface, this feature is helpful.

If you are experimenting with a freemium model, take lessons from the Mailchimp approach to acquire more customers. Ultimately, offering a freemium is also an excellent way to position upsells to your core value proposition (e.g., Mailchimp’s product with 2000+ subscribers).

7) Use The Business Model Canvas To Improve Your Business Model

There are two broad ways to improve your business model for SaaS. First, you can make incremental improvements, like tweaking your pricing strategy. Second, you can make wholesale changes! When you need the inspiration to make a more significant change because your growth plans are going nowhere, the business model canvas can help.

At its simplest, a business model canvas is a template document that gives structure to your business model brainstorming. Thanks to Wikipedia, you can see a screenshot of a business model canvas below:

For example, did you see the section on channels? Your growth might be stalled because you’re using the wrong channel. Maybe your account executives and sales development representatives love to cold call. However, they may find that they can’t get a chief financial officer on the phone after making 1000 cold calls. In that case, the solution may lie in using other SaaS marketing channels. You can also think about channels in the form of distribution partners – Microsoft and Salesforce both use third party firms to sell their software and offer related professional services.

Further Reading: To dive more in-depth information on the business model canvas methodology, take a look at the business model canvas website or the book that started it all: “Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers.”

8) Do You Have A Project Management Method In Place?

For a mature stage SaaS company, project management is a critical capability.

Project management? You might be surprised to see that here. After all, software as service companies has a “move fast and break things” reputation. Here’s the nuance. Once you get your software product off the ground and have customers, you will enter a new phase to manage your set of SaaS products.

Each day, tech support will receive a constant stream of bug reports. Customers will ask for new features. The sales team will pass along suggestions. Further, your engineers and programmers probably have plenty of ideas to make the product better. Your customer support team may have ideas to make more people happier with your product features (e.g., offer the product UI in French and Spanish). You may even get comments on your WordPress blog demanding new features!

Let’s assume that you have a relatively straightforward product strategy, and you have chosen five features to build. Now, you need a system to manage those projects. If you are a software enthusiast, you probably immediately thought of using an app like Asana or Basecamp to manage your project tasks. Those tools will help. Even more important, you should choose a project management methodology like agile so that everybody is on the same page and increase collaboration effectiveness.

9) Use An affiliate program to reward your customers for referrals

Everybody dreams of getting more business through referrals. If you are a salesperson, you can use books like “Endless Referrals” by Bob Burg to get more referrals. When a sales representative gets a handful of new referral leads, the business can grow faster. Getting customers to sell for you via an affiliate program is a fantastic way to make your SaaS model more attractive to investors.

There is another way to get referrals that can be even more powerful – using an affiliate program. In this model, you pay a commission to a third party when they bring you a new customer. For instance, FreshBooks, a cloud accounting tool, currently pays $10 for trial signup. That’s just the start! Affiliates can earn up to $200 if those free trials convert to a paid plan. By paying money directly to affiliates, you encourage them to keep bringing you, new customers.

There are multiple ways to run affiliate programs. If your affiliates are a strategic focus in your business model, I recommend reviewing the ClickFunnels affiliate program. They pay an ongoing commission for new subscribers. Further, the company offers special rewards (e.g., a cash bonus to pay for an affiliate’s car) for higher performance levels.

Whether you want to pay a simple upfront commission like FreshBooks or offer a more complex program like ClickFunnels, an affiliate program is well worth considering. This type of reward is a good option if your software company sells to individuals or small businesses. If you sell to larger corporations like the Fortune 500, sales teams are the better method to reach your hypergrowth goals.

Offering an affiliate commission to a marketing manager at a large corporation like Wal-Mart is less likely to work. Corporate employees are often prohibited from receiving special compensation or benefits from vendors. However, you might be able to reward them with a different set of benefits like a free month of product access when they bring you a new customer. In this case, there is no monetary cost to your business, and the corporate professional still has benefits to show to their colleagues.

Tip: Use testing to improve your affiliate program over time. Some affiliates might prefer a large upfront payment. If those acquisitions are profitable, update your venture capital presentations with this additional cost element.

10) Increase Customer Lifetime Value To Reach Hypergrowth

Recently, I read Netflix’s Q2 2020 earnings report, which came out in October 2020. The consumer company reports a wealth of customer data in the entertainment niche. I found it interesting to see that the average revenue per subscriber is gradually going up across their different geographic segments. Netflix’s success reminds me of a simple way to boost your revenue stream: increase your prices annually. Such a move will help you to maintain stable profits.

After all, how many subscribers will care if their monthly subscription goes from $8 to $10? For happy customers who spend an hour or two using the service each day, a small price increase doesn’t matter. When you add up those price increases, its overall revenue model and income start to look better.

The Netflix data also suggests that the company is doing very well in terms of retention rate. Minimal price increases and continually releasing new content helps. That said, don’t copy everybody Netflix does. Their cost structure includes spending billions on product development (i.e., new TV shows and movies).

11) Social Media: Choose Your Platform Carefully

Whether you use are building a low touch SaaS or relying on sales teams for growth, social media should be part of your SaaS business model. Specifically, I recommend viewing social media as a way to feed your marketing funnels with new leads. If you need to look for a new potential customer, you can almost always find those prospects on social media. People are constantly checking their social streams for new distractions, and you can attract some of their attention by publishing engaging content.

Start by publishing your new educational content to your content management system of choices like your resource center or WordPress. Afterward, post part of that new content to a social media platform. For example, avoid merely posting a link to a blog article on LinkedIn. Instead, copy and paste a few paragraphs of the content into LinkedIn to promote your company.

Regardless of the social media you use, there are expenses to keep all of these status updates coming. A mature stage company might have a dedicated marketing employee for social media. A smaller company might rely on outside talent for social media. If you find that social media doesn’t help you get new customers, don’t write it off yet. It might play an essential role in customer retention.

Want more profits in your SaaS business model?

Contact me to request a review of your marketing funnels, content, and email marketing. I’ve been in the Internet marketing field for years, and I love working with companies in the SaaS industry.

Churn Rates: What It Is And How To Use It To Boost The Bottom Line

High churn rates can hurt your business growth

Churn rates are crucial to monitor, especially in a recurring revenue business model. If you cannot keep your existing customer base happy, growth will become very hard. Before you find out how to reduce customer churn, let’s get clear with a churn rate definition.

Understanding Churn Rates

There are ways to define churn rate – as a concept and as a metric. Let’s cover both of these quickly as a starting point.

A churn rate is the percentage of customers that cancel their subscription in a certain period. If 50% of your total customers cancel their annual contract, you would have a 50% churn rate. A 50% churn rate will make it very challenging to grow your company even if you have a fantastic SaaS conversation rate.

Your churn rate as a business metric should be calculated regularly (e.g., monthly) if you have monthly plans or annually if you sell contracts with an annual retention rate.

Use this formula to calculate your churn rate so that you can improve your retention rate.

1. Choose a time period for your churn rate schedule (e.g., monthly, quarterly, or annually) . Let’s say it is an annual time period.

2. Count the total number of customers acquired in this time period through your customer acquisition period. Example: Your customer acquisition plan is working well, and you signed up 1,000 customers in your ideal customer segment.

3. Measure your customer churn number (i.e., number of customers who canceled their account) in the same time period. For example, you lost 250 customers because of bugs in your company’s mobile app.

4. Do your customer churn math: divide the total number of lost customers by the number of acquired customers. For instance, 250 divided by 100 equals 0.25.

5. Multiply that number by 100 to determine your customer churn rate (i.e., 25%).

Find Your Path To A Lower Churn Rate With These 5 Questions

No company dreams of losing a customer. Yet, some amount of revenue churn is inevitable in business. Deciding whether you have a severe annual churn or revenue churn problem requires you to consider a few questions.

1. How does your annual churn compare to other companies in the industry?

Churn rates vary considerably. For instance, B2B SaaS companies observe that churn tends to be higher in the small business segment than the enterprise customer segment. Still, it is helpful to review a few churn benchmarks:

  • The average annual churn rate for SaaS companies is 3.73% (voluntary churn) and 1.06 (involuntary churn), according to Recurly’s churn rate benchmarks.
  • “When looking at churn based on the size of the company, you’ll notice that churn only loosely correlates with a company’s monthly recurring revenue with wide interquartile ranges that fluctuate between 5% and 16% gross revenue churn on the low end of MRR and 2% to 8% on the high end of MRR.” – Profitwell on churn rate benchmarks

Now, you’re probably wondering when you should get worried and take action to improve churn. Baremetrics shares the following perspective on SaaS churn:

“A typical “good” churn rate for SaaS companies that target small businesses is 3-5% monthly. The larger the businesses you target, the lower your churn rate has to be as the market is smaller… For an enterprise-level product (talking $X,000-$XX,000 per month), churn should be < 1% monthly. Most early-stage SaaS companies I’ve observed typically have churn around 10-15% for the first year as they work out exactly what their product needs to do, then they’re able to reduce it pretty quickly.”

After you get past your first year or two of business, your SaaS churn better get under 10%. If you consistently have a higher churn rate, you have a problem! You will need to take a closer look at your customer retention process and use cohort analysis to determine which customers are staying and which are leaving.

Above-average churn rates are going to make it more challenging to get funding. It is an essential factor that investors may ask you about when you seek out finding. After all, who wants to pour water into a leaking bucket?

2. What are you learning from churned customers?

Whether you call them churned customers or lost customers, there are important insights you can learn from this group of customers. As a starting point, use a survey to ask customers about their plans and what they plan to do next. For example, when I canceled an Aweber account, I was asked if I was switching to another provider. I had switched to another email marketing platform – Mailchimp. By analyzing this type of customer attrition, Aweber may find ways to improve their SaaS conversion rate.

3. Are you analyzing credit card issues to lower churn?

If your business model relies on credit card billing, pay attention. There are proactive steps you can take to lower churn. Start with expiration date management. When customers pay by credit card, find out when their card is going to expire. Once you have that information, reach out to them two months in advance and ask them to update their credit card.

In a small business, the sales team or business owner should take on the work of reaching out to customers with expiring credit cards. Likewise, you should also develop a process to identify declined credit card payments and contact customers about that problem.

Tip: If your credit card management becomes overwhelming, transfer this responsibility to customer support and give them a tool like Zendesk to manage this activity.

4. Reach out to lost customers regularly

There are several ways to look at churned customers. You could take their loss personally and refuse to speak to them again. Or you could review their customer dissatisfaction comments as an opportunity to improve. For example, if your lost customers complain about a lack of Shopify integration, your development team may eventually solve that problem.

Once you have solved a cause of customer dissatisfaction, ask your sales team to contact lost customers again. Tell your lost customers that you have improved the product and invite them to take another free trial. With this practice, your overall growth rate will improve over time.

5. Analyze the impact of seasonality on your business

Seasonality patterns sometimes play a role in your annual gross revenue. For example, retailers tend to have higher revenue in the final few months of the year due to holiday shopping. You might find that summer is a slow season in the enterprise market because decision-makers are unavailable.

Detecting seasonality in your business takes a few steps. Start by making a list of the lost customers. Next, look at the cancellation dates. If you find that many of them are canceling in the same month, you can make a probability cancellation about churn rates (e.g., customers cancel in the summer months). Instead of accepting seasonality as natural attrition, you can plan.

Over the next 12 month period, set up a field experiment to engage customers before seasonal patterns cause them to cancel. For instance, consider organizing a webinar or a virtual event in May to create new excitement about your product before the summer vacation season arrives.

Reduce Your Churn Rate: 3 Evergreen Techniques To Use

Once you understand the business drivers for your churn rate, you need techniques to improve this figure. If you keep improving, you might reach the promised land: negative churn!

1. Are you using pricing tiers to reduce churn?

If your customers only have one way to pay, canceling becomes much more attractive. That’s one reason why pricing tiers are so popular in the SaaS industry. Your annual gross revenue should have customers switch from a $1,000 per month plan to a $500 per month plan rather than canceling entirely.

Adding a lower-priced version to your business model lets your customer save money and prevents customer lifetime value from crashing.

2. Offer a better deal to retain customers

There are several ways to improve customer satisfaction so that you can keep your monthly revenue high. Start by finding out the customer’s desired outcome with your product. For example, are they buying a marketing automation app to double their marketing efforts on social media sites? Your customer may not reach their desired outcome because your onboarding process was too complicated to figure out.

Offer a better deal by creating a customized onboarding process for the customer. Empower sales reps to spend more time on customer happiness and your churn rates will come down over time.

3. Are you improving your onboarding process every month?

The onboarding process plays a significant role in guiding your customers to achieve their desired outcome. For example, take the Quickmail onboarding process as an example. Rather than relying on sales people, customers sign up for a free trial. To achieve results, Quickmail sends a series of emails that strike the right balance between inspiring users to send emails and learning how to use the product’s features.

9 Key Questions To Ask Before You Start Working With An Email Marketing Agency

An email marketing agency makes it possible for you to grow your email list, sell more products through promotional email, and stay consistent with your monthly newsletters.

Email marketing agency: 9 questions to ask

1) How Can A Full Service Email Marketing Agency Help You?

When you work with a full service email marketing agency, you can expect a menu of services. They will start by reviewing your current marketing strategy, the most effective email campaign, and the overall digital marketing situation. Before creating a single email campaign, they will probably also look at your company’s presence on Facebook, traffic from Google, and ask you questions about your target audience.

By gathering all of this information, you are more likely to achieve better results, including an acceptable return on investment. Besides, I also recommend working with a full service email marketing agency with expertise on specific marketing software like Mailchimp. For example, I use Mailchimp in my business, I have developed email marketing campaigns for clients in Mailchimp, and I’ve completed the Chimp Essentials course.  If Mailchimp is a vital tool in your digital marketing, I would be pleased to help your marketing team.

2) Ask What Goes Into Designing A High Designing Email Marketing Campaigns For Your Business

Email marketing campaigns that drive results require several elements. You need a template design that your target audience will find easy to read. In addition, you need marketing expertise to set specific business goals:

Example Business Goals

  • Increase orders from your existing customer email list by sending a weekly email campaign
  • Improve email marketing efficiency by creating a newsletter template that you can use repeatedly
  • Get better results from your sales funnel (i.e., increase email revenue by 10%)
  • Grow your email sign ups with more of your target customers by inviting Facebook followers to your email list
  • Implement marketing automation to onboard new customers (e.g., send an email campaign to new buyers with a buyer-specific email newsletter and a welcome email)?
  • Launch a survey to your target audience to inform your next product launch

The details of digital marketing – choosing when to use automation campaigns, reducing your bounce rates, and improving brand awareness –  are secondary to business goals. Your essential indicators in working with a full service email marketing agency should focus on revenue and lead generation business goals.

3) Are There Setup Fees To Start Your Email Newsletter?

Before you start sending out monthly newsletters, there is some preparation work to do first. That’s why setup fees are standard practice when you work with a full service email marketing agency. Specifically, a setup fee covers the cost of critical marketing activities like reviewing your current search engine optimization situation, evaluating past monthly newsletters, checking Salesforce, and evaluating the performance of the promotional email you send. All of these preparation activities take time and expertise, so you need to setup fees are a standard operating procedure before you start sending email marketing campaigns.

4) How They Use Content Marketing To Support Your Email Marketing Campaigns?

There is a close link between growing an email list and content marketing. Interesting content draws people into your business when people search for answers on the search engines. By offering helpful content marketing resources, prospects are more likely to agree to receive marketing email from you.

Once people are on your email list, content marketing continues to play an important role. You don’t want to fill every marketing email you send with sales pitch after sales pitch. That approach will encourage people to ignore their email marketing campaigns. Instead, train your customers to look forward to your promotional email by sharing valuable information like interviews.

Tip: Want to see interview-style content marketing in action? Check out my interview with Uploadcare, which explores their digital marketing wins.

5) How Will Email Marketing Agencies Support Your Marketing Team?

Email marketing agencies like to talk about their digital marketing expertise with copywriting and marketing automation. Those skills do matter. Alas, these skills are not enough. It is also vital that your email marketing agency knows how to work with your marketing team. After all, your marketing team has already put months and years of effort into understanding your company’s target audience, content creation for Google, and other Internet marketing projects. Such insights are vital to attracting potential clients to join your subscriber list.

To assess whether a digital agency will work effectively with your marketing team, ask the following questions:

  • What is your monthly process to seek feedback on marketing email?
  • What is your customer service process (e.g., do they report on bounce rates to you monthly)?
  • How do they define marketing leads for your business?
  • What is the team’s plan for the channel partner incentive program?
  • Will they help your marketing team to choose email applications?
  • Will the digital agency write email sequences for your business?

6) What Marketing Automation Ideas Do They Propose?

Email marketing agencies live and breathe digital strategy every day. Therefore, you should expect your digital agency to take a proactive approach to your email marketing campaigns. Specifically, email marketing agencies should develop a digital strategy that leverages marketing automation to achieve your business goals.

Practical marketing automation ideas may include:

  • Improve the quality of lead generation with marketing automation (e.g., only send a lead to sales when the person has interacted with multiple email marketing campaigns)
  • Get better results from Facebook with marketing automation (e.g., upload a customer email list to Facebook so that you can advertise to people in your target market)
  • Send triggered emails to your subscriber list based on customer activity

A proper full service email marketing agency will not send the same email blast to everybody. Instead, they will use carefully use your email program to target different parts of your target audience with marketing software. You might decide to send one email blast to your existing customer list, offering them a discount to buy. Everybody else (i.e., non-buyers) would receive a different marketing email.

  • Propose effective strategies for marketing automation based on other projects. As a business owner or digital marketing manager, you are only familiar with your customers. Experienced email marketing companies work with multiple companies. If they find a way to ignite visibility or get better results from a landing page in a different target market, those ideas could be adapted for your business.

7) How Will The Full Service Email Marketing Agency Achieve A Good Return On Investment?

An email program like MailChimp automatically collects specific data like open rate and customer engagement metrics like clicks. On their own, these data points do nothing to advance your business goals. As a business owner, you’re probably too busy to study your open rate for insights.

In contrast, your marketing team and a full service email marketing agency will work together to design more effective strategies. The digital strategy may evolve to recommend increasing email sign ups with a blog post and landing page rather than pay per click. In many cases, generating leads from Google is a better way to get more potential clients.

8) What Is The Digital Agency’s Approach To Using Strategic Partnerships To Grow Your Email List?

Your email list only contains a fraction of your overall target audience. For example, there are millions of people who use Microsoft Excel every day. Yet, only a fraction of those people is familiar with Excel products like FormulaSpy or Mr Excel. Rather than sending email campaigns to your current email list, email marketing agencies will sometimes suggest a different approach to lead generation: strategic partnerships.

In its simplest form, strategic partnerships mean that another company permits you to send a promotional email to their email list. To make the arrangement attractive to the other company, offer them a concrete benefit like a revenue share. What about cases where you don’t have the marketing expertise to do a direct marketing share?

You can still use strategic partnerships to achieve better results. Instead of a sales promotion, ask your partner to send a promotional email to tell their email list about an upcoming webinar or virtual event. With this approach to digital marketing, your company brings valuable information to the target market. Your partner looks good to their email list because they are bringing new insight to the market.

If you’re not sure how to create a webinar or presentation, you may need to work with a content marketing consultant. They can work with your marketing director to create a custom landing page, write the promotional email, and write the presentation script.

9) When Does It Make Sense To Take Marketing Software And Email Campaigns In House?

A full service email marketing agency probably would not tell bring up this point, but it is crucial. In some cases, you are unlikely to achieve better results or a meaningful return on investment when working with email marketing companies. This disappointing digital marketing outcome can happen for a few reasons.

Your email list is too small

If you have 10, 50, or even 100 people on your email list, it is challenging to generate significant results even if you send a marketing email every day.

Your email newsletter has no call to action

Your business goals probably include increasing revenue, right? Therefore, your email newsletter has to make it easy for people to buy a product or request an appointment. If your email blast does not include a clear call to action (e.g., click here to buy), nothing is going to happen.

You refuse to use a marketing email platform like MailChimp

Whether you use MailChimp, Constant Contact, HubSpot, or a different platform, it is vital that you use a professional marketing automation platform to send your email newsletter, triggered emails, and promotional email. These email programs are an essential component of running successful email marketing campaigns that increase revenue.

Your marketing director isn’t interested in working with email marketing companies.

Your digital marketing budget is too small. Do you only have $500 to spend each month on your digital marketing program? It is possible to ignite visibility on occasion and use some essential marketing software on that budget. However, the overall results are likely to be minimal.

You avoid participating in a kickoff meeting or campaign management discussions.

A kickoff call to gather information is critical. Without a kickoff call, creating lead magnets, developing a drop campaign, and exploring search engine optimisation ideas are likely to fail. Failure is likely because the digital agency will be guessing about your business goals and target customers.

What’s Better Than A Free Consultation: Get A Marketing Email Health Check

There are so many email marketing companies offering to run your email marketing campaigns. How are you supposed to determine which one will help you implement your marketing strategy? I recommend looking for an email marketing agency that gives new clients more than a free consultation.

That’s why I have developed a 10 point health check for email marketing campaigns. This checklist will pinpoint where you need to make changes to get more sales. For more information about the email marketing health check, contact me today to request it.

12 best practices for email marketing to get more sales

Get the best practices for email marketing you need to reach your goals.

Use these best practices for email marketing, and you will earn more sales from your customer base. Think of this article as a toolbox to improve your next email campaign. Please bookmark this page and come back to it whenever you get stuck in reaching your digital marketing goals. Remember, there is a good chance that your entire target market uses email, whereas they may not all be on Facebook.

Set Your Email Marketing Foundation

These best practices for email marketing only need to set up once and then reviewed quarterly. By putting these best practices into place, you will progress toward achieving marketing goals like a reasonable open rate and conversion rate. It might sound counterintuitive, but it is generally best to focus your limited lead generation efforts on growing a mailing list rather than social media marketing. Email marketing tends to have the best return on investment of any online marketing channel.

1 Build your email list with an email service provider

Sending a large volume of email through Outlook, Gmail, or your email account to everyone in your address book is not a workable email marketing plan. That’s not what those tools were designed for, and you will not get open rate data. Instead, do yourself a favor and use a marketing platform like Mailchimp. When you use Mailchimp, they will automatically track your bounce rate, click rates, and give you advanced features like list segmentation.

Sending your email from HubSpot or Mailchimp also means that you can use your domain name in your email marketing. Using an email service provider will also avoid the temptation to use ineffective tactics (e.g., send emails to everyone in your contact list). Even better, a proper email service provider gives you fantastic marketing automation capabilities (e.g., send a specific email to subscribers when they sign up for a webinar).

Tip: Look for an email service provider that gives you the option to preview emails on a mobile device. Failing to consider the mobile device experience (e.g., how does this email look in the Gmail mobile app?) will make email much less effective as a marketing channel.

2 Use double opt-in for each new subscriber to maximize overall deliverability

A double opt-in process means that a subscriber must perform two steps to join your email marketing list. They enter their email address on your website or landing page. A few minutes later, the email service provider (e.g., Mailchimp) sends a message to the person’s inbox asking them to confirm their email subscription. This two-step process is one of the best ways to ensure your marketing email arrives in the inbox rather than getting stuck in the spam filter.

Using a double opt-in will also increase your open rate because your subscribers have signaled twice that they wish to receive your email marketing messages. If you are not sure about whether your marketing automation tool supports double opt-in, test it by signing up for your email list and see if you receive a confirmation email

3 Set expectations upfront for email frequency

When a potential subscriber joins your email list from an opt-in form or landing page, they have shown some interest in your value proposition. In your welcome email, make it clear how often you will send emails to them. For example, your welcome email (i.e., an automated email sent to new subscribers when they sign up for your email list) might tell people to expect a new email newsletter from you every Friday.

Tip: By setting expectations upfront, you will improve customer retention and find it easier to scale up your digital marketing.

Growing Your Mailing List Faster With These Best Practices for email marketing

By consistently adding new people in your target audience to your mailing list, you will get closer to hitting your marketing strategy goals. For example, if you have an ongoing webinar series where you share relevant content each month, get a quote from a past attendee that you can use as social proof on the webinar landing page. Adding social proof is a proven way to enhance all of the other best practices for email marketing outlined in this article.

4 Use content marketing to build your email list

Right now, your target audience is looking for answers. For example, they want to know how to improve their SaaS conversion rate. By providing relevant answers in your content marketing, you have the opportunity to include a call to action to invite potential customers to join your mailing list. High-quality content is a digital marketing asset that continually works in all time zones. After all, people are continually looking for new insights on Google, other search engines, and social media platforms like LinkedIn and Facebook.

What if you have an extensive contact list of past customers? Should you add all of those people directly to your email marketing list? No, that is not a good idea. Adding people to your email list without permission is not a smart idea from a legal perspective. Further, your messages are likely to get caught in a spam filter when people click the spam button in Gmail and other email apps. The short term boost (e.g., a one percentage point increase in sales) is not worth the risk involved in departing from best practices for email marketing.

5 Create a new landing page for email marketing

Your email marketing strategy should include at least one landing page. Unlike traditional webpages, a landing page is designed with a single digital marketing goal: grow your mailing list. To keep it simple, I recommend offering a free resource (e.g., an ebook, a video, a cheat sheet) as an incentive to join your mailing list. When relevant, you can also direct people on Quora to visit your landing page if the landing page offers a specific resource that answers their question.

In smaller companies, you might not have a dedicated email marketing professional. In that case, focus your landing page efforts on high-value activities like driving signups for a webinar.

Tip: Since a landing page is a crucial digital marketing asset, allocate some of your link building efforts to drive traffic directly from Google to the landing page.

6 Update your social media – including Facebook – for email marketing

While social media is significant in some ways, it has a significant drawback as a marketing channel. You cannot easily export members of your target audience. That’s why I recommend using social media to grow your mailing list. When you create a new landing page offering a free resource, post about it on social media.

Social media platforms like Facebook are great for brand awareness. However, it is best to view Facebook and Instagram as supporting lead generation tools. Focus your marketing strategy on growing your email list. It is much easier to grow your customer base by sending promotional emails to your email list versus posting a call to action on Facebook.

7 Understand the risk of using financial or quasi-financial incentives to grow your mailing list

Some companies give subscribers a gift card as an incentive. As a general rule, I suggest that you not use a gift card promotion to grow your mailing list. The reason is simple. Many different people would like to have an Amazon gift card, and many of these gift card seekers may not match your target market profile. Too many irrelevant people on your mailing list mean you run the risk of a higher bounce rate, lower customer engagement, and reduce online marketing effectiveness. Instead, focus your content strategy and copywriting on growing your mailing list. With an extensive email list, you can produce new orders on demand, especially during significant buying seasons like Black Friday.

If you have the option to spend $1,000 to grow your mailing list, apply that budget to creating high-quality content like a new infographic. A high-quality digital asset can drive traffic from your target market for years into the future.

Making sales with email marketing: the end game of digital marketing

Use these best practices for email marketing to generate more sales from your customer base.

8 Balance engaging content and promotional emails in your email marketing

As a best practice, the email content you send to your email list should include valuable information (e.g., tips to help them get more done). However, sending valuable information alone is not good enough to generate sales. You also need to include a sales pitch in your email to drive revenue. For example, use email communication to tell customers when you launch a new product. You can also use social media marketing to announce a new product.

Tip: Use email copy techniques like a strong call to action when offering something for sale. If there is a special discount for buying today, make that clear in your email. To learn the fundamentals of copywriting, I recommend reading “The Ultimate Sales Letter” by Dan Kennedy. It will change the way you write email body text forever.

9 Create an email campaign for sales

You have put in the hard work to build an email list using Mailchimp or another email service provider. Now, you need to create sales-focused email content to generate more income. As a starting point, I recommend using a three email sequence. Of course, you will want to double-check critical elements like including clickable links (i.e., a hyperlink to a sales page with a high conversion rate) before you send your email to the list. Without a clickable link, your email marketing will only contribute to increased brand awareness.

Email 1: introduce the offer to your email subscribers

Use the email subject for the first message to introduce the current promotion and why it matters. For example, you might offer a buy one get one deal for Black Friday in your sales pitch if they buy through your online shopping cart this week.

Tip: If your email open rate is below 30%, use segmentation to identify people who never opened the message. You will then resend the same message to those people but using a different email subject. This tip can quickly increase your email conversion rate. If your email service provider tells you that most of your subscribers use a mobile device to view your emails, then keep this fact in mind. Test your emails on a mobile device before sending them to your entire mailing list.

Email 2: answer questions from your email subscribers

In nearly any kind of email campaign for sales, you will get questions. That’s a positive sign that you have good email engagement even while sending promotional emails. The second email in the sequence should answer the questions your customers have sent in. Remember to include a buy now call to action hyperlink or some other sales pitch in your body copy even as you answer customer questions. If customers have to speak to you first, then provide a simple lead generation call to action (e.g. “reply to this email to find out more”)

Tip: If you already have relevant content on your website that answers a question (e.g., “how much does shipping cost?”), then provide a link to that video, article, or another resource

Email 3: close the sale with social proof

Your third email is going to leverage several factors of influence. Start with social proof. If your product has received reviews, testimonials, and ratings, tell your email subscribers all about it in the email’s body copy.

That’s it! This simple three email approach is one of the easiest ways to plan out a sequence of promotional emails that generate more sales. You can scale up this email marketing campaign over time as your content strategy attracts more people from Google, LinkedIn, Facebook, and Instagram.

10 Improve your email template with copywriting and visual design

Revising your email template is another effective way to improve your email marketing effectiveness. Many email service providers like Mailchimp provide several email templates. For instance, you can use email design with several columns.  Or you can work from an email template with nothing but text. A simple email design – nothing but body text and bullet points – tends to work quite well in email marketing.

In general, I recommend using a simple email template with minimal graphics to have the best chance to be seen. Adding multiple images to your email content may cause problems for an email client on a mobile device.

11 Review your email deliverability data

Your email deliverability rate is one way you can improve your email marketing success without adding more subscribers. For example, if you see a low open rate (e.g., 10%), that probably means that you have an email deliverability problem and unappealing email subject lines.

Start by using a tool like Spam Check by Post Mark to check your email sender reputation. If you find that your spam score is high, you may need to register a new domain to send an email. At the very least, you will need to revise your email subject lines and body copy.

Tip: There is a way to improve email deliverability, starting with your welcome message. Use copywriting to craft a simple call to action. Ask your customer base of subscribers to send you a short email reply. When email systems like Gmail see a two email interaction, your customer engagement will improve, and you will not need to worry about a spam filter stopping your messages. Besides, the ability to write back and forth with customers tends to improve your conversion rate for sales.

12 Build an email marketing workflow to maintain customer engagement

Consistently achieving a high level of email marketing results takes work. There are so many details to manage. Sure, it helps to use a high-quality mailing list application like Mailchimp. Email service provider tools will give you a workflow at the campaign level. However, they generally will not include other critical elements like testing your emails on Android and including a call to action to drive sales or improve customer retention.

For example, let’s say you publish an infographic. You might start your content marketing efforts by posting about the new infographic on Facebook, Instagram, and LinkedIn. You may focus some of your link building efforts to get people to discuss the infographic. In addition to those online marketing activities, tell your email list about this new digital asset. Apply your copywriting skill to encourage people to click the hyperlink and view the infographic on your website. Every email you send, whether it has a sales call to action or not, is another opportunity to apply best practices for email marketing.

What’s next in your online marketing strategy?

Growing your email list is probably a significant priority in your marketing strategy. Using the best practices for email marketing in this article will help you make great progress in your marketing emails.

However, there are other online marketing matters to consider. For example, do you have a plan to increase your conversion rate? Are you using the compound interest effort of content marketing to reduce your customer acquisition cost?

Read This Before You Choose A Content Marketing Consultant: 10 Questions To Help You Make A Good Choice

You’re looking to choose a content marketing consultant for your business? Use this guide to inform your vetting process. Use these questions as you evaluate the consultant’s website, proposals and proposed content campaigns so that you can achieve your business objectives.

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1) Will they develop a buyer persona specific to your business objectives?

Until you know who you are marketing to (i.e. the buyer persona), no content marketing program can be successful. An effective content marketing consultant will ask you questions like:

  • What blog posts does your target audience read?
  • What social media profiles and channels do they follow? There may be opportunities for influencer marketing.
  • What marketing channels are currently working effectively to attract your target audience?
  • For business audiences, what LinkedIn people and companies do they follow?
  • For business audiences, what are the business objectives that matter (e.g. get more quality leads into the sales funnel)?

For additional insights on developing a buyer persona to guide your marketing effort, I recommend HubSpot’s excellent resource: How to Create Detailed Buyer Personas for Your Business. HubSpot is a leader in the content marketing game so it is well worth checking out their blog from time to time.

2) What is their approach to creating a content marketing strategy for your business?

Also known as content strategy, a content marketing strategy includes several critical elements. It starts with your business objectives (e.g. revenue goals, products to emphasize and other needs that the business owner may have). Think of content marketing strategy as the overall approach to using content to grow your organic traffic and get more customers through quality content.

The content strategy should also include measurable items such as conversion rate. For example, will a certain ultimate guide generate a dozen leads per month. After the strategy is developed, ask the consultant to bring it to life by creating a detailed content marketing plan.

Example content marketing plan to achieve your business objectives:

  • Update buyer persona profiles based on recent sales calls and a survey of your target audience.
  • Create fresh content (e.g. blog posts, status updates for LinkedIn) to increase organic traffic.
  • Update existing content with new data, images and insights so that it continues to bring in quality leads.
  • Promote your existing content using search engine optimization techniques.
  • Increase traffic further by using pay per click marketing channels and social media platforms like LinkedIn, Instagram and Facebook.
  • Measure progress towards achieving your business goals. This measurement process will help you to decide when to change the existing strategy, increase promotion efforts or stick with your current approach.

After you see the plan, you will see what level of marketing effort is required to achieve your organic traffic goal. As an entrepreneur, you should also ask how much time you will need to invest in the process. I recommend that the entrepreneur or business owner spend at least a few hours per month reviewing the content marketing plan and providing input for strategic content.

3) How will they use search engine optimization (SEO) to reach your target audience?

Content marketing consultant and SEO are closely linked together. If your content marketing consultant is uncomfortable using Google Analytics, that’s a flag! To be fair, the marketing department in a Fortune 500 companies may use different analytics tools to measure the success of content on various social media platforms. For a small marketing team or a single marketing expert, Google Analytics is all you need.

Further, a good content marketing consultant should have access to one or more SEO software tools. I currently use UberSuggest. Other good options include Ahrefs and SEMrush. The logical starting point for search engine optimization is to examine how your existing audience finds you through organic search. Use Google Search Console – a free tool like Google Analytics – to ground your digital marketing results in reality.

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4) Do they use content marketing in their consulting business?

There are many marketing channels that a content marketing consultant might use to attract clients. They might drive organic traffic from Facebook and then drive traffic to a landing page. Some have good results with cold calling and sending emails which are excellent ways to generate quick results.

Ultimately, a good content marketing consultant should practice content marketing in their own business. That means publishing fresh content regularly to help their target audience (e.g. business owners, a marketing team interested in outsourcing or others who need help with digital marketing).

That’s why I’ve committed to publishing in-depth fresh content to this website. Some of my most popular articles include “How to Create a B2B SaaS Marketing Plan in 6 Steps” and “How To Increase Your SaaS Conversion Rate: 7 Practical Ideas.”

5) How will their proposed marketing campaign drive organic traffic? 

Putting resources into creating blog posts, LinkedIn status updates and search engine optimization is all designed to achieve growth for the business owner. While there are various ways to measure the value of a content marketing project, increases in organic traffic is an excellent metric to use. Some consultants may also use pay per click digital marketing to drive traffic to your blog content. If you have the budget, using pay per click traffic is an excellent way to make faster progress toward achieving your business goals.

Once you start to see consistent growth in your organic traffic from your existing content, the job is not done. That’s why email marketing is next on the list.

6) Do they have a plan to use email marketing to fulfill your marketing needs?

A marketing campaign that creates quality content that attracts site visitors that match your buyer persona is on the way to success. However, a good content marketing consultants don’t stop there. They should also provide guidance on email marketing and perhaps write your email campaign for you.

For example, the marketing expert you work with may propose an email campaign to grow sales for back to school season. In other cases, your email marketing campaign might focus on converting free trial users to paid accounts. Finally, if the business owner appears on a podcast or publishes a guest article, then spread the good news by creating an email campaign about that news.

7) How will they execute content creation?

When a business owner looks for a content marketing consultant, sometimes they imagine that they will only get blog posts and other content creation help. There’s no question that quality content plays a central role in growing your organic traffic. However, there are different ways to manage the content creation process.

How To Create Content Option 1: Strategy and Content Creation

Using their marketing experience, the consultant does everything. In this type of content marketing project, the consultant will determine your marketing goals, review your buyer persona and create content to attract customers. They can also help you to become a guest on a podcast as an added service.

How To Create Content Option 2: Content Marketing Program Design Only

In this situation, the consultant will leverage their marketing experience to design the content marketing program. This program may include backlink strategies to increase organic traffic, title ideas for a blog post, strategic content suggestions and other inbound marketing techniques. When you have this kind of inbound marketing plan to use as a starting point, you can ask your marketing team to create content or work with an external copywriter.

As a general rule, you should start with defining your content strategy before investing resources into content creation.

8) How will they use landing pages to convert site visitors to leads?

Would you be happy or angry if your website received another 100,000 website visitors next month? The correct answer is “I don’t know based on that information.” You need to know if those website visitors actually correspond to your target audience. Further, you need a process to convert online window shoppers to people who have raised their hand to receive additional email.

That’s where a landing page comes to play as an important content marketing tactic. At its most basic, a landing page offers something to your prospects in exchange for contact information. The subscriber receives something free (e.g. a quality report piece like a well designed PDF or a coupon code). The business owner receives permission to follow up with that prospect using an email campaign.

A landing page will not achieve unless it is integrated into a broader digital marketing plan. For example, how will you put the landing page in front of your buyer persona? You could use organic traffic and search engine optimization. As an alternative, you could focus your content marketing plan on podcast production. In either case, your marketing goal would be to create quality content and then direct people to your landing page for more information.

9) Do they have the courage to experiment with content strategy?

As a business owner, you probably want immediate results. You want the phone to ring right away. Sometimes, a content marketing consultant can make that happen with an email campaign. I’ve certainly made the phone ring for clients. Unfortunately, achieving results usually takes a marketing effort measured in weeks or months rather than days.

In many cases, a content marketing consultant needs to approach their work like a scientist. That means using different content creation techniques week by week. It means using a landing page to grow your email list. If you’re not sure why growing an email list is so important, I recommend you reading my previous post: Why Email Marketing Is Important To Your Digital Marketing Success.

Ultimately, the best content marketing consultant has a lot in common with Thomas Edison. The inventor was famous for trying many different versions of the light bulb idea finding a variation that succeed. While expertise can reduce a consultant’s learning curve, you should expect that it will take some trial and error before you start to attract more ideal customers.

10) Does the marketing expert use a consulting process?

Whether you choose to work with a marketing agency or a consultant, a consulting process is important for your success. A consulting process is a step by step master plan to combines clear direction from you as the client, your business goals and familiarity with the major digital marketing platforms like Google, search engines and social media. Before the consultants starts to make changes, they should spend some time seeking to understand your current approach to content and whether you have a strategic distribution plan.

When possible, many marketing experts will ask the business owner to speak directly with current customers. Such conversations are important to ground the buyer persona in reality. For example, let’s say the marketing expert is planning to create a series of five blog posts to help finance managers become more effective. As a starting point, it would be helpful to clarify the current needs and concerns of this buyer persona. With this research process, it is less likely that any blog posts you order will move you toward your business objectives.

Want To Work With Me To Build Your Content Marketing Strategy?

You want more qualified leads from Google. You’re putting hours of work into your marketing effort. You’re worried that you are going to miss achieving your business objectives. There’s a better way! Reach out with me to build a marketing plan that brings in leads month after month. Working with a consultant means that you don’t have to spend all day learning how to use marketing automation. Instead, you can have a discussion about your marketing goals, provide some clear direction on your buyer persona and then let the consultant handle the digital marketing details.

If you want to get in touch, fill in the contact form and we will discuss ways to achieve your marketing goals.

How To Calculate Cost of Customer Acquisition And 3 Ways To Improve It

Cost of Customer Acquisition: multiple people have to be involved.

Your cost of customer acquisition (CAC) is a critical SaaS metric to know. With this key business metric, you can make better decisions to increase monthly revenue. Without it, you have to rely on guesswork to hit the numbers on your business plan. Keep reading to find out how to calculate customer acquisition costs and ways to improve your scalability and profitability. When you know that you can spend $10,000 in a time period to generate $20,000 in total revenue, you will have a truly viable business model.

Calculating Customer Acquisition Costs

Your approach to calculating customer acquisition costs requires that you have reasonably robust data and then use customer acquisition cost formulas. Unlike cost of goods sold or payback period, customer acquisition cost keeps you focused on the cost to increase total revenue. When you know how much budget it takes to increase the total number of customers in your business in a given period, marketing planning becomes much more manageable. When you understand your customer acquisition cost, you’re much more likely to achieve your return on investment and payback period goals.

Example of Customer Acquisition Cost For A Monthly Time Period

Fancy SaaS App has a $500,000 marketing budget, and the marketing team has been working hard to acquire more customers. Last month, the company spent $50,000 on a marketing campaign to acquire 100 customers generating $100,000 in total sales revenue. In this case, the company’s customer acquisition cost was $500. They can use that number to evaluate performance in the current month and see if they exceed the industry standard. If they fall short, it might be time to make changes to their inbound marketing or review your acquisition strategy. For example, you might find that cost per lead has started to increase in your social media advertising campaign. In that case, you probably need to look at changing your sales process to include strategic partners and content marketing.

Successful companies never assume that their marketing staff has the final answer to lead generation. They are always looking for new ways to improve campaign costs, reduce cost per action, conversion rate, and improve cost per acquisition. Before you start to make changes to your operating expenses or sales costs, you need to calculate your current cost to acquire a new paying customer.

Formula for Customer Acquisition Cost For A Monthly Time Period: The Basic Version

As a starting point, consider the following customer acquisition cost formula, at its most basic, is a simple equation. You divide your total marketing spending by the number of customers you acquired. Finally, you also need to choose a time period for reporting, such as monthly or quarterly. That way, you can compare results in any given period over time (e.g., June 2020 compared to June 2019). If you have a self-serve business model, instead of a sales process with multiple meetings, where customers can buy online, this basic version works well.

For the formula to provide meaningful results, you must have high-quality data. For example, your marketing expenses need to be comprehensive – covering Google, Facebook, the effort to publish a blog post, other social media services, and everything you do to convert a potential customer to a paying customer. In the current month, you might find out that Google Ads has a far better return on investment than inbound marketing. In that case, you might ask for a larger marketing budget so that you can continue to grow your customer base.

Beyond tracking the cost of your marketing efforts, you also need to track the source of each paying customer. For example, are you getting customers from LinkedIn, email marketing, a blog post, or a specific landing page or some other advertising channel?  Without this information, it will be very challenging to grow your customer base predictably.

Tip: Running out of leads? You might need to explore some new SaaS marketing channels.

Formula for Customer Acquisition Cost: The Advanced Version Including Sales Expenses

If you run a simple, self-serve e-commerce business model, the basic customer acquisition cost formula is all you need. For example, if a customer can enter a credit card and buy the product from your website, your SaaS business is similar to an e-commerce business. However, many SaaS companies need advanced customer acquisition costs because they have a multi-step acquisition process.

Sometimes known as “fully loaded CAC,” this advanced approach to customer acquisition cost gives a more accurate picture of your total cost to acquire a paying customer. It is different from the basic version because it involves your total cost to get customers rather than just marketing spend. As a rule of thumb, fully loaded CAC includes the cost of the sales team, marketing spend (including the cost of inbound marketing), sales expenses, overhead costs, and all other marketing efforts like marketing salaries. By the way, make sure your sales costs calculation includes any expenses that your sales people spend, like sending gifts to potential customers.

By the way, calculating the cost of content marketing isn’t difficult. The important thing is to track it. If your marketing team handles blogging, publishing a podcast, and infographic creation internally, you need to use time tracking. Use a tool like Toggl and ask your marketing team to track how much time it takes to create each content marketing asset (e.g., 5 hours to create an advertising campaign, 16 hours per month for blogging, and so forth). Then you can analyze the cost of your marketing efforts in relation to the total new customers you attract in each time period.

Tip: HubSpot’s article on customer acquisition cost makes a great point that CAC should also include marketing and sales software, outsourced services, and overhead for marketing and sales.

A Key Lead Generation Question: Is Your Customer Acquisition Too High?

The best way to tell whether your CAC is too high is to measure it in relation to another metric. Specifically, we are going to look at customer acquisition costs in relation to customer lifetime value. If your CAC is less than customer lifetime value, you have a successful marketing and sales process. Congratulations! If customer acquisition costs are greater than customer lifetime value, there is a problem. If you have a small business, you will need to be more conservative in how much you spend because you may not have a free product available to attract the interest of your target audience.

There are two ways to improve your ratio of customer acquisition cost to customer lifetime value. Start by double-checking if your customer lifetime value amount is reasonable. For example, you may have a referral program where 20% of customers tend to bring in new prospects. In that example, there is a value in your referral that should be added to your customer lifetime value.

Next, take another look at your customer acquisition cost over time. If your customer acquisition cost has recently increased significantly, that situation may be acceptable. You might have decided to put more resources into high-quality customer success story videos in the past quarter. Creating those assets involves paying upfront while the resulting increased SaaS conversion rate will only appear later. What if you don’t have any long term marketing projects recently?

The most common other causes for high customer acquisition costs are poor tracking and ineffective marketing. In the case of poor tracking, you cannot track conversions. For example, your marketing may have generated 100 leads this month, but you only logged half of them. Improving the accuracy of your marketing and conversion tracking is the first area to improve. Finally, you have to face the reality that your marketing may have failed. That happens to many companies! It is especially common when you are first developing your go-to-market plan, launching a new product, or pitching to a new type of potential customer.

Importance of Customer Acquisition Cost: It’s One of The Best SaaS Metrics

In sales and marketing, customer acquisition cost (CAC) is one of the most exciting metrics to track. By tacking this measure, you can make better marketing budget decisions. You can add another $10,000 to a specific marketing channel with a high level of confidence of a good return. Further, a robust understanding of customer acquisition cost means you can have better conversations with lenders, the sales team, funders, and management.

Since there are some measurement difficulties involved in customer acquisition costs, make sure you understand your data. I wouldn’t want you to make irresponsible promises about growth based on a $1,000 CAC! When in doubt, I suggest taking a conservative approach where you assume that marketing costs will increase over time. This assumption is grounded in the reality that almost all marketing channels, especially pay per click advertising, have shown higher costs over time. If customer success plays an active role in growing total revenue, then including customer success costs into customer acquisition cost makes sense.

Since customer acquisition cost is usually calculated based on a monthly or quarterly time period, there is a time lag. That’s why you should also keep track of a leading indicator like cost per lead as you manage week by week.

Improving Customer Acquisition Cost: Your Top 3 Steps

There are multiple proven strategies to improve your customer acquisition. You have already learned a few of these methods. Use this section as your to-do list to get more conversions at a lower cost.

1. Improve your conversion tracking accuracy

Start by checking your website analytics to ensure that tags are in place. After that is confirmed, check that you have correctly set up goals. For those of you using Google Analytics, use this resource to set up a goal.

For LinkedIn Ad conversion tracking, consult this official article, “Set Up LinkedIn Conversion Tracking.” For Facebook Ad conversion tracking, use the following resource: Facebook conversion tracking.

2. Define and reduce the sales cycle

The amount of time sales take to close is an essential factor in your customer acquisition cost. For example, let’s say that you have a 30-day free trial. Most customers sign up for a paid account after 25 days. Coincidentally, your email marketing system sends out a message on the 24th day of the free trial telling users that their free account is about to expire.

In this example, you can reduce your sales cycle by changing your email marketing. Specifically, attempt an experiment where you send more emails in the second and third weeks of the free trial. This approach may cut your sales cycle down by a week or more.

3. Identify low performing marketing channels for reduction

Optimizing your customer acquisition costs also requires taking a look at costs. Put on your CFO hat for a moment and ask yourself if your marketing channels are generating results. For example, you might have tested Instagram for 60 days to see if you might diversify your SaaS marketing channels. Unfortunately, you saw almost no new leads or traffic from Instagram. Assuming your conversion tracking is correctly set up (see tip one above), it might be time to cut your losses on Instagram or reduce your time investment on that platform.

Redirecting marketing budget from low performing marketing channels to higher performing channels is one of the best ways to improve your customer acquisition cost.

What Should You Fix Next In Your SaaS Marketing

I recommend improving your SaaS conversion rate as the next step in boosting your total revenue without increasing your advertising budget. With a better conversion rate, you can increase the number of leads you get from each landing page, you can reduce your cost per lead over time. A better conversion rate in your upsell process us another way to grow total revenue from your existing customers is another great area to develop.