The inherent predictability of the software as a service (SaaS) business model makes it attractive to business leaders, customers and investors alike. Predictable costs and revenue can and should lead to predictable growth.
But to ensure this happens, and to be clear, it’s easier said than done, you must execute flawlessly. You also need to build a sales and marketing engine that generates enough high quality leads for your sales team to close each month.
Thankfully, there are a number of marketing strategies available that are both effective and scalable - meaning they will continue to require the same level of resources regardless of whether you’re delivering 100 or 100,000 leads each month. Inbound marketing, content marketing and search engine optimization (SEO) are three proven approaches to lead generation that you should consider. After some experimentation, analysis and optimisation it’s possible build programmes with these strategies that consistently generate leads for your business.
However, each are long-term plays and can take time to see results. If required you should invest in Google AdWords to top up any shortfall in leads as a short-term measure. I often see businesses take this blended approach to begin with and then lessen their AdWords spend overtime, while their marketing engine starts to crank to full speed.
Software continues to eat the world
It is several years since Marc Andreessen announced in a seminal WSJ essay that "software is eating the world", and his thesis has been comprehensively proved right. Technology, specifically Amazon Web Services, Google Cloud, Microsoft Azure and the like has made all this possible. It is now easier and cheaper to build software than ever before (which has helped create an efficient market for SaaS products - in fact, too efficient for some businesses), and with more than 3.5 billion internet users, the potential market for SaaS products is vast.
Building and launching a product is one thing, but creating something that people want to use is quite another. A distinct characteristic of SaaS businesses is they continually provide value by frequently updating their product and releasing new features, so we, the customers are in effect, paying to always have the latest version of the software. This is in contrast to how software used to be purchased and delivered. In the past most software products were paid for up-front, often at great cost and the customer used the product until a new one was released. Given this rapidly changing landscape it is perhaps unsurprising we’ve seen software displace hardware at many companies.
The subscription model favoured by most SaaS businesses acts as a forcing function of sorts - it compels organisations to be(come) customer-centric. Essentially, they clawback customer acquisition costs (CAC) and aim to increase lifetime value (LTV) over a period of time, so their success is intertwined with that of their customers. The leading SaaS businesses have figured out that having a product which solves for the customer and provides compounding value remains the best SaaS growth play.
Repeatable systems create predictable growth
To generate predictable recurring revenue for your SaaS business you need robust processes in place that consistently deliver high quality leads for your sales team to close. You need to build a sales and marketing engine.
At HubSpot we coined the term “smarketing” to describe sales and marketing alignment. It’s the foundation of our sales and marketing engine and spells out clearly which team is responsible for each stage of the sales and marketing lifecycle. Crucially, within each stage there is a service level agreement (SLA), which details what should happen. It keeps both teams accountable and shows how they need to work together. The SLA is essential. I liken it to a baton race - both teams are runners, they’re reliant on each other and they need to understand what’s going to happen to be successful.
SLAs are important, but so too are definitions and you must get everyone in sales and marketing using a common language quickly. Too many businesses do not have a clear or well understood definition of a lead. For example, is a lead someone who visits your website, completes a form or speaks with a sales rep? Definitions matter and without them, confusion seeps in.
Grey areas inevitably lead to misunderstandings between sales and marketing, and when this happens it’s not uncommon to have sales complaining about the quality of leads and marketing bemoaning sales for not working leads effectively. But it doesn’t have to be this way. Clearly set definitions, expectations and responsibilities help to rid businesses of this misalignment, especially at the crucial point where leads are handed over from marketing to sales.
What stages should your sales and marketing funnel include? I’ve already covered the danger of not defining a lead, however I often speak with marketers that have a half-baked process which looks like:
While this is clearly an improvement on having no process or definition, it is basic and potentially means the marketing team will generate poor fit leads, and sales will waste time following up with the wrong ones. The above process fails to provide the detail or nuance sales teams require to be successful.
To build an effective sales and marketing engine at your SaaS business, you need a funnel consisting of the following stages:
Now let’s dig into what each stage means, who should own it at your business and metrics to track.
A prospect is someone that visits your website, but has not given you any of their contact details. Despite them not handing over any information, it’s easy to begin tracking the actions a prospect takes on your website using marketing software. This information is stored and remains anonymous, until the person becomes a lead by giving you their contact details (often in return for content or a product). Responsibility for driving prospects and website visitors is owned by marketing and they typically have a monthly website traffic goal.
As mentioned a person becomes a lead when they complete a form on your website (at a bare minimum this means they have given you their email address). Once this happens a contact record will be created which contains contact details, actions they have taken on your website and company information. Businesses often generate leads by creating offers, such as an ebook, whitepaper or webinar, that people must complete a form to access or by releasing free products. Marketing owns all lead generation efforts and will have a monthly lead goal.
3. Marketing qualified lead (MQL)
MQLs are leads that the marketing team deem worthy of handing over to sales. Oftentimes a lead becomes an MQL if they are both high fit and high intent. Fit would include factors, such as company size, industry and location, while intent would be actions the lead has taken like visiting the pricing page on your website, watching a webinar or requesting a trial (the process of prioritising leads is often done using automated lead scoring).
This stage is important as it’s focussed on providing quality leads to sales, rather than volume. It’s where the handover between sales and marketing begins, and marketing will be held accountable to a set number of MQLs each month.
4. Sales qualified lead (SQL)
SQLs are where the sales organisation becomes involved. Typically, a business development representative (BDR) will begin prioritising leads and will set up a short connect call with the lead. From this call they will seek to quickly learn about the lead’s challenges and if they have budget for the product. If the lead is a good fit, it will be passed to a sales reps rep to work.
BDRs are responsible for creating SQLs each month and will be measured on number of SQLs they create which are accepted by a sales rep, meetings set up between a sales rep and lead, as well as total revenue generated.
If a sales reps chooses to accept a lead and begin working it, the lead will become an opportunity (sales reps are often assigned leads based on the territory, industry or segment they own and are then given a time to work the lead before it is recycled for other sales reps to work). Sales is responsible for working opportunities and will have to commit to working a set number of leads within an agreed timeframe, such as working 100% of leads within 48 hours.
The sixth and final stage is when a lead closes and they become a customer. This is what sales teams aspire to do, and what marketing activity helps drive. The sales organisation will be responsible for hitting a revenue goal each month - most SaaS businesses focus on revenue, rather than number of deals that a rep closes. Some organisations also have a sales enablement function, which can be part of sales or marketing that helps sales reps to close deals through content, deal support and training.
Defining your sales and marketing SLA
To make all this happen you need to create a sales and marketing SLA. As mentioned earlier an SLA is a contract between a service provider and end user that defines the level of service expected from the service provider. But when sales and marketing are involved we need a commitment from both sides.
For this to work at your business it has to be bi-directional. Marketing must commit to providing a set number of leads of a certain quality each month, and sales must play its part by following up with an agreed number of leads, to a defined depth within a set timeframe. This is best practice, but unfortunately it is uncommon - many companies only have marketing commit with sales making no promise in return.
The first step to righting this wrong is for marketing to get more data-driven and scientific. You can do this by having a firm grasp of the business metrics and partnering with business leaders to define the new revenue goal for each year. Once the new revenue goal is defined, marketing can calculate how many leads they will need to generate for sales to close to hit (and exceed) that revenue goal.
Here are two formulas all marketing leaders need to know:
New revenue goal ÷ average sales price = # of new customers
# of new customers ÷ lead to customer close rate % = lead goal
Now let’s put these formulas into action. If your company's new revenue goal is €1 million and the average sales price is €10,000, it’s clear 100 new customers will need to be acquired. Using this information marketing knows it can take the number of new customers required and divide it by the lead to customer close rate.
If your lead to customer close rate is say, 10%, marketing will need to generate 1,000 leads in order to hit 100 customers. In short, understanding these metrics and how they impact the business is how marketing will truly earn trust, respect and credibility of sales and the wider organisation.
The best SaaS businesses figure out their sales and marketing machine early on. They realise that sales and marketing can be engineered, and the starting point is clearly articulating each point within the process, who owns it and at what moment it is handed over. Once you have this foundation in place, it’s time to set goals and optimise different parts of the process. That being said, the tactics and levers which can impact each stage are in a perpetual state of evolution and the most successful SaaS companies continually innovate at each stage. That’s the most effective way for you to build a sales and marketing engine that gets you ahead of the competition.