One of the most important decisions for a SaaS startup is deciding on its go-to-market sales model. If you choose correctly, your business will grow smoothly and make it to future rounds of funding without too much trouble; if not, then problems can arise quickly as cash starts running out.
One option that seems more popular than others with B2B companies who offer recurring revenue subscriptions is transactional sales models characterized by inbound marketing and inside sales but this isn’t always the case according to Jeff Kaplan’s recent article entitled Debunking The Myth Of A Single Sales Model For All Saas Companies which points out other ways people are finding success.
Direct selling SaaS startup sales strategy should be depending on the type of customer they want to target. Self-service, transactional and enterprise models all have different strengths and weaknesses.
Priority is given to price.
Average selling price is the most important statistic for any company. It shows how much customers are willing to pay and what they value, while constraining costs.
Your ASP SaaS Metric is a limit on your customer acquisition cost, which in turn limits the SaaS’ different sales model. If you have an ARR of $500 then it’s unlikely that you’ll be able to fund direct sales because at 1000 deals per year for example, they would not cover their customer acquisition costs whereas if your ARR was higher and say at $500k or more – as long as one deal closed each month the company could afford to fly out and wine and dine prospects.
Higher prices require more customers. For example, a $10K ASP would need 1,000 customers to reach 10M in total revenue while the same amount of money from a $1k ASP needs only 10 people and that affects every other metric along the way.
The higher the price, the more risk is involved. This means that customers are less likely to trust a company with high ASP because they don’t know what’s on offer and fear being scammed. The solution? Well-trained sales staff who can build up personal relationships so customers feel safe parting with their money.
Constrains about Complexity
Selling a product is not as easy as it seems. It needs to be marketed in the right way and accessible, which can make or break sales velocity, customer satisfaction rates, and profit margins.
There is always going to be some level of complexity that can’t be eliminated, but you should try and minimize it. Click To Tweet
For example, a new social collaboration SaaS may appear so foreign that prospects have difficulty understanding what it is or how they would use the product. Your sales model needs to help them understand these things.
Three SaaS Sales Models
There are three types of sales models for SaaS sales process: self-service, transactional and enterprise. A mature company may use all three, but a startup can only focus on one because the different methods each have their own advantages.
Price and complexity are natural enemies. Higher prices for a product means more expensive SaaS offerings, but there is also the danger of pricing your products too high so that customers do not find them worth their time or money. Getting these two aspects to work together can be difficult because it takes market research and customer feedback to determine what price range will make sense for an individual business’s needs.
Customer Self Service Achieving significant revenue at a low price point naturally entails driving complexity and cost out of the purchase to clear the floodgates for high volume. The ideal SaaS sales model is complete customer self-service. However, this requires that your customers be willing and able to service themselves. Able such that they understand the value of your product, how to buy it and how to use it. Willing such that they see little or no risk or frustrated effort in the purchase. Good examples come from well understood commodity office productivity tools that are easily adopted by a single user or department manager, such as those offered by Zoho and 37signals. The customer self-service SaaS sales model typically breaks down across customer-facing functions as follows:
- Sales: None.
- Marketing: Full revenue responsibility, creating awareness, educational content and automation capable of driving business through the entire purchase process from awareness to close.
- Support: Provides automation and tools for easy on-boarding, plus templates and educational content that allow customers to resolve any issues they encounter on their own.
Transactional Sales As price increases, customers become less willing to part with their cash without at least knowing there are actual trustworthy human beings behind your website URL. Higher ASP brings higher expectations for the business relationship, such as signed contracts, premium SLAs, invoicing, and the ability to speak to a human when problems arise. The risk-driven need for a more interpersonal business relationship drives the SaaS sales model away from customer self-service into a transactional sales model characterized by efficient, high volume sales and support operations, short sales cycles, and rapid onboarding—all supported by automation that allows for as much customer self-service as possible were customers willing and able to service themselves, which they are neither.
Good examples come from products that automate a well-defined business process or function with a bit of an Internet twist. Click To Tweet
Some are those offered by Marketo, Zendesk, and Xignite.The transactional SaaS sales model typically breaks down across customer-facing functions as follows:
- Sales: Inside sales reps supported by online content and automation, tools, training, incentives and metrics that enable high efficiency and many transactions per rep.
- Marketing: Feeds highly qualified leads to the sales team to build pipeline and improves efficiency by removing roadblocks through educational content and automation that drive complexity out of the purchase.
- Support: Inside support reps that meet a range of SLAs from limited pre-sale support through premium post-sale support with tools, training and metrics that enable high efficiency and many transactions per rep, complemented by customer self-service tools, templates and educational content.
Enterprise Sales While most SaaS startups gravitate toward transactional sales or customer self-service, some SaaS startups have products that provide so much value per customer and are so complex to buy that their natural starting point is traditional enterprise sales. Two good example categories are cutting-edge Internet marketing tools employed by big brand consumer marketers, such as BazaarVoice and BrightEdge, and feature-rich suites that automate strategic, core business processes for mid-to-large enterprises, such as Netsuite, Workday and Passkey. The enterprise SaaS sales model typically breaks down across customer-facing functions as follows:
- Sales: Territory sales reps focused on a narrow set of target prospects directly supported by product marketing and sales engineering resources at a deal level.
- Marketing: High-end marketing that facilitates brand awareness, education, relationship building and trust, complemented by direct support of the sales team, including telemarketing speeding access to target prospects and detailed sales tools such as product roadmaps, ROI calculators, etc.
- Support: High touch support up to onsite issue resolution complemented by educational tools and training tailored to the specific needs of individual customers.
How to Avoid the SaaS Startup Graveyard
When your SaaS pricing is too high, it becomes less attractive to potential customers. They are willing to pay for the product only if they have a very strong need or want. This could be because of how valuable you think your service is andor that there aren’t many other alternatives in the market.
SaaS startups that attempt to compete on price and complexity, but fail to provide a high-quality service end up in the Sause Startup Graveyard.
When it comes to developing a SaaS model, there are three strategies that will keep you from joining the graveyard. All of these methods involve aligning price and complexity so that your company can find its niche.
- Increase Velocity: The goal of this SaaS Startup Sales strategy is to reach a customer self-service SaaS sales model by holding your price point low and driving out complexity to build volume rapidly. To succeed at this SaaS startup sales strategy, you business must be capable of overachieving on both SaaS Do #1 Choose a Large Market and SaaS Do #3 Accelerate Organic Growth, and you must absolutely avoid SaaS Don’t #3 Launch without Online Trial.
- Increase Value: The goal of this SaaS startup sales strategy is to reach an enterprise SaaS sales model by adding value through product innovation and restricting your market to target prospects that see the most value in your offering. To succeed at this strategy, you business must innovate as in SaaS Do #6 Reach Across the Firewall without falling prey to SaaS Don’t #1 Chase Elephants that ruin your economies-of-scale, and preserve the core SaaS cost advantage through SaaS Do #8 Enable Mass Customization.
- Increase Profit: The goal of this SaaS startup sales strategy is to reach a transactional SaaS sales model by finding balance between ASP and CAC (customer acquisition cost) through operational efficiency and focus on the most profitable market segments. To succeed at this saas startup sales strategy, you should follow SaaS Do #4 – Craft a Compelling Story to attract only the prospects you really want to sell to, and then make it easy for them to find you by SaaS Do #2 Create a Hub on the Web and get them through the purchase efficiently by SaaS Do #5 – Build the Business into the Product.
The successful SaaS companies are the ones that have high ASP with low complexity. The best example of this is Google Adwords and Amazon Web Services, where customers routinely write six figure checks for minimal personal interaction.
SaaS Startup Evolution
As a SaaS company evolves, it will inevitably grow to want more customers and larger markets. One way of doing this is by focusing on self-service sales so that the customer can find what they need themselves rather than being sold something else.
A company that wants to expand its services beyond a single product, but is limited by their lack of manpower and resources will have difficulty mastering the various sales strategies.
The original strategy of just focusing on customer self-service has led to many changes. These include the introduction of more complex products and purchase processes that are now in close proximity with their originally simple, self-serve product. The question is whether these new offerings should be separate or if they’re part of a single offering? It’s also important to consider how enterprise customers differ from transactional ones because it can sometimes seem easier for companies like ours who focus primarily on B2C markets than those focused only on business customers.
