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The SaaS Customer Acquisition Conundrum

Building a successful SaaS startup and putting it on a growth trajectory involves a great amount of effort and a thorough understanding of the market dynamics. To begin with one would need to build a product and achieve product market fit. Once you have a product market fit, you know there is a target segment that you can sell into. The question then becomes – How do I reach out to my target audience and start converting them as paying users?

An easy answer some would say with the amount of options a SaaS company has to interact with its customers in today’s digital world. But is it so? To understand SaaS customer acquisition and business viability one would first need to understand a few basic metrics that become extremely crucial to understand the health of a SaaS business:

  • LTV – Lifetime Value of a Customer
  • CAC – Cost to Acquire a Customer
  • Sales Velocity – Number of days required to acquire a customer from the first point of interaction
  • Payback – Time taken to recover the CAC
  • Churn(monthly) – % of customers you lose in a month

A well balanced business model will always have a LTV value greater than the CAC. If it’s not so for your SaaS business, then it might be a good option to reconsider the business model you are building.

One in a million SaaS startup would be able to depend upon the inherent virality of the product to scale up. But even in case of these startups there is an initial threshold value for the customer count that they need to hit for the virality to kick in. Rest of them, well they have to use of mix of SEO, SEM, Social Media, Direct Sales, Channel Sales, PR etc to hit their audience. Let me tell you, the CAC for majority of the SaaS companies have shot up so much that it becomes really difficult during the initial days of its incubation to rely on the Paid channels to acquire customers.

So, when does Paid Channels Work for a SaaS Startup?

Paid Acqusition works only when LTV > CAC

To elaborate, let’s assume a startup which relies on Google Adwords for eg to generate leads and works with the following numbers:

Scenario-1Scenario – 2
Total Traffic80008000
Cost Per Click$1$4
Conversion to Trials10%10%
Conversion to Paid Customer5%5%
Number of Trials800800
Number of Paid Customers4040
Cost of Converted Trial$10$40
CAC$200$800
No. of Sales & Marketing Resource710
Cost per Employee per Month1000010000
Total Cost Incurred Per Month( Without salary)800032000
Total Cost Incurred Per Month( With salary)78000132000

 

As you can see the CAC is a function of CPC, Conversion % at each stage, Sales & Marketing Overheads, Churn and the Sales velocity. You would want to have a high velocity and a churn percentage close to zero to reduce the CAC. Similarly, with more human touchpoints, your CAC value goes higher. Touchpoints could be any of email followups, sales calls or demos the inside sales team does. The CAC value goes even higher with direct Sales team involved, however in such cases your Average Contract value will also be much higher. In short it’s important for any company to keep their CAC < LTV to sustain.

While you do your math and try and figure out the CAC number during the early stages of your business, another important metric to track is the payback period. Let’s assume in the above example your avg. revenue per customer is $400/ year.

Scenario 1: Payback Period = 200/400 = 0.5 years

Scenario 2: Payback Period = 800/400 = 2 Years

 

Implies, in Scenario 1, you would take 6 months to recover the amount of money you had invested in acquiring the customer, while in Scenario 2, you will take almost 2 years to recover the money you spend on getting your customers. For a Startup at an early stage having limited access to capital the second Scenario is a sureshot bankruptcy contender, so while you analyse your business keep in mind the payback period and the amount of capital you would need to sustain your business. A simple workaround in Scenario 2 would be to collect the payment upfront – For more, refer Pricing Strategy makes or breaks a SaaS startup.

Always be asking yourself the following questions before you decide to spend on acquiring customers through Paid Channels:

  • Has my product already achieved Product/ market fit?
  • What’s my CAC for a paid channel?
  • How much Capital do I have?
  • What’s my runway with the Capital I have?
  • What Pricing Strategy can enable me to sustain the business if I am relying upon my cash reserve to acquire customer.
  • Do I plan to raise more money or am I planning to run the business through the revenue generated? If you are planning to raise funds, burning money to show momentum might be a good idea. You may want to read this article The Incremental Customer

Find answers to these questions to have a clear understanding on why and when to use paid channels for customer acquisition. Remember you will have a sustainable business only when:

  • CAC < LTV (general rule of thumb is that LTV should be 3 times your CAC)
  • Payback period < 1 year

One of the best yet often underestimated source of online traffic: Understanding Traffic from Stumbleupon

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As an online marketer we should really consider ourselves blessed with the amount of effective and virtually no spend marketing channels we have to sell almost anything. Just consider the few listed in the figure below.

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But it’s also important to understand that it’s so very easy to lose focus and half heartedly use a number of these channels for virtually no results.

Let’s check the major sources of traffic under each of Social Network, Social Bookmarking and Media Referrers.

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Source : Readwrite.com

The three graphs do show the importance of using Facebook, Twitter, Youtube and Stumble upon as the major channels for getting online traffic. The referral traffic from Stumble Upon has gone down in the past year or two and Pinterest has gained prominence. People might also argue that the traffic from Stumble Upon hardly converts. But even then the traffic that Stumble Upon can generate is significant enough. So create quality content and you can trust on the Stumblers to recommend you and bring you tons of traffic.

I love this website.  It’s a pretty simple site but the content is exactly the type Social Media loves. I’m sure the site gets insane amounts of Social media traffic. So if your website has content that can get pretty viral : Images, funny things, cool gadgets, celebrity news, nature and wildlife related, food and beverages related or basically anything that’s a good read and time pass, then Stumble Upon is a must for you.

Now let’s look at what Stumble Upon is and some of the key things you could do to boost up your traffic from Stumbleupon.

Stumble Upon is a social bookmarking site. Stumblers can bookmark great pages and websites they find on the web and categorize them accordingly. One can also install the Stumble Upon browser plugin on the web browser that makes it easy to bookmark their finds or to vote up the pages that they find using Stumble Upon. But first, you would need to sign up. Ensure that you customize your interests to suit your tastes. The more you stumble and like content, the better the stumble upon engine would become in understanding your preferences and likes.

1) Connect with like-minded people : The real power of any social network comes through the relationships you build. Stumble Upon is quite similar. You can search for like-minded people and follow them. Finding followers interested in the same topics as you is simple. You can start by going to http://www.stumbleupon.com/discover/keyword/ and replace the keyword with topics you are interested in. It will then show you users who are interested in the same things.

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They do get notified and the chances are that they will give you a follow back provided they consider your profile interesting.

Constantly monitor the Stumble Upon review page of the content you have submitted/ thumbed up/ reviewed. Find people who have wrote reviews for it or liked it. If they seem interesting follow them as they share similar interests. Also, as you recommend more and more, Stumble Upon will improve upon it’s suggestion of friend to follow. Be active, follow others, like and review their contents and slowly you will build your network.

2) Don’t submit only your Website pages : Of course you need to bookmark your pages on to Stumble Upon. However only bookmarking your pages won’t give you any major traffic boost. You need to mix it up by being an active user bookmarking, reviewing and voting up plenty of content in your areas of interests and build your profile. The more active you are, the better the chances that people will follow you and would vote up your contents, so that it goes viral. Remember, you are part of a community and people who add value to the community are the ones who are valued the most.

3) Use Clear Titles and descriptions: When you add pages on to Stumble Upon, ensure you give apt and interesting titles and descriptions so that people click through and read. It’s also important to not bookmark your front pages, rather bookmark specific articles which has a better chance of people liking and sharing.

4) Use Stumble Upon Paid discovery if required: Stumble Upon paid discovery is a great way to improve upon your traffic instantly If you don’t want to wait for the traffic to build. There are various plans Stumble upon provides you to choose from.

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You could use a budget as small as $30 and generate about 300 quality visits to your site.

5) Always be using Su.pr to share contents on to other networks : Stumble upon has its own URL shortening system Su.pr . The advantage of using the Su.pr shortener generate shortened links to be shared across various channels is that when a visitor clicks on the link and visits the page they would have the stumble upon toolbar conveniently above the page making it easy for a logged in user to vote up the article giving your more Stumble love.

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If the user loves your content, could also give you some more social media love by sharing the page on other social channels! J

However, the most important thing is to understand that building a following on any Social Channel is not an instant thing. It takes time and a lot of hardwork along with a bit of creativity. But it’s one of the best and the cheapest source of traffic you could generate once you build a following. So invest your time in building a base on channels you think would bring maximum traffic to your sites and have fun doing the same. Stumble upon is a great tool for discovering some amazing content. Discover, learn, build your base and with it gain awesome traffic stats to your website! J

Poor Man’s Guide to a great App Launch

How to Plan for your App Store Debut:

Building an exceptionally good app is hard enough and if you thought that was the toughest part, think again! Marketing an app and getting it into the top 100 of the app store is even more difficult (There is an estimated 775,000 apps in the app store). Of course anything’s achievable with a great app and an even greater marketing budget, but then what do you do if you are a normal Indie game developer or is a college graduate stepping in to the world of apps, have built a great app and deserves a share in the app store?

The first and foremost thing for any app to be successful is to have a great experience. Nothing can help you if the app ain’t world class. But then the app in itself being “Awesome” does not guarantee you app store success. For that you would need to plan your app launch meticulously.

I normally split the app launch cycle in to 3 parts:

1) Pre – Launch

2) Launch Day – Day Zero

3) Post – Launch

Pre – Launch Phase:

1. Create a splash page much before you launch your app. Collect e-mail addresses so that you could notify them when you launch your app. I recommend www.Launchrock.com for creating and deploying your splash page. Ensure that you create a great splash page that excites the user and makes them key in their e-mail ID for notification. Also, exceptional Splash Pages that starts trending on Launchrock gets featured by them further increasing your visibility.

2. Create a Facebook and a Twitter Page. Start engaging with your audience. Facebook and Twitter are great channels to drive targeted users. ( Facebook and Twitter marketing is a powerful method and I will write a separate post on how to build your Facebook and Twitter Following).

3. Create banners which are 640х100 iPhone 25 kb jpeg or png. Reach out to as many applications in the same niche as possible and try and buy spots on their pages. Can be expensive but try getting one or two. This would give a stream of downloads. Note that buying display Ad spots can be a little expensive so, chose carefully. Do not over spend. 2011 numbers shows that 30% of all app traffic is from in-app advertising and cross promotions.

4. Create a Press page on your website with all the necessary information. Also, create an e-mail draft to be sent out to the press/ blog reviewers etc. It’s very important that you create a quality e-mail draft to be sent out to the Press. Remember that the reporters receive hundreds of requests for coverage/ review everyday. Hence it’s very important to be precise and catchy with your description. Do keep in mind the following things while drafting the message (you can hire someone from Elance.com, Odesk.com or Copify.com if you think you need help):

·         ·         The name of your app exactly as it is spelt on the App Store.

·                   What it does and why it is different?

·                   The price.

·                   One link to your product page (Your website).

·                   One link to the iTunes product page.

·                   One or two screenshots.

·                   A video – No longer than 30 seconds. Remember this is a very important component. Many a times the reporter would play the video in trying to understand your app before heading to your app page. This leaves the first impression, so ensure it’s quality stuff and excites the reporter.

·                   A description in a concise paragraph. Say who your audience is, what your app does?

·                   What sets it apart from the Crowd?

·                   Contact information. An email address and not a link to a contact form.

·                   Skype IDs, Twitter IDs

I’m giving below a Sample Draft that gives you a fair idea of a good draft. Note that the below is for an app that lets people add interactivity to images:

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Subject: “App Name” for iPhone makes your Images Talk.

Spotted something interesting you would want to share with the entire world or something you would want to know more about? Want to share your stories and memories? Yes, “App Name” provides an easy, fun and an elegant way to do that. We let you add annotations (We call them “Spots”) on images and link it to rich media to highlight the interesting elements and stories in an image. Each spot gets its own thread of conversation which makes the conversation highly contextual. The user can join in on any conversation and start engaging in just seconds. This free app also enables the user to explore a plethora of interesting images along with the elements and stories that make them up. Wait, that’s not all, we let you create the rich interactive experience right there on your website as well in a completely hassle-free and effortless manner! It’s fun and highly engaging.

“App Name” lets you:

·                  Take Snaps in a flash and highlight the interesting elements in them using “App Name” Spots

·                  Share the stories and memories in a photo using spots.

·                  Effortlessly Link Video, Audio, Maps, Wikis, Photos, links to Amazon, Etsy, Fancy or any other portal on the web to any spot.

·                  Have engaging & contextual conversation around each spot.

·                  Explore & discover a plethora of interesting photos along with the elements and stories that make them up.

·                  Seamlessly embed your photos with the spots anywhere on the web

·                  Share your spots on Twitter and Facebook with a single click.

“App Name” ( Free) is available for download now at the iTunes Store ( iTunes address ) and you can read more about it at www.appname.com. Here is a video of “App Name” in action ( Link here ). You can also find attached a couple of Screenshots.

Please feel free to contact me, if you have any questions about the app or would need a promo code. I would be happy to answer your questions. Thank you in advance for considering my app for review,

E-Mail: [email protected]

Skype ID: “abc”

Check : http://maniacdev.com/2012/05/ios-app-review-sites for a great list of Blog/ Review site whom you would definitely need to contact.

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5. Create a perfect App description to be displayed in the App store. I can’t stress upon how important this aspect of your app is. This is what your consumers would read first, hence ensure that you create an extremely compelling description. Also, Create localized and translated App description. You never know who all from where all are going to download your app. So ensure you have the app description localized. Try Elance.com or Odesk.com to get contractors.

Many a times, people forget the importance of KeyWords in your app description. A lot of your app downloads are going to happen organically through the Search function in the app store. Hence, ensure that you take time and think through properly on the keywords you would want to use so that you get maximum exposure on Search. IMP Notes on Keyword:

·         There is no need to include your app name as a keyword.

·         Separate your keywords with only a comma, not a comma and a space. Writing them like this, “memory,language,card” will help you to make the most of your 100 character limit.

·         Use tools like Google Keywords to research keywords.

·         You may only change your app name or keywords with the release of a new version. So think through and research your decisions.

·         If you don’t think a keyword is performing or being searched often, feel free to replace it with another keyword when you release your next version.

·         Do searches inside the App Store to see how your app ranks for important search terms.

6. Create BRILLIANT screenshots. Again, this is really important. First impression is always a lasting impression. You have may be 5 seconds to get the attention of the user before he swipes and moves on to another app on the app store. So ensure you create high quality screenshots, doesn’t matter even if you have to slightly edit the originals.

7. Identify Youtube reviewers to reach out to on a one-one basis. There are quite a lot of reviewers on Youtube with a large subscriber base. I must say, Youtube is one of the most viral of all the channels.

8. As soon as your App is reviewed and accepted, change the app launch date to your desired date of Launch. Its default date would be the date of submission of the app for review.

9. Try and utilize this period before your official launch. Generate Promo-codes from the app store.  Send out the promo-codes generated to app reviewers and try pushing it out through Facebook and Twitter. A maximum of 50 promo-codes per release is given by Apple, so ensure you send it to people who are willing to write reviews. Try and submit a small update to get another bunch of 50 promo-codes before launch if required.

·         Ensure the promo-codes are sent correctly and people don’t have to type it in to redeem. It can be tedious. Send them the direct links. Usehttp://redeem-now.com/ or http://www.appcodes.com/ for sending out direct promo-code links to download.

·         Run a contest on Facebook/ Twitter to give away the promo-codes if required.

·         Run a small contest on Review sites if possible and give away a few promo-codes for the winner.

Launch

1. Launch on a Tuesday. You will find a lot of varying opinions on this. I strongly believe Tuesday is the best day to launch. It gives you enough number of days to gain momentum so as to feature in the app store Top 100 by the weekend when maximum downloads happen. ( Breaking in to the Top 100 of your respective category is crucial if you want to drive organic downloads).

NOTE: Apple calculates rank based on the downloads/ activity on the last 4 days. Get your app in to the top 100 by a weekend when most downloads happen and will get a lot of organic downloads-

Rank (Day)  = (Day*8) + (Day-1)*5 + (Day-2)*5 + (Day-3)*2

2. Submit/ distribute your press release. Try http://prmac.com – this service is inexpensive and has huge reach. $22 for the extended service – these releases are picked up by serious players in the mobile industry. Others to try arehttp://www.prweb.com/ and more premium services like NewsWirePR – expensive but have 80,000 + industry influencers who could make a big difference

3. Get social. Use your own social network, and friend’s social networks to push updates. Run a contest and entice people to share the app with their friends. You can even buy posts on Large pages. There are quite a few pages with a large audience who would willingly share your posts for a fixed pay.

4. Reach out to Youtube reviewers whom you would have already contacted and make them post review videos.

 

Post-Launch

One day after launch

5. The day after launch, activate cross promotional campaigns using the banners created before launch. Do cross promotion from a network of Applications, related to your app’s category. In 2011, around 30% of all app traffic is from in-app advertising and cross promotions

6. Write and create threads on Forums. MacRumours, TouchArcade, Tuaw, Mac-forums, IGN.com,  etc,

7. Post to Hacker News.

Two days after launch

8. Two days after launch – follow up on any coverage received till date. Thank the people who covered your app. Tweet their posts and write comments on the articles.

9. Continue to create more threads, respond to people who have written on your posts

10. Follow up with all the YouTube Reviewers

11. Send people in the application a push notification to leave one positive review if they are enjoying the application. Ensure that you don’t bug your users too much with these requests but then it’s important as well that you gain a lot of positive reviews. It’s a fact that people who have had a bad experience with the app would instantaneously drop a negative review while people who liked the app have a much lesser chance of giving you a positive review. Hence, encourage them to drop a good note that would drive a lot of organic downloads going forward.

Three/Four days later…

12. Engage more on Social Media Channels.