Getting paying subscribers is by far the biggest expense for any SaaS provider. And so it means a SaaS company has to be pretty careful about the ways it spends its money.
What are the three deadly SaaS marketing mistakes? According to the blog, Practical Advice on SaaS Marketing, they are as follows:
Spending Money to Lose Money
Drew Houston of Dropbox learned the hard way what can happen when he decided to do an AdWords campaign. It cost Dropbox $233 to $388 to attract customers. But the product sold for $99. Houston had one word to describe the experience:
What he came away with is a handy equation for the SaaS company thinking about its costs:
CAC stands for "customer acquisition costs." CLV is stands for "customer lifetime value."
As Peter Cohen explains, on the CAC side it may be big events, high-priced events and clever but way-too-expensive giveaways. CLV issues may be not turning free subscribers into paying ones.
Houston provides an insightful story about the failure of best practices and the success that comes when you invest in your own community.
Racing Against the Clock
You can try to make up for the CAC by reducing the CAC costs and making lots of money before the cash gets all burned up
This can be a deadly game but it can work. SucessFactors did it. According to Cohen:
"CAC/annual revenue reached 112% at one point, but over time has come down to a more sustainable 53%. They out-grew the cash burn."
Bailing with a Tea Cup
This is a problem of underspending. Sales and especially marketing can be seen as a hindrance. We see it way too often. Antipathy for marketing leads to cynicism and sometimes outright hostility. But it is the sales and marketing that do the heavy lifting. They are responsible for getting the leads and making the sales.
But if there is always the pressure to do it on the cheap, then it can lead to problems. The company won't have the resources in sales and marketing to get the job done.
"SaaS companies will typically spend much more on sales and marketing as a percentage of revenues than their licensed software brethren. Concur, for example, spends 31% of its annual subscription revenues on sales and marketing, and Salesforce.com spends 54%. For nearly all companies, customer acquisition costs will be the single largest expense on the income statement."
Running a SaaS service is not for the faint of heart. But the geeks in us feel that Dropbox is the best example of a company that was built on the loyalty of its early adopters. Word of mouth helped it reach 1 million subscribers - that's something most services never achieve.