In a perfect world, we would hope that we could take our suspected market directly to purchase in one step.
That would be like hoping we could simply put up a web site and expect that people would just find it and immediately buy our product.
Transcript of "David Skok's, SMASH Summit NYC"
STARTUP KILLERCAC, LTV & Other Metrics that will make (or break) you CAC ROI by Viral Lead Coefficient Time to Source Recover LTV CAC Churn Rate Viral Cycle Conversion Time Rate
MICRO-ECONOMICS PROFITABILITY AT THE CUSTOMER LEVELA POWERFUL WAY TO GAIN BUSINESS INSIGHT
An out of balance Business Model Entrepreneurs are over-optimistic Cost to Acquire a Customer (CAC) Monetization (LTV)
Simple Customer Acquisition Funnel 200 Visitors required for 1 cust Visitors 5% Trial Using Google: At 50c per click 10% Cost: $100 per cust Customer
Add in People costs:- CAC increases dramatically Input Variables Total Web Visitors 10,000 SEM cost per click $ 0.50 Conversion to Trial % 5% Trial conversion % 10% No of Sales & Marketing Staff 3 Cost per employee per month $ 16,500 Marketing and Sales people Flow Qty. Conversion % involved: Total Paid Web Vistors 10,000 CAC rises to Trials 500 5% $1,000 Customers 50 10% SEM Marketing Spend $ 5,000 Total Headcount Costs $ 49,500 Cost of Customer Acquisition Without headcount costs $ 100.00 With headcount costs $ 1,090.00
Sales Complexity No Touch Light Touch High Touch Field Sales Freemium Field Sales Self-Service Inside Sales Inside Sales with SE’s
THE BUYING CYCLE PURCHASE CONSIDERATION CLOSED DEAL AWARENESS
THEBUYER CONSIDERATION ADDRESS THEIR QUESTIONS & CONCERNS • Will this work for my situation? • Is it the best product in the market? • Is it a safe choice? (Who else is using it?) • Will I get a return on my investment? • Is it scalable, secure? • Is it easy to implement? • Will I get good support? • Etc.
TRIGGERS • Moving house • Movers, phones, cable TV, furniture, insurance, etc. • Starting a new software project • PaaS (Platform as a Service), Dev Tools, etc. • Need to hire a lot of new employees • Applicant Tracking System • Just lost my data in hard drive crash • Backup software/service • Read about a new scary computer virus • Anti-virus software
Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects SuspectsBUT EVEN IF YOU AREMICROSOFT, CISCO, ORACLE, ORGOOGLEYOUR FUNNEL WILL HAVEBLOCKAGEPOINTS
IN DIAGNOSING MANY FUNNEL BLOCKAGE POINTS,I HAVE FOUND THAT THERE IS ACLEARPATTERN…
YOU ARE HOPING YOURCUSTOMERS WILL DOSOMETHINGTHAT THEY ARENOT MOTIVATED TO DO
IN OTHER WORDS…YOU DESIGNED YOUR FUNNELTHE WAY YOU HOPED IT WOULDWORK…BUT YOU MAY NOT HAVE THOUGHT ENOUGH ABOUTTHE CUSTOMER’S POINT OFVIEW
JBOSS EXAMPLEPUT A REGISTRATION FORMON THEIR WEB SITE BEFOREA FREE DOWNLOADIMPACTCUT THE DOWNLOAD RATEBY MORE THAN 10X
GET INSIDE YOURCUSTOMER’S HEAD FRICTION & CONCERNS - Hate being sold to - Find it offensive to give name and email - Don’t want to get spam sales emails - Worried that email address will be given to other marketers
UNDERSTAND WHATMOTIVATES THEM FRICTION & CONCERNS MOTIVATIONS - Want to solve my problem - Recommendation from a friend - Education - Data/ information reports - Entertainment - Free stuff - Meeting other people like me that have insights to share
CREATE A SOLUTION THATENTICES THEM AND ADDRESS THEIR CONCERNS FRICTION & CONCERNS ENTICE & ADDRESS CONCERNS - Customer testimonials address vendor risk - Free trials address product viability and fit concerns - Lowest price guarantees
JBOSS EXAMPLE• Making $27,000 a month selling documentation• Solution: • Give away documentation to get their email address
EXAMPLE: DRIVING TRAFFIC TO YOUR WEB SITE GETTING FOUND Not going to find your site unless: friction & - On top page of Google concerns search results - Recommended by a trusted source - Referred to in social media or blogosphere
LESSONS FROM WEBSITEGRADER• Free tools drive viral spread• Low customer work required• High value delivered• Score leverages competitive urge, and acts as a trigger• Builds trust through clear demonstration of expertise
USING DATA TO DRIVE WEBTRAFFICSYSOMOS: SOCIAL MEDIA MONITORINGLEVERAGED THEIR DATABASE TOCREATE BLOG POSTS WITH DATA ONTOPICS OF CURRENT INTEREST:• IRAN ELECTION RIOTS• TWITTER’S GROWTH• FACEBOOK USAGE
LED TO: SYSOMOS ARTICLES IN ECONOMIST, NY TIMES WEB TRAFFIC TO READ THE FULL REPORT LEADS – IMPRESSED BY THE CAPABILITIES OF THE SOFTWARE
DROPBOX: SIMPLE FILE SHARING SOFTWARE– Get you hooked for free– Storage slowly increases to the point where you need to pay– But by then they have established trust – And it is hard to move your data that is shared with others
First Contact Sell Build BuildFirst Contact Sell Relationship Trust
OFTEN NECESSARY TO FIND TOPICSTHAT ARE NOT RELATED TO THE SALE Build Build Relationship Trust First Contact Sell
SELLING IS 10X EASIER…ONCE YOU HAVE ESTABLISHED TRUST
THE KEYS TO SUCCESS THE BUYER GET INSIDE YOUR BUYER’S MIND
How Revenue Builds for a SaaS Salesperson (assuming no ramp up time) With no Churn With Churn of 2.5%$45,000 $45,000$40,000 $40,000$35,000 $35,000$30,000 $30,000$25,000 $25,000$20,000 $20,000$15,000 $15,000$10,000 $10,000 $5,000 $5,000 $0 $0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Custs Feb Custs Mar Custs Apr Custs Jan Custs Feb Custs Mar Custs Apr Custs May Custs Jun Custs Jul Custs Aug Custs May Custs Jun Custs Jul Custs Aug Custs Sep Custs Oct Custs Nov Custs Dec Custs Sep Custs Oct Custs Nov Custs Dec Custs
The Cash Flow Gap MRR vs Expenses – New Sales Hire Net profit - New Sales Hire$30,000 $25,000 11 months to $20,000 breakeven MRR$25,000 $15,000$20,000 Expenses $10,000 $5,000$15,000 Cash $- Gap Month 10 Month 11 Month 12 Month 13 Month 14 Month 15 Month 16 Month 17 Month 18 Month 19 Month 20 Month 21 Month 22 Month 23 Month 24 Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9$10,000 $(5,000) $(10,000) $5,000 $(15,000) $(20,000) $- Month Month Month Month Month Month Month Month Month Month Month Month 1 2 3 4 5 6 7 8 9 10 11 12 $(25,000) (Slightly later breakeven point, because Gross Profit is less than MRR)
The SaaS Cash Flow Trough Cumulative Net Profit - New Sales Hire $400,000 $300,000 $200,000 $100,000 $- $(100,000) $(200,000) Total amount 23 Months to get But a great invested: back the return on $110k investment investment
WHY MEASURE ENGAGEMENT?INSIGHTWhich key features in the Free Trial have not been tried?ACTIONUse emails and/or customer success repsto focus on those features
PATTERN DISCOVERY AND THE NEED FOR DATA SCIENTISTS
Which behaviors are mostcorrelated with Churn? Which lead sources lead to the most profitable customers? What Free Trial behaviors indicate a customer that won’t buy? Etc.
THEBUYER WHO IS YOUR BUYER? • Who is involved? • What are their roles (Champion, Influencer, Decision maker, etc.)?
THEBUYER UNDERSTAND THEIR BUYING PROCESS • What are their approval processes? • e.g. IT approval needed, Board approval needed Wife’s approval needed
USING METRICS TO MEET TARGETS WORK BACKWARDS FROM THE TARGET
Example: JBoss - Sales & Marketing Machine EnterpriseSuspects Closed Deals Rollouts Web Web Phone InsideLeads Scoring Call Sales Lead Nurturing
Metrics: The End Goal 4:1 3:1 4:1 (25%) (33%) (25%) Raw Web Closed Tele- Tele-Leads activity Deals marketing sales scoring
Using the model to work backwards 4:1 3:1 4:1 Raw Web Closed Tele- Inside-Leads activity Deals marketing sales scoring• To do $4m in the month: – If Average Deal Size is $10k – Need $4m divided by $10k deals to reach target = 400 deals – Means 1,200 deals being worked in Inside sales (400x4) • Know that each rep can work 60 deals at a time, means 20 reps – Means 3,600 telemarketing contacts (1,200x3) – Means 14,400 Raw Leads (3,600x4)