Panel Discussion on SaaS Sales

Last Thursday I moderated a panel discussion on sales process and metrics for SaaS application software.  The discussion, part of Dealmaker Media’s Strategy Series, was held at our office in Palo Alto.  We had 35 guests and 3 great panelists: Tom Dibble, chief revenue officer at Aria Systems, Jon Miller, VP marketing at Marketo, and David Vonk, SVP of sales and business development at Pivotlink.  My goal for the panel was to explore the sales models that are getting the most traction in SaaS application companies and to better understand the costs associated with the sale of SaaS applications.  Some of major points that were made during the conversation:

• Sales organization. The panelists indicated that they employ a two-tier sales organization: an inside sales group that is responsible for opportunities with ACV of up $100K, and a field sales group that is responsible for larger opportunities.  In addition, all 3 companies have established a lead qualification group, working between the sales and marketing groups, whose goal is to qualify the leads generated by the marketing group.  We couldn't get a good indication if and when it is necessary to split the sales into "hunters," i.e., sales people that are responsible for the acquisition of new customers, and "farmers," i.e., sales people that are responsible for renewals and upsells.

• Lead generation channels.  The sales teams are responsible for generating 40-50% of the new leads with the rest of the leads generated by the marketing group.  The panelists identified the following lead generation channels in order of efficiency: virtual trade shows because participants have the opportunity to interact with peers and simultaneously compare several vendors, online advertising, (SEM/SEO and PPC) since the inbound inquiries the result in are better than the leads generated through outbound calling, and social media outreach since word of mouth is becoming very important for customer acquisition.  The panelists also acknowledged the importance of educating prospects by providing a variety of relevant and frequently updated content on their companies’ web sites.  Prospects must feel that they are receiving value from the vendor even before they license the application.  As one panelist put it “the prospect must feel they are getting more value from your company’s web site than they feel they get through Google search.”

• The importance of acquiring branded customers.  Even though SaaS companies tend to focus on the SMB market, the panelists admitted that they try hard to acquire enterprise clients for two reasons.  First, because they typically sign contracts of higher ACV thus providing higher return on the vendor’s sales investment (cost per lead, pre-sales personnel costs, partner referral costs, etc).  Second, because of their brand recognition which aids overall sales and often results in the reduction of the costs associated with the acquisition of smaller customers.  As one panelist said “while it’s important to have hundreds of SMB clients, it’s even more important to have logos such as Nike, Coke and P&G in your customer list.”

• Key Sales Performance metrics. Constantly measure Monthly Recurring Revenue (MRR), Customer Acquisition Cost (CAC), Lifetime Value (LTV), churn rate, and pipeline conversion rates.
  

• Measure the amount that each sale adds to the MRR.
• Shorten the time to cash.  Self provisioning may work well in some cases but in general the panelists found that it doesn’t shorten the time to cash.  For this reason they found it important to use post-sales services to expedite the customer on-boarding and optimize the value the customer is receiving from the SaaS application.  They advocate productizing (or templetizing) the service delivery.
• Close SMB prospects within 30 days.  Prospects that are not willing to sign a contract within this period typically are not ready to buy.
• Minimum license price of $1K/month and minimum contract term of 1 year.  Other pricing and term models the panelists tried (e.g., freemium, pay as you go subscription with no minimum contract, etc) have not worked as well for the applications their companies are selling.  Presumably they have also determined that the minimum license price and contract term allows them to recover the CAC.  Make sure that the LTV can become larger than the CAC and adjust accordingly.  These testimonials show why it is very important to align the expected Customer Acquisition Costs with the monetization strategy.

• Little (less than 10% on 1-year contracts) or no discounting.  It is easy to quickly demonstrate the value of SaaS applications, often even during the pre-sales process.  As a result, it is not necessary to offer discounts in order to close a deal.  By contrast, on-premise software vendors typically have to discount heavily because the value associated with their applications often comes several months (or even years) after the initial installation.

• The role of partners.  The companies are now investing aggressively around partners in order to grow faster than the overall market and continue to reduce the customer acquisition and customer support costs.  Marketo gets 20% of the business today through partners.  The panelists advised the participants to create a compelling integration strategy between the vendor and its ISV and OEM partners, as well as to try not to compete with the services channel partners.

We had a lot of fun hosting the event and were glad to see the level of interaction between the panelists and the participants.  We want the thank Dealmaker Media for their efforts in making this event successful and look forward to hosting additional such Strategy Series events.