WATCH: Efficient Growth: the only future for SaaS companies (2:21)
Within the current economic climate for B2B SaaS companies, where valuations for the top 50 IPOs since 2020 are down 59% and Private Equity and Venture Capital firms have called for cuts, there is less working capital to invest. This means access to funding to fuel growth, for both public and private companies, is much harder. Growth now needs to be delivered with fewer resources. Both financial and human, as it’s not just capital that’s seen significant reductions. Over 550,000 people have lost their jobs since January 2022. Businesses need to be more efficient. No longer can SaaS companies afford to trade efficiency for volume. Healthy unit economics are now critical for sustained growth.
This is where your marketing team comes in. By pivoting their strategy to one that aligns with the efficient growth ideology, where profitability based metrics such as Lifetime Value (LTV), Customer Acquisition Costs (CAC), and LTV:CAC take centre stage, marketing has the power to not only drive sustainable growth but to prove how this growth is being fuelled by investment
How does marketing achieve this?
- Niche down your targeting on the best-fit customers: Through data analysis and partnering with the sales and customer success teams, marketing should identify which customer verticals are of the highest value to the business. Value here is defined as those who pay the most, close the quickest, and stay the longest. These customer verticals come with high LTV, low CAC, and a strong LTV:CAC ratio, making them the most profitable. Ideally, the sales cycles will be short so that the business impact can be felt sooner.
- Leverage investment in these segments to drive demand: If you’re marketing budget is being squeezed and you have to focus your resources – then allocate most of your marketing budget towards efforts to create demand in these verticals. This will be at the expense of other customer segments that may perform well in terms of win rates, but are quick to churn. We’ve seen from our own work with SaaS companies that those segments which drive deal volume aren’t always your strongest market.
Case study: A B2B workforce management software company we work with had been allocating significant resource to driving demand in the manufacturing market due to the high volume of deals they secured. After a thorough analysis by our data science team we found that this same market also had the highest churn rate. So while volume was high, LTV was not. The award for the highest LTV actually went to the construction market. This insight has empowered us to shift the go-to-market strategy to drive more efficient growth.
- Tailor the customer journeys: For each customer vertical build a campaign journey and differentiate the messaging. Build an offer that increases urgency so deals move through the funnel quicker
- Tier your demand capture campaigns by performance: Look back across a 6 month window and workout which campaigns have delivered wins and opportunities. Redistribute your budget to top performers at the expense of everything else (non-converting campaigns, campaigns that drive MQLs, but no Opps).
- Ruthlessly optimise: Set optimisation rules for each key metric so you know exactly what is helping you hit or causing you to miss. For example: Cost per Opp targets, LTV:CAC 3+, ROAS 2+ etc.
- Storytelling through data visualisation: With all of the above in place, it’s critical that marketing are able to convincingly tell the story of how the business is now set up for long-term sustainable growth in a way that will attract investment and help the business secure its next funding round.
Tasking your marketing team to dial in to efficient growth is critical. Marketing needs to allocate their resources towards understanding and then driving growth in the most profitable customer segments, prioritising efficiency metrics over volume metrics. Two customers that bring a £75,000 average contract value (ACV) but churn in 12 months are far less valuable than one customer that brings a £50,000 ACV and stays for 4 years.
Tailoring customer journeys to be unique for each customer segment, along with being ruthless when optimising campaigns and then being able to tell a compelling story through data visualisation are also crucial steps to making an efficient growth strategy a success.
