IN THIS ISSUE
As we approach the end of fiscal Q1 for many companies, this issue of Driven brings you these topics:
- Stellar growth predicted for enterprise SaaS in 2021 through 2025
- Why you must be ready for omnichannel sales and marketing in 2021 and beyond, even for enterprise SaaS
- How to know if your spending on sales and marketing is reasonable
Dave Vranicar at Driven
GO-T0-MARKET | STRATEGY
Get ready for omnichannel selling. B2B buyers expect it— even for big deals.
"B2B buyers aren’t just moving to omnichannel. They’ve arrived. Given the choice of in-person, remote, and e-commerce channels, purchasers have shown they want them all."
Challenge
It's no secret that buyers' expectations and preferences changed during the pandemic.
What may be surprising is that many of those preferences are likely to last well beyond Covid-19. And they're likely to apply to enterprise sales, not just transactional ones.
The changes apply, to varying degrees, in countries around the world.
So enterprise SaaS companies everywhere must change the way they go to market.
Ideas to consider
To adapt and thrive in the new environment, consider these changes in buyer expectations:
- About two-thirds of buyers prefer remote human interactions or digital self-service.
- About 8 in 10 B2B leaders say omnichannel sales and marketing are more successful ways to prospect and secure business. Omnichannel beats traditional "face to face" sales approaches, they say.
- Omnichannel isn't just for small transactions. Plenty of B2B buyers (20%) said they're willing to spend more than $500,000 without seeing a seller in person. About half as many (11%) would spend more than a million dollars.
Here are some likely implications for sales organizations:
- Sales models will go hybrid. Lead sellers will interact with buyers by video, phone, apps, and occasional in-person visits.
- Almost half (47%) of B2B companies say they're likely to engage in in-person selling less than half the time.
The percentage is probably higher as a company's average annual contract value increases. But the data don't speak to this difference.
- SaaS companies will look for different skills and traits in enterprise sellers.
- The risk of channel conflicts is likely to increase as more sales go digital.
- Vendors will have less reason to organize sales territories by geography. With less travel, travel cost for sellers is no longer a main consideration.
When companies don't organize sales teams by geography, they have an opportunity to do so by industry segment or subsegment.
Sales organizations aligned by industry can be very effective in building the trust of buyers.
That's because they learn industry issues and speak the language of the industry.
Source
Omnichannel in B2B sales: The New Normal in a Year That Has Been Anything But. March 2021. McKinsey. [Downloadable PDF. 9 pages. No charge.]
This is solid, readable piece that offers plenty of insights about the future of enterprise sales after Covid-19. The perspective is global.
Related
"A New Rep Profile: How Sales Leaders Are Evolving A-Players in 2021." Geoff Schuler. March 22, 2021. Sales Benchmark Index. Blog post.
mckinsey.com
SAAS | INDUSTRY TRENDS
Enterprise SaaS is poised for torrid growth through 2025
"Digital business represents the dominant technology trend in late 2020 and early 2021 with areas such as cloud computing technology, core business applications, security and customer experience at the forefront."
Opportunity
The market for enterprise SaaS will rebound sharply from the Covid-related hits it took in 2020.
Its growth trajectory looks stellar through 2025—especially in some vertical and geographic markets.
Ideas to consider
- The worldwide market for enterprise SaaS will grow by almost 9% in 2021. Remarkably, it will likely top 10% in 2022, Gartner says. That's after it shrunk by almost 2.5% in 2020.
- Growth will vary by country, depending on how national governments handle vaccine rollouts.
- Growth in "people-gathering industries" will be near the bottom of the growth arc long term. These industries include restaurants, travel, and entertainment.
Primary source
"Gartner Forecasts Worldwide IT Spending to Grow 6.2% in 2021." | January 25, 2021 Gartner | [news release]
Related
"Investors Say These Enterprise Software Sectors Will Likely Remain Hot in 2021." Chris Metinko. December 29, 2020. Crunchbase News. [blog post]
gartner.com
SAAS | PERFORMANCE BENCHMARKS & METRICS
How to know if you're spending the right amount on sales and marketing
"The challenge of CAC [Customer Acquisition Cost] is: Spending the right amount to drive new customers to your service without jeopardizing the Lifetime Value (LTV) and revenue from that customer.
"This is known as the LTV/CAC ratio, and it's the 'god metric' of many successful SaaS companies."
Challenge
It's hard to know when you're spending enough or too much on sales and marketing.
Some companies look at their sales or marketing spending as a percentage of revenue. But that's a rough metric.
Customer Acquisition Cost (CAC) is better as a key performance indicator (KPI). And the ratio of CAC to average Customer Lifetime Value (LTV) is even more important.
Investors look hard at CAC and LTV when they evaluate your company.
CAC and CAC:LTV ratios can vary widely by factors such as these:
- Average deal size
- Your company's size and maturity
- The market segments you serve
- How your company is funded (bootstrapped or through outside investors)
- The size of companies you sell to
This is a big topic, with many implications and intricacies. It pays to understand it well.
Ideas to consider
- You can calculate CAC not just for your entire company, but also separately for sales versus marketing.
- At a more operational level, you can calculate CAC by marketing channel, market segment, and sales channel.
- Be careful In comparing your company's performance against industry benchmarks. Methods for calculating CAC and LTV may vary somewhat.
- It can be hard to know what costs to include in CAC. For internal data consistency, work with your finance team so sales and marketing operations calculate CAC and LTV in similar ways.
- Besides the CAC:LTV ratio, a metric called CAC Payback is also helpful.
Source
"How to Calculate and Reduce Customer Acquisition Cost (CAC) for SaaS." Jordan T. McBride. August 17, 2015. Profitwell blog.
Although this is an older article, its ideas are current.
ProfitWell is consistently a solid source of authoritative information for benchmark data on SaaS operations. They collect their data directly from their clients, which are mostly SaaS companies and number more than 8,000.
Related
"Startup Killer: The Cost of Customer Acquisition." David Skok. Undated. For Entrepreneurs blog, Matrix Partners. [blog post] This is an older article, but it's well worth reading—especially for early-stage companies.
David Skok's blog posts are consistently wonderful.
"Your Average CAC Is Lying to You—What To Do Instead." Brian Balfour. January 4, 2017. Brian Balfour blog.
This is a solid post on common mistakes in calculating CAC.
"CAC Payback: How Continuous Experimentation Can Drive Down Costs." Kyle Poyar. June 13, 2018. Openview Labs. [Podcast, 31 minutes]
OpenView has a lot of solid blog posts on the topic of CAC as a SaaS metric. In one, they question the value of the CAC:LTV ratio. For more related posts from OpenView, go here.
profitwell.com
ABOUT DRIVEN
Driven is a fortnightly digest for busy revenue leaders in business-to-business (B2B) SaaS.
It's likely to be most useful if your company sells higher-ticket products that require moderate to heavy involvement of professional sellers.
Driven is here to help you:
- Achieve your most important goals
- Overcome your biggest challenges
- Solve expensive problems
- Become a better version of yourself.
You'll find an online archive of back issues 12 through 43 at this link.
About links, commissions, and endorsements
When I provide links to articles from vendors, does it imply an endorsement?
Only of their content. Not of their products or services.
If I recommend a service or a book, it’s because I think it’s likely to help you. Period.
I get nothing from providing links to any commercial service, including the books for which I provide a link to Amazon.
That may change. I’ll tell you when it does.
Dave Vranicar at Driven