Cost of Acquisition, Becoming Venture-Backed, & The Problem with Freemium
This week’s roundup includes several dives into the important figures: determining cost of acquisition, what you need to be venture-backed, your sales quota structure, whether the numbers pan out for freemium offers and more.
How to Determine Your SaaS Business’ Cost of Acquisition
It’s not uncommon for a SaaS business to have a loose parameters on acquiring early stage customers, but this makes determining the cost of acquisition (COA) a hard number to nail down (and to investors and your sales plan, that number matters.) Obviously the less you spend to acquire new customers, the better, but what is the budget? This article discusses the role customer lifetime value plays in the COA ratio and where churn fits in as well.
“The added benefit to reducing customer-acquisition cost and increasing customer lifetime value is that it can help your valuation. If you’re interested in selling your business at some point, you will need to take a close look at acquisition cost and lifetime value.” [Read more here.]
What it takes to be a venture-backed SAAS startup
Being a venture capitalist tends to be more of a science than an art. With experience on their side and money the thing at ‘play’, a VC is all about the numbers. Good intentions and great ideas are fun over drinks, but if the number-crunching does not reflect the proven trends for success, a VC has good reason to save the investment for the next option. It’s as simple as that. What is the magic number? Hint: Grow 13% per month for seven years… This article explores how a VC fund operates and how a VC thinks.
“We are very much real people who are empathetic to our founders’ challenges since we were founders once too. But math matters, and it’s important to understand the black-and-white of investing to understand some of the VC mindset” [Read more here.]
The Bar Has Been Raised For SaaS Startups, And Only The Clever Can Compete
Jason M. Lemkin, partner of SaaStr Ventures, answered the recent Quora question: “Is it hard to set up a SaaS business that becomes successful?” This is a slightly odd question, as it would seem obvious that it cannot be too easy or everyone would do it. Lemkin explains that it is indeed hard, but the reasoning as to why has evolved over the past 10-12 years. While the main issue was once that the SaaS market so small, finding success was very tricky, today the problem is more about acquiring enough accomplished ‘geeks’ (aka, engineers and tech gurus) to produce the nitty gritty data that is in demand. [Read more here.]
Freemium Is Expensive
What if Freemium isn’t as great as we all thought? Having a ‘free’ version or option of a SaaS product available has been a pretty standard procedure through the early years of SaaS development, but is it paying off? This article dives into the how and why the freemium approach can be both risky and costly by using cloud storage services as an example case study. [Read more here.]
Designing A Sales Quota Structure At The Earliest Stages Of A SaaS Startup
One thing all SaaS start-ups definitely have in common is that the sales plan is a work in progress. So where to begin? Even someone with experience may have trouble nailing down a start to structuring the sales approach. There are too many questions lacking answers when a sales process has yet to be implemented. This article talks about the recommendation made by Marketo VP of Sales, Bill Binch, which is to “isolate one variable: number of deals reps can close per month.” [Read more here.]
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— Tamara McCleary (@TamaraMcCleary) September 13, 2016