I’ll keep this as short as possible.

Content Marketing has been a Marketing “trend” for the past 5 years at least. For 2019, my advice for every marketing team is to increase cadence, formats and bet strongly in distribution.

This post focuses on a very specific idea which basically aims at increasing efficiencies when creating content: Repurposing.

A lot has been talked about this topic, so I’ll just spare everyone and add my 2 favorite reads on this, in case you’re falling behind on the conversation.

• The Ultimate Guide to Repurposing Content
• The Complete Guide To Repurposing Blog Content

The main idea I want you to take from this story is one of a Pillar Content piece. This should be either a long-form Video or Podcast.

(Btw, this concept of Pillar Content machine has been made widely popular by Gary Vaynerchuk quite recently, despite having been explored by a lot of marketers, myself included, over the past years. Nevertheless, kudos to Gary for his work of creating a process and a visual workflow).

Your content team should really aim at exploring these and main investment in budget-wise should go to them. Think about interviews, talks, workshops, etc.

• From a Pillar Content piece, you can then create multiple content pieces to keep your content machine rolling with a great cadence.
• From a video, a podcast gets born.
• Focus distribution of the video on Youtube and Facebook (you can also explore Vimeo if you believe you may have a decent audience there).
• Afterward comes the first round of micro-moments for driving viewership. This includes coming up with extra content pieces from the initial video (images, 15s, 60s, 2m, and 10m videos), share them on the appropriate channel in order to drive traffic to the Pillar piece.
• Watching your community reactions to these will give you new ideas of where does your content best resonates with them. A tip here is to ask your community to tag the time-frame which they refer to, whenever they add a comment to your video.
• These new ideas can originate 3–4 new clips (from the original video) which then get posted to Facebook.
• You then get a new set of micro-moments also based on the feedback you got from your community. Apart from 15s and 60s clips, you can also explore quotes and GIFs.
• Finally, will all the learnings you get from your audience’s reaction to all the different content pieces, you can basically create a transcript article and spark it up with a couple of main takeaways.

As you can see, from a single original content piece, you can generate an incredible amount of content. There’s no excuse for lack of ideas or lack of research time to create new content.

Further ideas to repurpose content? Add your comments below!

Also, if you’ve enjoyed this story, give me 10–20 claps for good luck :) Thanks!

This story is published in The Startup, Medium’s largest entrepreneurship publication followed by +437,678 people.

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Pillar Content and the 2019 Content Machine was originally published in The Startup on Medium, where people are continuing the conversation by highlighting and responding to this story.

The Green Mean Marketing Machine for SaaS, B2B, B2C and eCommerce Businesses was originally published in The Startup on Medium, where people are continuing the conversation by highlighting and responding to this story.

People make psychological judgments quickly. So, how products are priced matters.

Pricing is one of the most important strategies that can determine how (and if) a SaaS business grows.

Over the last 3 years, ProfitWell, Chargebee, ChartMogul and a number of other businesses who focus on finance platforms for the SaaS industry, released several studies, reports, and plain fashion advice on how SaaS businesses should think and do in regards to their SaaS pricing.

Since then, I’ve analyzed hundreds of articles on the topic and thought: “Why not bringing the most relevant discussions, all under one roof?”.

That’s what the following story is about.

PS: If you end up liking what I’ve done here, give me at least a dozen claps for good luck :)

Table of Contents

• Monetization versus Acquisition
• The importance of a Pricing Strategy
• What does a Pricing strategy entail?
• Centering your Pricing around your Value Metric
• Expanding Revenue strategies you can use
• Considering Scaled Pricing
• Should I be using Pricing Tiers?
• Being adapted to a local reality
• Freemium or not?
• Realizing what a Trial means
• Choosing Monthly versus Annual, or both
• Pricing Page: What to do with the Headline
• Being smart about discounting
• To demo or not to demo?
• Detailing the different features
• Qualifying and removing barriers to purchase
• Using black-box “Enterprise” plans
• Doing Pricing experiments
• A different perspective: Behavioral Psychology
• The ultimate challenge: Rising prices
• Resources

Monetization versus Acquisition

There’s an expression I’ve read in an article from Patrick Campbell and loved it ever since:

“The beauty of the subscription model is that relationships are built right into the revenue model. You provide consistent value to your customers, and in turn, they continue to pay you for that value. No other business model in history gives us, entrepreneurs, such alignment with their customers.”

This, for me, shows the evolution of a traditional sales model that would charge high for a product, pour their resources on marketing for the selling stage and forget about the rest of the customer journey. Saas doesn’t work this way. If you want your customer to pay up, you’ll need to continuously drive your product forward, engage with your customer base and ensure satisfaction with the service.

Curiously enough, as reported by PriceIntelligently, working with your current customer base, to increase the value they get from your product and consequently better monetize it — is still a topic rather undervalued, when compared with content about Acquisition for instance.

The same report shows that while Acquisition topics account for over 3/4 of publications from 2014–2016, Monetization actually 4x’s the impact of Acquisition on a product’s growth.

There is no way to build a sustainable SaaS business on new customer acquisition alone. — Paymotion

The beauty of SaaS brings the beauty of Unit Economics with it.

As Brian Balfour mentions on his “Why Product Market Fit Isn’t Enough” article, finding your Market-Product-Channel-Model fit begins with your Market. That’s exactly where your strategy for monetization should begin with. Understanding your audience and quantifying your buyer personas

The Importance of a Pricing Strategy

Once you understand who your audience is and what should it be, once you figure out which can be your channels and finally how can you shape your product around them, it’s time to define your model. Here’s where Pricing comes in.

PriceIntelligently also mentions that:

The average amount of time spent on pricing amongst companies is a mere 8 hours total over the life of the business.

The same way the beauty of SaaS comes with a continuous market and product evolution, the balance which Balfour talks about, needs to be nurtured and therefore its components reviewed on a regular basis.

So, along with having a clear process in place, and a workgroup which involves the several teams at your company, it is crucial for this working group to meet regularly (every 2 months) to analyze current performance, (every 3 months) to suggest improvements and (every 6 months) to review the pricing strategy in place and apply changes.

What does a ricing strategy entail?

Deciding on which direction should your business take in terms of pricing, involves:

• Knowing who your audience is, which channels will you use to reach them and how your product is built around this fit — understanding your customer LTV, determining your CAC and consequently how to position your price point according to your unit economics.
• Finding out the value your product brings to its audience. Understanding this allows you to structure your product and pricing to grow as your customer grows. More on this below.
• Creating your product Pricing Page.

Designing a Pricing page has a lot to it

The whole process of spending time thinking about your market-product-channel fit leads you to design the most important page on your website.

Your pricing page is where everything that matters to your business lives. All of the underlying unit economics of your business, the understanding of the value your audience sees in your product and the scaling mindset of pricing evolving with your customer growth, lives (or it should!) under the pricing strategy you set.

Therefore, designing it goes way beyond cosmetics and conversion optimization techniques. What follows are considerations to follow when defining your strategy and creating your Pricing Page.

Centering Your Pricing Around Your Value Metric

Value metric. What is that?

After finding out the value your product brings, you need to find a usage metric within your product which you can tie to your customer’s business growth. Creating your pricing strategy around it will ensure customers get a much higher perceived value for upgrading to the next plan/tier.

Picking the proper value metric has a phenomenal impact on your business. Imagine two SaaS companies that each have 100 customers. The first charges on a per seat per month schema, but there’s little need for more than one seat for each customer. The other sells the exact same product but charges along a metric of particular usage in the app with a bare minimum per month charge. The former has an artificial ceiling on the MRR potentially gained from their customers. The latter’s MRR will grow as their customers grow and/or use the product more. I’d much rather be in company number 2. — PriceIntelligently

Your value metric, as we’ve seen above, is the quantifiable way your product provides value to your customers’ business. You provide a certain amount of functionality tied to value (like some number of emails, keyword searches, or users) and they pay you in return.

Going for a pricing strategy that revolves around this metric, ensures you’re driving expansion revenue, being able to increment the value you’re getting from your existing customers in the future.

If you don’t tie in your different pricing options to a scalable pricing model, it means you’ll have to work even harder on retention and acquisition initiatives to ensure business growth. While you can expand revenue in different ways (we’ll see that below), value-based pricing helps you scale the value you get from each contract at a similar rate as your customers scale their business, maintaining a consistent perceived value from what they’re getting from you.

A good example often quoted is Wistia’s.

Once you have come up with a pricing scheme, test it against this simple question: How comfortable will you feel when talking to your customer about your price versus the value you generate?

Expanding Revenue strategies you can use

As a SaaS company grows its user base, a constant churn rate becomes an increasingly significant problem for continued growth.

Why?

The Growth in churn is geometric, while new customer acquisition is linear. As a result, it becomes impossible to offset churn purely by expanding your customer base and the revenue they generate.

Expanding revenue is basically pushing existent customers into spending more with your product.

The additional revenue you can generate from existing customers beyond initial fees is known as expansion revenue. — Paymotion

Likewise, while designing your pricing strategy with scaling in mind, you should consider opportunities to expand the revenue coming from that customer. If designed correctly, the pricing should scale down to allow you to capture the smallest/cheapest customers that are still profitable, up to the largest customers that are willing to pay a great deal.

Let’s take a look at some common axes for scaling pricing:

• Product features that fit different evolution stages of your customer’s business
• Number of users (sell the product to more people within the company and charge by the seat (ex. Salesforce, Expensify))
• The depth of usage (entice the customer to store more data or use more of your service (ex. New Relic, Twilio, Heroku))
• Cross-selling axes (sell adjacent products that increases the value of the core product (ex. AWS S3, EMR, etc))

Cross-selling axes

For a SaaS business, there are a few interesting ways one can do this:

• Buy or build additional products that are closely related to existing products;
• Sell add-on modules that integrate nicely with the existing product;
• Create an AppStore, and sell third-party products, taking a cut of the profits;
• Create a services marketplace where you connect partners that provide services offerings around your products and take a cut of the transaction fees;
• Look for other fees that are created around the usage of your product (e.g. payment transaction fees in eCommerce, advertising revenue, etc.), and ask yourself if it is possible for you to extract a portion of that revenue.

The ideal scenario for any SaaS is to have its expanding revenues at higher levels than their churn. This is called Negative Churn and it basically means that you are expanding your customer base at a higher rate than what it is contracting — translating into exponential growth.

Considering Scaled Pricing

According to For Entrepreneurs, scaling your product pricing helps to attain a fit between your product packaging and the value your audience may get from it depending on which growth stage they find themselves at a specific moment in time.

Here are some examples of how different customers can get differing levels of value from your product:

• They are a larger company, and many more employees are using the product
• They are using fewer, or more, of the features in the product
  They have a greater number of items that are being processed by your software. e.g. if it is email marketing software, they may have a very large mailing list or if it is a backup service, they may have a very large dataset that they are backing up

Emotional Willingness to Pay, which plays a crucial role here, is also a topic much debated for already quite some time — it basically tells you that willingness-to-pay is actually based on perceived value and that by changing the perceived value, or simply by communicating your value more effectively, you can change willingness-to-pay.

Should I use be using Pricing Tiers?

Creating different pricing tiers comes as a result of understanding your customer base, by creating quantified buyer personas, how your customer base business evolves and what they value at each stage of their evolution, and then packaging it with a scalable price point.

All decisions about the pricing page are optimizations to approximate the value creation curve and charge for it. — Stripe Atlas

The “expected” design works for a reason. It’s often advisable to stick to Good, Better, Best — unless you’re targeting a large number of different personas.

Be creative when emphasizing your “preferred” plan. Either by using a different color, size, positioning or by smoothly animating its elements.

Understanding who your different customers are enables you to state who each plan is for, so do it. There’s no reason not to do this. This can also be aspirational — visitors will buy the plan that corresponds to what they want to be. Don’t call your plans Silver, Gold, Platinum — give them a name to which each of your customers can relate to (Freelancer, Small Studio, Large Studio).

Example of a job well done: Appcues

• The demographics are condensed into a single word that best describes that persona: For instance, a bootstrapper, a startup, a growing company, or a large unicorn.
• The willingness to pay is shown in the actual pricing, which grows with the growing demographics and features.
• The packaging of the valued features show the relative preferences of each buyer persona. For instance, The Bootstrap persona only wants quick and easy access to the product, while Growth wants custom analytics and support.

“Quantifying your buyer personas gives you concrete starting points for your pricing and packaging, showing you exactly what your customers value, and what they are willing to pay. As long as you price within that range and tier out your packages correctly, you will have customers.” — PriceIntelligently

• If you know what features your customers really value then that should be the first thing they see when they hit your Pricing page.

Examples of pricing pages

ChartMogul brings a great annual review on Top SaaS Pricing pages on Pinterest. Worth checking out.

What you should not be doing

Read Profitwell’s “The Saddest SaaS Pricing Pages” to get a glimpse into what you should avoid.

Being adapted to a local reality

With today’s global markets and easy access to economic reports, it shouldn’t be hard for businesses to price their products differently according to the top regions where they operate. This, according to Chargebee findings with ProfitWell, can be done in many different ways, from simple to more complex approaches:

• Cosmetic localization (Early-to-Late stage growth stages)— simply making sure that when someone visits your pricing page, the currency is localized to their region.
• Market localization (Late stage growth stage)— Making sure each region has a different relative price (eg. $100 in the US, £150 in the UK, etc.) based on market saturation and demand. For that, you’ll need to:

— — — — a) Determine Each Region’s Willingness to Pay: Running price sensitivity campaigns is the easiest way to measure differing willingness to pay in each region.

— — — — b) Understand Your Buyer Personas: This takes a bit of extra work, but by understanding the different aspects of your product that resonate in different places, you’ll be able to figure out your market’s preferences and position your product differently for each region.

— — — — c) Cosmetic Localization: You’ll still need to ensure your landing page and currency symbols are appropriately set up for each region.

Freemium or not?

Freemium is a trend with SaaS businesses. It provides a no-friction way for users to signup with your product in the hope to make them move towards higher plans in the future.

There is however the growing conscience that products that offer products slightly above zero, will have a hard time growing and with the exception of some big names, today will never achieve major growth. Why? Because low ARPU products need to be distributed through low CAC channels in order to be profitable. Low CAC channels are typically virality and a bit higher up paid. Unless you’re able to get massive distribution through an incredible viral effect built into your product, you’re betting on a customer who is not willing to spend anything, to move through your pricing tiers towards a higher ARPU product tier.

Typical issues with Freemium model:

• Free users eat up support — Easy to grasp, but very often forgotten by more inexperienced marketers. More users usually mean more support, which means you either start taking a slash on your turnaround times, or you decide to recruit more reps or begin limiting to whom you offer support to.
• Free users use resources — By resources I mean server storage, speed and likely quota on any third party app you may be using (Segment, Hotjar, Mixpanel, etc). Read about what happened to Baremetrics when their Freemium model started to implode.
• Paid products carry more value — Very often, there are types of free users that don’t value your product to the point where they’d be happy to pay for its use if such would be required from them overnight.
• Free users bring more free users — While Free is usually great to generate word of mouth, Free users usually bring other Free users, so the above costs may start to escalate pretty quickly.
• People take advantage of free accounts by opening multiple accounts per user, to be able to go around limits.

How-to Avoid SaaS Free Trial Abuse

Types of Freemium models:

• Hard limits — think about MailChimp, where you are limited to sending X number of emails, or Zapier where you are limited to the number of Zaps you can send per month. The limits don’t take features away but limit your continued use of the platform — forcing you to upgrade in order to continue using it.
• Soft limits — think about Zapier not allowing you to use multi-path Zaps on its Free plan. Soft limits limit the usability of the service by removing some of its features.

Considerations for choosing a Freemium model:

• Think about whether you want your free plan to be discoverable. Many businesses choose to de-emphasize their free offering, or even hide it.
• Try to visually differentiate your free plan, if it’s a radically-different (or limited) set of features.
• Be upfront about the limits of the free plan — this will help visitors make the decision.
• Consider mixing Hard and Soft limits.
• Time can be a limitation for Free plans, however, I like to address these more as Trials.

Chargebee lists the following scenarios for when a Freemium model makes sense:

1. A DIY product/service, where the cost of servicing a new customer is close to nil. These are the businesses that are designed for the freemium model by default.
2. When you’re having your freemium plan as a differentiator in the market.
3. When you’re employing your freemium plan as a free branding tool.
4. When you’re having your freemium product to market your paid product

Ultimately, it all comes down to how well you understand the value that you’re bringing forth to the market, and how well it aligns with the freemium model.

Dan Martell sums it up in four crisp points, and says that you’ll have to get 3 of them right, to evaluate if the freemium model will work for you:

• The number of potential users in your market: The more, the better — remember, only around 5% of the free users will eventually end up paying you
• The specific market advantage required to win: What do you want the freemium model to win for your business? Is it a competitive advantage? Is it free distribution? Is it getting more referrals? And how realistic is this goal?
• The max complexity of your product and how it works: How simple and straightforward is your product? Does your offering set itself apart from the din around? Is it lucrative enough for your customers to ascend the pricing tiers?
• The specific cost each additional user can have: Is the marginal cost of serving an additional customer negligible? Can you ramp up your operations without shooting up your cost? Do you have the capacity to handle the exponential escalation in scale?

An interesting alternative to Freemium is Cheapium. Check the “Freemium is a Money Burning Business Model, Cheapium is Better” to learn more about it.

Cheapium works by offering basic features for a nominal cost, usually a dollar or less, while charging a premium for advanced features. This can be in the form of a one-time or recurring fee. Cheapium creates a low, but not trivial, barrier to entry. All users in the system are paying. It might sound like a small difference but this has several advantages over freemium.

Finally, several B2B businesses such as Hubspot, have realized that pure Freemium (no touch before the sale happens) has proved not to be great for increasing deal size. So instead, they are using Inside Sales to qualify their Freemium leads when they hit things such as hard-limits or make small initial purchases. This has really helped them to scale deals size whereas otherwise, they wouldn’t have been able to do so. You can read more about it on OpenView article “Why Product Qualified Leads are the Answer to a Failing Freemium Model”

Want to read more on Freemium?

Freemium Model for SaaS — The Good, The Bad, and The In-between

Craigslist, Wikipedia, and the Abundance Economy

Realizing what a Trial means

Considering whether you should offer a trial version of your product? That depends on your audience, product and can influence the level of touch you have on your sales process.

If you decide to go for a trial, consider those 7–15–30 days as a chance to convert the user to stick with your product and ideally moving into a paid subscription.

The free trial is a staple of most B2B SaaS solutions — many visitors will look for the trial signup button — a cry of “just let me see the thing” rather than digging around in marketing pages. This is fine, provided you can give a great self-service trial experience to customers.

You’ll need a great onboarding plan, whether it is automated or manual has to do with how easy it is to explain, and how much of the basics your audience already has.

Some of the learnings regarding Trials, from ChartMogul:

• Offering a free trial usually makes sense UNLESS you’re primarily targeting Enterprise businesses, or it’s just not possible to give a smooth self-service onboarding experience.
• The lines between a free trial and Freemium are becoming blurred. There are benefits and drawbacks to both.
• The term “No credit card required” is used by almost every business offering a trial. Users will look for this and expect it.

Most B2B SaaS companies find that removing the credit card requirement increases the number of free trial signups they get but decreases the activation rate (the number of users who make material use of the software) and conversion rate to paying use. It is generally not worth it early in the lifecycle of your company. (Your business needs to be capable operationally of doing fairly sophisticated work to nurture customers to activation and then convince them to part with their credit card details later in the trials for it to win net here.) — Stripe Atlas

• For more Enterprise-focused platforms, the demo route can be beneficial. Complex products are best demonstrated by real people (rather than self-service trials). Enterprise customers are more comfortable with this method of buying, where their questions can be answered and custom pricing can be discussed.

“[The goal of a free trial is to] quickly get the prospect to a point where becoming a paying customer is the most logical next step… [which is] immediately after your customer achieves (or sees that they could actually achieve) their desired outcome by actually using the product.” — Lincoln Murphy

Lincoln Murphy touches the aha-moment concept with his observation. Designing your trial onboarding process to make sure your trial customer achieves the aha-moment as quick as possible — and for this, you need to be able to measure how long they are taking to do it on your normal plans, “trim the fat” by simplifying processes and shortcutting steps, asking for feedback when the user becomes stuck, welcome email from the founder and exit feedback survey to continuously iterate on the process.

One other current has a different perspective on Trials and Freemium models:

By not offering the free trial, PopSurvey founder Josh Pigford believes that PopSurvey forced prospective customers to do more research before they signed up. Ultimately, that’s allowed the business to attract a higher quality batch of educated customers whose expectations better align with what PopSurvey’s product delivers.

“In my mind,” Pigford explains, “that’s not some sort of rogue idea that will only work for our company. It’s a very reasonable, quality-driven customer acquisition strategy that I think many SaaS businesses could benefit from.”

Alternative to Trials

By offering time-based money back guarantee to your customers, you’re not only sending the message that you trust your product’s value, but you’re also qualifying your users by adding a minimal entry barrier as well as giving yourself the chance to speak to your customer if and once they ask for their money back.

What you don’t want to be doing

• Sending too many emails
• Clickbait subject lines
• Leaving your customers to it by themselves

Choosing Monthly versus Annual, or both

Also a great debate around the industry. Customer retention is the key to profitability in SaaS, and customers who churn out can waste a considerable portion of the cash you spend to acquire them.

While it is obvious that an annual plan gives your company extra cashflow upfront and takes churning out of the customer’s mind, it also means you’ll have less information about how effective your product is in providing enough value to your customers.

Monthly billing:

• Requires less up-front commitment from customers (lower friction to buy)
• Allows you to effectively analyze metrics like churn rate
• Suits a self-service signup flow

Annual billing:

• Increases cash flow
• Can make revenue metrics more difficult
• Can reduce churn
• May need a higher-touch Sales and Support approach
• Logistically, annual billing is less of a hassle (insofar as it occurs eleven fewer times per year).

What about having both? This is definitely something trending, which leads you to ask: “Ok, but which should I default to on page open?”.

• Showing full annual prices can push your customers away due to the nature of a higher number.
• Showing annual subscription price on a monthly rate is a great alternative to the above, as usually these are discounted from the month-on-month price and therefore once compared to, are more attractive. Be careful, however, not to be perceived as misleading.

All in all, what is important is that you are transparent in the price you are charging your customers. Take into consideration the cash flow an annual subscription can bring, and think how can you tackle the lack of feedback which usually derives from not having to put a product’s value to consideration every 30 days.

Pricing Page: What to do with the Headline

Don’t call the pricing page “The Pricing Page” on the pricing page.

The job of the headline is to translate emotion and the right tone to the user, once he lands into the pricing page. Keep it short (<7 words). No real information should go here, but whatever you write should relate to your business’s values.

Being smart about discounting

Are short-term gains worth long-term failures?

Discount wars are what keeps retail companies afloat a lot of the time. Once one sale ends, another begins. So much so, that rarely does anybody have to pay full price for anything these days.

The reason retail discounting works so well for customer acquisition and the bottom line is that a department store or supermarket isn’t looking for a recurring purchase

SaaS businesses do.

A study by Price Intelligently found that SaaS discounting lowers long-term value (LTV) by 30 percent, as well as producing a higher churn rate and lower willingness to pay higher prices. All stats that add weight to the argument that discounting as SaaS isn’t a great idea.

Typically customers joining through heavy-discount initiatives have some common traits:

• A lower willingness to pay and higher price sensitivity
• Churn at a much higher rate than the core group
• Have dramatically lower lifetime value than the core group

This basically translates into hammering your Unit Economics. Talk about lowering CAC for specific customers and you immediately have a longer time needed to recover CAC. If you lower CAC by 20%, each month you get 20% less on a monthly basis. If a normal core group takes 12 months to pay back the CAC, this means 3 months more. Right?

Nope. Let’s not forget these are customers which are much more prone to churn as they don’t put value over price.

As a result, you may lower your CAC by getting better signup velocity through the discount, but for a lot of these customers, you’ll never recover those costs anyway. This causes a scary implication for your cash flow (heavily influenced by your time to recover CAC), especially if you’re a cash strapped company on the funding train.

Rules for discounts

• Discounts need to be discrete. Don’t flash them on your product’s landing page. You’ll just upset your current customers. Consider dedicated channels such as email marketing or landing pages as a destination for any discount campaigns you do.
• Discounts should be segmented to the specific audience segment to who it makes sense.
• Discounts should be time-boxed, otherwise, just lower your prices.

What discounts can you do then?

• Packaging discount. Offering bundles with a lower price point, after the user selects their choice of price point or does their initial purchase, leads the user to spend more than they’d be willing to in first place. Avoid package discounting on your pricing page — this leads to customers who’d be willing to spend more, to actually spend less by going for your bundle at such earlier stage.
• Offer discounts to audience segments that are more price sensitive (students, for instance) — where you can offer a discount on another product if the student buys the first one. (e.g 200€ off the MacBook + 20€ off an iPad).
• Turning the table around and discount by putting a value to certain extra features (e.g different types of customer service).
• Yearly discounts. Great for cash flow, for churn and not perceived wrongly by other customers. A piece of advice here: Frame it as a tangible benefit instead of a percentage — “2 months free” instead of a 20% discount.

To demo or not to demo?

Contrary to popular opinion, the primary goal of a demo is not to demo your product! Let me say that again: the goal of the demo is not to demo your product. — Rob Gonzalez

Demos are therefore a chance for you to learn about your customer, their pain points and sell your product to them, taking the benefit-solution approach.

Ok, so I should always do it, right?

I would say it all ties in with the cost of opportunity.

• If you’re a one-man show and you have a $10 ARPU with a very low LTV product, your time is probably more valuable elsewhere. In this scenario, I would likely focus on implementing a kick-ass onboarding experience.
• If your product has a low ARPU and is too complicated to explain through self-service onboarding, then you should think about qualifying your users better with content for instance and have demos on request only, after the user went through this content (which should clear basic doubts in the first place, saving you time).
• Going up the ladder in terms of LTV, you can start to offer chat time during the onboarding stage for instance.
• If your product has justifiable Unit Economics (mainly LTV), you should definitely demo it. And in the eventual case you’re seeing users flocking your way, maybe it’s time to consider a helping hand.

Nevertheless, as mentioned in previous sections of this story, you should tie value to your pricing strategy, meaning that you should always consider having an “enterprise-style” black-box pricing option for larger customers. For these ones you can likely justify the cost of giving a demo, with the benefits you may reap.

So what is your goal when demonstrating SaaS? Like in copywriting and perhaps in all things marketing and sales, your goal in demonstrating is first to identify your prospect’s pain. From there, you further qualify if your product is a good fit to solve the pain.

Instead, the goals of the demo are:

1. Identify the prospect’s pain that they’re hoping to solve (QUALIFY!)
2. Identify if your product is a good fit to solve the pain (QUALIFY!)
3. Leave the prospect believing that (1) your product is a great solution to the pain and (2) your employees really know their stuff

There are some good reads on how to effectively demo your SaaS product. I’ll leave you with my favorite “How to demo your SaaS product”.

Detailing the different features

Generally, you should always think about your pricing tiers as a value-packed solution to users. It should never focus on having or not having this or that feature. This because feature-based pricing usually tends to not promote growth as it is not linked to a value-based metric.

My advice is to focus your different price tiers on the value you’re getting to the customer, the value-based metric, and add a link for the users to deep dive on what features each entails if they want.

Though you can have multiple feature differentiators per tier, it is the value metric that is critical for price differentiation across tiers. It is also critical for expansion revenue.

Will an extensive feature list cause someone to choose to buy the software? Probably not. Instead, continue the sales message: how specifically does this reduce the amount of X? Put that on the page; supplement with details about features where appropriate.

Having said that, no matter how you present the value of your product on your website, there comes a point where certain visitors just want to see a list of features.

This is especially valid for Enterprise customers and larger businesses who have a feature set in mind before they even land on your site. Listing out the features of your platform allows them to check all the boxes when evaluating your solution.

• There’s nothing wrong with a table, which is usually the clearest way to convey this information. Try adding it below your main pricing section to avoid distractions.
• Add tooltips to the feature names, for a detailed description of features that may not be obvious.
• Consider displaying “coming soon” features here, if they’re significant and may affect visitor’s decisions.

Qualifying and removing barriers to purchase

Adding an FAQ

Adding the most common questions you got from past customers who were on their decision stage is good practice. Make sure to keep a record of your early stage customer interviews and constantly update it with new questions you get on your day to day customer support activity.

Benefiting from Social Proof

Decision making is a social exercise. This may seem counterintuitive for those that identify with independent rationality, but our brains are hardwired to seek cues and indicators from our environment. We look to the actions of other people as a way of evaluating the most appropriate behavior for ourselves. This is known as social proof and can be impactful on growing a successful startup.

Social proof on SaaS websites takes many forms:

• Human faces
• Customer logos
• Testimonial quotes
• Videos
• Social media posts

Having a Social Proof section in your Pricing Page is usually beneficial in terms of giving that extra positive message to users who are considering your product. Especially if you are able to link it to a Case Study for instance.

Using black-box “Enterprise” plans

So you’ve got all figured out and your pricing strategy came out with 3 solid pricing tiers which are intimately tied into the value your audience takes from the product at different stages of their own growth. Great stuff. You just have to place those 3 packages side by side and off you go.

Wait wait wait.

What if your product starts attracting big corporations, rather than just the Startup target audience you had first identified?

This means you’ll be charging the same to businesses in a different stage of their growth. A team of 20 in a big corporation sees things differently than a Startup with 10 individuals — there is more margin for you to expand your revenue with such businesses other than just the revenue you get from seat price.

That ‘s why it is important to have a black-boxed tier on your pricing plan. One which is not tied to upper hard or soft limits. Following the example above, you can limit your Startup Plan to 10 individuals and limit the bottom of your Enterprise plan to that, without capping it with upper limits.

Doing Pricing experiments

I am personally against experimenting with prices in a CRO way, as it defeats the whole purpose of having a price strategy in the first place.

A/B testing page elements is something different. Here are a couple of things you can test within your price page:

• Different headlines
• Different plan order (if you have more than one plan, which you should…)
• Different highlighting options
• Element positioning
• Adding Social proof (see below for more on this)
• Show more or less features

Again, I don’t suggest playing around with A/B testing on your price points:

• As PriceIntelligently mentions: There is statistical insignificance. Let’s say your pricing page is doing decently well already — you’re getting 10,000 hits per month and converting 5% of that traffic. If you wanted to test for a 10% lift in your conversion rate — from 5% to 5.5% — you would need a sample size of 30,244. The math is even worse if you’re converting at closer to 2%. If you wanted to test for a 10% lift on your 2% conversion rate, you’d need a sample size of 78,039. You could run an eight-month A/B test to get those 78,000 hits, but you’d only be aiming for an increase from 2% to 2.2% on your conversion rate. You could spend those eight months much better. Let’s not even go for the fact that having different personas would require you to effectively A/B test for each one of them…
• It will upset your users to know someone got a lower price than them. If you’re testing a few cents, it won’t really be worth your time. If you’re testing between $10 and $60, then your customers will likely get mad.
• You’re better off doing customer interviews than testing small price increments to determine the right plateau.

A different perspective: Behaviour Psychology

As you know, there is always more than one theory on a topic. Value-based pricing has been widely accepted in SaaS and several sources have shown proved value compared with cost or competitor based pricing strategies.

Florian Bauer, principal at the management consulting firm Vocatus, has a theory around behavior psychology that explains why is so important to take into consideration for pricing and how lessons from psychology can be applied to early-stage startups.

(…) For example, Behavioral Pricing has empirically proven that the notion of people having a predefined “willingness to pay” is wrong. Rather than having a willingness to pay, people tend to develop a price acceptance throughout their decision making process. This in turn implies that companies pricing strategies should not only react to a predefined and quantified willingness to pay but should focus on actively enlarging price acceptance. (…)

Price acceptance is not driven by value as is assumed in value-based pricing. This would imply that people only pay for the product features (as measured by conjoint analysis). In fact, people pay for much more than product features. Context and decision dynamics very much define price acceptance.

(…) there are five different types of behavioral decision making strategies: bargain hunting, risk aversion, price accepting, loyal and indifferent. We call them the GRIPS types. The different types react differently to the result of an independent price comparison. Understanding and predicting this, is the core of Behavioral Pricing.

As long as humans make decisions they will have predictable biases. This is probably even truer in B2B as in B2B decisions there are often more people involved.

The ultimate challenge: Raising prices

Raising prices is often the ultimate challenge for anyone who cares about pricing. It’s often a taboo topic around the company. Your sales team won’t love it and you’re afraid to scare your customers away.

However, raising prices will also be something you’ll need to do, at a specific point in time, in order to achieve growth in the long term, as there’s only so much audience you can capture in any market.

Signs that you should consider raising prices

• Customers tell you how cheap you are.
• You create a very high ROI.
• Prospects don’t push back on pricing.
• You added new features without monetizing them.
• You have not touched pricing for years.

Expanding your revenue should be something that comes naturally, and there are certain things you’ll need to take into consideration.

Do not grandfather all your existing customers

If you have to, only grandfather the first batch of customers that had to deal with all the code issues and downtime period.

Tie it to value

When communicating a price increase, directly connect it to extra value to your customer, not to you

Give your customers a choice

Give them the new added value for the same price they were paying for extra X months. Offer them to add more seats to that package at the old rate.

Be prepared for churn

Churn will definitely exist. This doesn’t mean your customer will be pissed off at you, especially if you do the above when communicating. Simply they can’t afford the new market fit you’re looking into.

Some practical advice? Check How Close.io raised their prices

Conclusion

Pricing should be on top of mind of all SaaS founders and still, it seems that a Pricing Page usually at the bottom of the list of things to be created before launching.

Creating a Pricing strategy for your business should not be something done with a gut move. It should be a data-driven process involving your customers, with the goal of understanding the value they take from your product, determine their different growth stages and find a proper value metric to drive the evolution of how your product is priced.

Talking and acting on pricing should not be a taboo. In early-stage SaaS businesses, pricing should be frequently revisited and twice per year open to changes.

The growth of a SaaS business in the mid-long term depends on whether this business can increase its expanding revenues and generate negative churn. Expanding revenues can come in several forms but it is natural that in time, every SaaS business raises their prices.

Customers expect SaaS solutions to evolve with time, for new features to be added and for their value to increase. They should also be open to a fair price raise when one is clearly communicated.

Pricing changes should be seen as a step up and not as something to be put off — it’s a natural evolution for every SaaS business.

Resources

• ChartMogul: Top SaaS Pricing pages 2017
• Monetization Matters for SaaS Growth
• The Price is Right: Essential Tips for Nailing Your Pricing Strategy
• Stripe Atlas: Guide to Software as a Service pricing
• How We’re Thinking About Pricing — Drift
• Picking your pricing model
• How to Set Prices that Maximize Profit | OpenView Labs
• Ten Year’s Worth of Learnings About Pricing * Tomasz Tunguz
• The Price Is Right: For Early-Stage SaaS Companies, It Needs To Be
• There are Only 3 Pricing Strategies for Your Startup * Tomasz Tunguz
• SaaS Pricing Considerations | OpenView Labs
• 3 Major Software Pricing and Packaging Mistakes | OpenView Labs
• Best Product Pricing Practices for B2B SaaS — Bowery Capital
• 3 Simple Tips for Pricing SaaS Products In The Early Days | SaaStr
• Pricing Experiments You Might Not Know But Can Learn From
• 5 Simple Pricing Hacks to Jumpstart Your Startup’s Growth | OpenView Labs
• 20 Pricing Page Best Practices That Will Increase Your Sales (+ Pictures)
• B2B SaaS pricing pages in 2017: Lessons from 100+ top businesses
• Product Strategy for Scale: Pricing
• SaaS Pricing Best Practices from 90 Companies: Why the Hottest SaaS Businesses Now Put Their…
• Insightful Study of 386 SaaS Startup Pricing Pages
• A Study of the Top 270 SaaS Pricing Pages
• The Saddest SaaS Pricing Pages of the Year — 2015
• 3 types of pricing strategy (and why you need value-based pricing)
• SaaS Pricing Models: How the Right Pricing Will Help You Earn a Fortune
• SaaS Pricing Models — Pricing Strategy Examples and Best Practices | Forseti Law Firm
• The Challenge of Performance Pricing for SaaS Companies * Tomasz Tunguz
• A Complete Guide to Changing Your SaaS Pricing
• Don’t Blindly Model Your SaaS Pricing on 37 signals
• How to Develop a Tiered Pricing Structure | OpenView Labs
• The Value Metric: Optimize Your Pricing Strategy for High Growth
• Scalable Pricing: A Key Tool For SaaS Success
• How Product Led Companies Like Expensify & Dropbox Approach Pricing to Grow The Bottom Line |…
• Freemium Model for SaaS — The Good, The Bad, and The In-between — Chargebee’s SaaS Dispatch
• Why Product Qualified Leads are the Answer to a Failing Freemium Model | OpenView Labs
• “Monetize Backwards” to Build a SaaS Business That Lasts
• Is this the end of the subscription era?

This story is published in The Startup, Medium’s largest entrepreneurship publication followed by +434,678 people.

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Can Pricing keep on being ignored and overlooked in SaaS? was originally published in The Startup on Medium, where people are continuing the conversation by highlighting and responding to this story.

Quite often when new SaaS companies start, after an intense couple of months getting the product ready, getting customers to sign up for their product comes at the top of their list. It is tempting then for the founder to begin an experimentation frenzy with all known acquisition channels, spending time and a lot of precious funds in the process.

Pure customer acquisition metrics are dangerously inexact tools for calibrating and scaling your company’s growth. If you want to grow in a scalable and profitable way, you need to look beyond customer acquisition and get smart with:

• Customer acquisition cost (CAC)
• Lifetime value (LTV)
• Payback periods

There are great resources out there from brilliant minds and businesses on this topic. I tried to gather a few ideas from each into what I considered a coherent basic coverage of the subject.

Table of Contents:

• CAC and LTV
• How to calculate CAC?
• Why CAC and CPA are different?
• How to really calculate CAC
• CAC for Paid
• CAC for Content Marketing
• How to reduce CAC
• Optimize pricing
• Marketing automation
• Conversion Rate Optimization (CRO)
• Leverage word of mouth
• Focus your message
• Reduce dependency one Paid Ads
• Bet on content for the long term?
• What it impacts
• Enters CAC Payback Period (CPP)
• Why it should matter more

CAC and LTV

Two best friends.

The particularity (a.k.a fun) of SaaS businesses tell us that acquiring a new customer needs to take into account not only how much acquiring each customer costs, but also how much revenue will this customer need to bring, in order for its acquisition to become profitable and you’re able to keep investing in growth.

The so-called “God of Metrics” in SaaS, LTV/CAC ratio, establishes precisely the relation between these two metrics: CAC and LTV, highlighting what is considered to be the rightful ratio between them, in order for a business to first be profitable, covering all costs, and then effectively achieve growth.

Being too conservative on setting your CAC targets, will harm your chances of growing faster, being too liberal will take your business finances down in a pretty short term.

CAC, or Customer Acquisition Cost, is, therefore, a metric that should always be on your mind and help to shape the marketing funnel, which customers to sell to, what channels to choose, what processes to automate and how to think about your pricing structure.

How to calculate CAC?

Being such an important metric in the SaaS finance world and one of the defining factors in whether your company’s business model is viable, yielding profits by being kept low while scaling, while its calculation is one of the easiest to explain, it is also one of the metrics that is most often got wrong:

CAC can be defined as the total cost of sales and marketing efforts that are required to acquire a customer:

CAC = Total Marketing + Sales Expenses / # of New Customers Acquired

Wait, but isn’t that the same as CPA? Not quite.

Why CAC and CPA are different?

As Brian Balfur rightfully puts it,

CAC specifically measures the cost to acquire a customer. Conversely, CPA (Cost Per Acquisition) measures the cost to acquire something that is not a customer — for example, a registration, activated user, trial, or a lead. The two are related because CPA is usually used to measure the cost of things that are leading indicators to CAC.

In other words, acquiring a customer comprises a set of different initiatives and campaigns. These can be bet measured with CPA, while the end return, finally acquiring the customer, should be measured with CAC, factoring in all of the costs which led to the user effectively becoming a customer.

Now that I’ve shown you how to calculate CAC, let me show you how to do it right.

How to really calculate CAC

Once again, Brian Balfur on his work “How to actually calculate CAC”, here quoted by Andrew Chen, puts it brilliantly:

On the surface this is correct, but it is missing a lot of details and definitions around each variable in the equation to get it right. Even the best basic calculation can be very misleading.

Not every model is perfect, and most businesses, to some extent, are unable to effectively measure exactly the overall cost of acquisition for each customer. However, Brian’s model factors in for some pertinent adaptations which help to wrap it better than the original formula:

• It takes on average for most customers 60 days from lead to becoming a customer.
• Not all customers are new customers, but some of them are returning.
• This is a freemium product and there are costs to supporting users while they are free before they become a paying user (customer).

Therefore, there are 3 questions we need to ask our business:

1. How long between your marketing/sales touch points and when someone becomes a customer?
2. What expenses do you include in Marketing + Sales?
3. What should I do regarding returning customers?

When thinking about what expenses to factor in, here are the common pitfalls you should be watching out for:

1. Not including salaries — You should include salaries for all Marketing and Sales personnel, freelancers, remote, everything. Don’t forget this.
2. Not including overhead — Rent, equipment should also be considered here.
3. Not including money spent on tools — With the number of marketing tools out there, you should definitely include this on the costs side of the equation.

There is also the debate on whether one should be including non-marketing/sales acquisition costs. This is a tricky one and it should be considered on a case-by-case scenario. I have to agree with Brian on having to accept any cost which can be easily correlated to acquiring new customers, being Product/Engineering or Support related costs.

So, taking all of the above in consideration, our new formula to calculate our CAC on a monthly basis, for a 60-day average time from lead to customer, would be:

CAC = (Marketing Expenses (n-u) + [1/(u/30) Sales (n-u-30) + … + 1/(u/30) Sales (n)] / New Customers (n)

n= Current Month

u = average time from lead-to-customer

for an average time from lead-to-customer of 60 days:

Marketing Expenses (n — 60) + [1/3 Sales (n-30) + 1/3 Sales (n)] / New Customers (n)

You can see below how different the results from the second model are, compared with the more simplistic approach. Check specifically the CAC for March, where you can clearly tell there was a large marketing investment made.

If you’d had gone with the simplistic approach you’d have fallen into the trap of considering March’s investments terrible for your target CAC. Factoring in the time from lead to customer adapts the calculus more to reality.

Finally, Returning Customers.

Since you usually would not consider a returning customer as a new customer, therefore leaving it out of the equation in first place, you shouldn’t either consider retention costs as part of your marketing costs, for this specific purpose.

Ideally, you should be able to split Acquisition costs and customers from Retention and calculate separate CAC for each. In the impossibility of doing so, or in considering an assumption wherever possible on your own calculations, you should remember to add the number of reactivated customers to your denominator, in order to obtain a value more close to reality.

As you’ve probably understood by now, calculating a true CAC is harder than it seems, and exceptions pop at every corner.

Now that we’ve tackled the basic formula, it is time to get deeper into the game, looking at some scenarios.

• CAC for Paid Acquisition
• CAC for Content Marketing

Note: for non-SaaS businesses, calculations can differ. Geckoboard lines them up nicely here.

CAC for Paid

Paid Acquisition is usually a choice for businesses who can foresee a sizeable audience that can be acquired through paid channels such as the likes of Google Ads, Facebook Ads, and LinkedIn. With this type of channel, we can get scale on our fixed costs immensely, despite that at a first glance it really seems to throw your CAC out of the window.

Consider the following, taken out from the brilliant work Brian Balfour developed on CAC calculations:

• 100% of our marketing efforts are focused on Facebook Ads.
• We have a VP Marketing making $170K, and a Paid Acquisition Manager making $80,000.
• No Sales team (consumer company)
• We are testing Facebook Ads as a channel.
• Our target CAC is $25

By looking at the above, you can clearly see that within the first experimentation months, CAC is way over the $25 target. However, with the early results the test campaign provides, we can foresee that fixed costs will get diluted, the more we customers we acquire, when campaigns actually scale up.

If we want to test the limit of such a channel, we can consider a maximum of managed budget each Paid Acquisition Manager can take, and factor that in as well.

For the sake of this exercise, if we consider $25000 to be a maximum budget that can be managed by a Paid Acquisition Manager (usually it can comfortably go up to $1M), on a simplistic approach, we can see that the new hire can scale up to a level of 4400 new customers making the Fully Loaded CAC go to levels way below target. One thing to keep in mind is channel saturation, which is intimately linked to your audience size, which should be something anticipated on these types of projections, as overall efficiency will tend to be worse, bringing the CAC up again.

CAC for Content Marketing

On the opposite scope, we can find Content Marketing. A channel which output doesn’t scale directly with the addition of more resources.

Let’s consider this:

• 100% of our marketing efforts is content marketing.
• The average sales cycle is less than 30 days.
• We have a VP Marketing at $170K, 2 Content Creators making $80,000.
• Each content creator produces 5 pieces of content per month.
• In the month a piece of content is new it gets 2000 visits. Each month thereafter gets 1000 visits due to SEO.
• 2% of our traffic converts to leads. We close ⅓ of our leads to new customers.

As we can see here, in the long term, what brings a drop in our Fully Loaded CAC is the fact that content output prevails in time and still produces results after the month it was published. Keeping the content fresh, and making sure to revive old posts, intra-blog linking and SEO, take care of ensuring your past content keeps acquiring new customers at a good rate.

How to reduce CAC

We’ve seen that CAC plays a major role in shaping the growth of SaaS businesses, being a constant threat to profitability if there is not:

• A clear way to measure CAC, as segmented as possible, depending on the nature of the business.
• The buy-in from top management on experimenting different channels, accepting an off-target CAC while there is no double down on that channel.
• Early awareness of each channels audience size.

Having said that, there are a couple of ways we see businesses tackling high CAC:

• Optimize Pricing
• Marketing Automation
• CRO
• Leverage Word of Mouth
• Focus your message
• Reduce dependency on Paid Ads
• Bet on content for the long term

Optimize pricing:

When you don’t optimize your pricing, you’re throwing off the math, which powers the fundamental economics of your business. On the other hand, pricing is such a great growth opportunity because optimizing pricing makes a company incredibly more efficient — PriceIntelligently

As with most topics here discussed, there’s plenty to cover here. I will leave details to another post, but the key takeaways are:

• The pricing page is the most important page on your entire site
• A pricing strategy is developed having into account: Positioning (aligning your product to attract the right customers), Packaging (having the right feature mix in your plans) and Price points (finding the right price points that represent value and that users are willing to pay.
• A pricing strategy needs to be an iterative process, that isn’t just left abandoned after it produces a first pricing structure. Businesses should have recurring meetings every 2 months to evaluate pricing, bring in new data, rewrite the strategy every 4 months and adapt 2x per year.
• A pricing committee and a pricing coordinator, which meets regularly, should be defined involving people from different areas of the company (Marketing, Sales, Product, and Management — later bringing Finance and Ops to the mix).
• The cost of delivering a single account can be minimal. It’s the value that your customers will extract out of using your product that matters to them, not how much you paid to have it developed.
• Most of SaaS businesses are unable to describe their buyer personas beyond a few generalities. Without data-driven buyer personas, companies cannot succeed in SaaS. No matter what you’ve seen before, buyer personas are really about numbers, not words.

An optimized pricing strategy gets us to an optimized funnel. If you do positioning, packaging, and pricing effectively, then a significant part of your sales and marketing job is already done. Without this pricing strategy, it’s more expensive to acquire customers as you will be attracting the wrong prospects that don’t fit with your value.

What you should be doing:

• Pricing page design (stay away from A/B testing pricing)
• Localizing your pricing
• Understanding your value metric — what people actually give value to in your product (number of widgets, GB in storage
• Implementing value-based pricing. Value-based pricing, as shown here, is a price set taking into account the value the product brings to the customer at the specific stage where their business is at.
• Quantifying your buying personas — meaning actually bringing data into your buyer personas, instead of just adjectives that at the end of the day don’t help you creating your pricing strategy nor take data-driven decisions.
• Using relative preference analysis when surveying your buying personas in order to understand their willingness to pay

What you should not be doing:

• A/B test pricing (a big no-no that will annoy the hell out of your customers)
• Copy the competitors pricing strategy (it’s their strategy, aligned with their goals and financial structure, not yours) — This is also known as Competitor-Based-pricing
• Choosing a pricing method in which the selling price is set by evaluating all variable costs a company incurs and adding a markup percentage to
  establish the price — This is also known as Cost-Plus pricing.

This is all very nice, but what does it have to do with improving my CAC?

Good point. Well, if you compare a scenario where there is no optimized pricing — meaning no value-based pricing strategy in place — you are acquiring customers blindly, not maximizing what they could be paying, not focusing your efforts on exploring the customer segments which could bring you more revenue, not understanding that your business can grow when your customers growth.

While all of this doesn’t directly lower your CAC, it gives you a whole new perspective on what to work for, which customers to pursue, where to invest more and less of your marketing dollars.

Note: Thanks to all of the magnificent work done by PriceIntelligently on their article “Why you need to review your pricing strategy today”. You should definitely keep them on your radar for the amazing content they publish regularly on SaaS pricing strategies.

Marketing automation

With the immense number of tools out there, there’s simply no reason why you should not automate as much as you can your processes. Once you start to think about how much time each admin task you do on your day-to-day takes and muçltiply it by the number of times you do it, my advice is to look for a way to automate it.

What is it

Some people talk about marketing automation being tactics, some talk about marketing automation software, others just label it as a subset of customer relationship management. To keep it simple let’s call marketing automation for what it really means and which can already be guessed from the term itself: you automate how you do your marketing.

As Hubspot puts it,

At its best, marketing automation is software and tactics that allow companies to buy and sell like Amazon — that is, to nurture prospects with highly personalized, useful content that helps convert prospects to customers and turn customers into delighted customers.

And ActiveCampaign,

Marketing automation is the process of using software to complete repetitive marketing tasks designed to nurture sales leads, personalize marketing messages and content and in the process, save marketers’ time and effort. By automating many of these tasks, users can more effectively send the right message, to the right user at the right time

What can be automated?

From integrating your internal database (which can be a spreadsheet for starters), with your Email, Chat, CRM or Billing platforms there are several ways to begin thinking about this. Neil Patel covers here some of the top activities that should be automated.

Overall I usually put the advantages of marketing automation in the following way:

• Help you scale repetitive tasks
• Improve lead management
• Enhance targeting and personalization
• Improve the ability to do multi-channel marketing with fewer resources
• Improve customer retention and relationships
• Improve marketing alignment with sales

Concerns with marketing automation

Marketing automation has been a buzz word for already a couple of years and unfortunately, it is often confused as being the holy grail of marketing, needing one to master it in order to achieve Amazon-like results.

The truth is, marketing automation works once you have given yourself already a proven way of generating quality leads to your business.

At the end of the day, automating your marketing tasks serves the purpose of improving your efficiency in bringing revenue to the table, requiring less human touches, speeding up processes and keeping then aflow when the business scales. However, for a business to scale, it first needs quality input, otherwise, you’ll just be squeezing a dry lemon for its last drops.

Thinking that marketing automation will solve your revenue problems is not the way to go.

Some extra resources on this:

• Marketing Tech: How to Make — Or Lose — Money with Marketing Automation — VentureBeat
• Lead Scoring And Grading: The Foundation Of Effective Lead Management — Relevance.com
• 5 Key Problems with Marketing Automation — Business 2 Community
• 5 Reasons Marketing Automation Fails — Neil Patel
• 4 Reasons Why Marketing Automation Fails — Marketo Blog
• 10 Scary Marketing Automation Fails and How to Avoid Them — Callbox Blog
• 6 Common Reasons Why Marketing Automation Fails — ActiveCampaign Blog

So, when should I invest in marketing automation?

• Think whether you’re generating a steady flow of new and qualified leads.
• How overwhelmed is your sales team with the number of quality leads they’re getting from you?
• Do you already have an efficient content strategy in place, mapped to your customer’s journey?
• Marketing and Sales have agreed on the ownership of conversations? Who should talk to the customer at each specific step of the way?
• Are you tracking your leads’ digital body language across every touch point and marketing channel (not just email)?
• Did you already test enough acquisition channels in order to be able to say that you have a proven scalable lead nurturing strategy?

Ok, so recapping:

• You should have already a clear pipeline of quality leads coming into the business before adventuring into marketing automation.
• You should already be creating content specifically to your audience segments. Get your head around how to structure your inbound marketing strategy.

Once you have this, marketing automation will fit nicely into optimizing the relationship with your customers and actually contribute to adding personalized value to their overall experience with your business.

How can it impact CAC?

Karra Hendrix from Act-on says:

Marketers can scale their processes and campaigns so they can reach more people, with less effort. Because it allows you to track every interaction and score engagement, you can be more personalized and targeted with your messaging, while still maintaining efficiencies.

Marketing automation is all about efficiencies. And when done right it can really bring value to your overall growth:

• On acquiring new users (less human touches a.k.a fewer salaries, higher conversion rates a.k.a higher return-per-dollar-spent and quicker times to conversion a.k.a shortening the sales cycle) — Lower CAC.
• On increasing your revenue expansion (hand-holding them while progressing through the monetization funnel — leading them to increase the value they get from your service and consequently upgrading their subscription value) — Increase revenue from existing customers and your overall ARPU.
• By reducing churn (by always keeping on top-of-mind, collecting and iterating more frequently on feedback and constantly increasing the perceived value of their subscription) — Lower Churn.
• Consequently improving your LTV and LTV/CAC ratio — leading to higher growth.

CRO

Deeply connected with marketing automation, is improving your lead generation machine through conversion rate optimization (CRO).

First things first, what is CRO?

Conversion rate optimization (CRO) is the process of enabling people to take an action when they visit a website. By designing and modifying certain elements of a webpage, a business can increase the chances that site visitors will “convert” into a lead or customer before they leave — Hubspot Blog

A couple of resources you can begin with:

• Basics on Conversion Rate Optimization — The Moz Blog
• Conversion Rate Optimization Guide — Hubspot Blog — here they go a bit into their own Marketing Automation turf, messing about with the two concepts, however bringing good insights.

As it happened with marketing automation, this again means, increasing efficiencies — this time on turning a visitor into a customer.

Is SEO and CRO the same?

SEO and CRO go together, but they are not the same. Search Engine Optimization (SEO) focuses on driving traffic to your website but once that happens, it is CRO’s job to convert the user and help them take favorable action.

A whole world goes into Conversion Rate Optimization, however, most of what it entails is intimately linked with experimentation, A/B testing and making sure you’ve got the most deal breaker messaging to each one of your prospects.

Where does Conversion Rate Optimization come into place?

CRO is best understood to relate with top-of-the-funnel user engagement — before it turns into a customer. Having said that, CRO best practices are most of the times connected with testing variations of the following elements of your marketing suite:

• Ad copy
• Landing page messaging
• Call-to-action
• Website usability (what the user sees, when does she/he see it and how she/he moves around)

How can it impact CAC?

Improving conversion rates means you’re getting more customers with the same number of leads or, putting it in another perspective, getting the same customers with fewer leads — any way you put results in fewer resources spent to win a customer — consequently impacting your CAC positively.

Leverage word of mouth

Annie Musgrove at ChartMogul puts it this way:

Word of mouth is one of the oldest forms of marketing there is. It’s also the most effective. But in today’s world, when customers are other companies, what is it really worth? And how are B2B businesses making the most of it?

Anything that can bring extra customers without a single penny is usually CAC friendly. Get someone to spread the good word about you, bringing a new customer and you’ve got yourself a nice cut on the cost of acquiring them yourself.

Word of mouth can be achieved in many possible ways, and it is proved to be the most influential business advocate at every stage of the buying process.

We can all find examples in our personal lives, where we’ve recommended something to a friend. However, does it work the same way with businesses?

Absolutely.

According to the book Contagious: Why Things Catch On, people usually share 6 things:

1. Social Currency
2. Triggers
3. Emotions
4. Public (Observability)
5. Practical value
6. Stories

With B2B, in other words, it happens the same way:

• They really value your product or service. It has proven to solve problem X they had, so they’ll intuitively share it with their network.
• Knowing that within Enterprise, things go more smoothly — existing less motivation to share your business secrets with your industry — there is also the way customers like to be perceived, so it can be a strategy to play in your favor to make sure your product makes your customers feel in a certain fashion.
• You’ve surprised your customers positively, doing something they weren’t expecting. A tip here is to under promise, and over deliver it.

So where can you leverage this market channel in your favor?

• A trusted source like family, a friend, or a coworker is what McKinsey calls a high-impact reference. High-impact references are 50x more likely to trigger a purchase.
• Motivating customers to write reviews about your business. Readers know reviews are written by fellow business owners, by people who are familiar with the industry or business model. So in B2B, online reviews might carry more weight than in B2C.
• Maintaining a strong online presence keeps you top-of-mind.
• Offering advice, tips or dedicated pages of your website addressing a known topic that concerns your clients.
• Writing customer stories, case studies, and testimonials that touch your users’ pain points.
• Keeping top users engaged with the product, by involving them on the roadmap, collecting their feedback and giving them the chance to connect with each other, creating a bond with the product and leveraging it outside that network.
• Launching a referral program with a double reward system focused on your value metric — giving some of that value metric to both the referral and referrer.
• Introduce a partner program that will allow you to leverage other businesses audiences and get them to reference you in order for a slice of the pie.
• From the beginning, make your product really convenient to share with others from within. Turn inviting other users as part of the whole product experience.

To avoid dwelling too much on the topic, I leave you with a couple of valuable resources:

• The Grapevine of B2B: how word of mouth actually works — ChartMogul
• Advocacy Marketing — The New Competitive Difference In the SaaS Ecosystem — Ambassify

Focus your message

Having a large audience can seem extremely beneficial for your business, all of those users there and ready to buy from you. Not until you wake up and realize that you’re spending most of your cash on customers who churn a lot or simply don’t move along the subscription funnel into a paid plan.

Segmenting your CAC the most possible allows you to focus your message on the audience that brings you more revenue during their lifetime.

Check how Modcloth approaches their audience:

“Modcloth provides an exciting and engaging online shopping experience for everyone in search of vintage women’s fashion with fabulous flair.”

They’ve explained exactly who they’re targeting, what are they offering, and what you can expect from them. This message translates into their product copy, their product photos, and every aspect of their digital marketing.

When you get this right, you’ll be spending less on acquiring new customers as your message will be fine-tuned for the ones who are most profitable to you. Modcloth is not looking to attract women looking for basic looks, so promoting a pair of trousers isn’t necessarily going to work for them, although they could do so.

Focusing your message on the customer segment with higher LTV gives you leg room to be able to increase your CAC

Understand your niche, and speak to them. Don’t bother trying to bring in those who will just window shop or purchase only once from you.

Reduce dependency one Paid Ads

This one is pretty clear. Paid advertising can do wonders to kick start your acquisition, and you should definitely consider giving it a go if your product’s ARPU can handle it (more on that in a different post), however, once you turn the dollar tap off, customers stop flocking in.

Check whether your business can handle paid advertising with a fun tool developed by Qwilr.

Paid advertising can definitely be a boost, especially in the early days if you’ve got the pockets for it. We’ve seen above that if you manage to get a good performance, you can scale pretty well while keeping your fixed costs low.

Make sure to optimize your funnel though, so you can maximize your investment by having a low churn rate. There’s nothing worse than trying to fish with a broken net.

Bet on content for the long term?

Sounds like good advice right? Matches what you’ve been hearing: set up a blog, create new content, update old content, costs will be higher in the short term but SEO will take care of giving your content a good life and keep bringing new customers forever and ever.

Not so fast. Let’s think about it.

Every day thousands of content pieces are created and every day they are longer and longer. This means competing in this space is getting harder as well.

On a study Profitwell did with Brian Balfour about the decay of content marketing model, they clearly say:

CAC is overall going up for both B2B and B2C

Moreover, looking at channel evolution, CAC from Content Marketing is quickly covering the gap towards paid.

So, quantity is going up, quality as well — more competition, more options, less attention. The average number of shares per post has actually fallen by nearly 90% compared to two years ago. The lifetime of an eBook dropped from 6 to 3 months!

Does this mean Content is dead? Not quite.

According to Hubspot’s Content Marketing stats for 2018:

47% of buyers still view 3–5 pieces of content before engaging with a sales rep, companies with blogs still get 67% more leads than those that don’t, and inbound close rates are still 8–10x those of outbound efforts.

While content is definitely costing more per customer, it also keeps bringing more value than paid. CAC Ratio’s for content still tends to be roughly 30% better than the paid side, because of the compounding nature of Content.

So, if you’re starting out, with a low ARPU product, it is likely that content won’t be the acquisition channel of choice, especially if you have to hire resources for it. However, it also doesn’t mean you shouldn’t be putting content out there to address lower steps of the funnel — think about content to nurture your free users, content to activate your recent subscribers and content to retain your current customers.

If you’re already creating content at full steam, should you stop? Not really, likely your margin is lower than before but as we’ve seen, the CAC ratio still makes it up. One thing I’ve seen working well is to promote your content with Look-a-like audiences. Look-a-like audiences are all the rage among Facebook advertisers to decrease CAC while increasing their return on ad spend (ROAS).

And it makes sense. One of the most likely sources of new customers is to find those who are similar to your existing customers.

What it impacts

CAC and LTV are the fundamental metrics any business should have in mind.

• If your business records an LTV/CAC ratio over 3:1, it means you’re covering your costs and you’re growing at a great rate.
• If your ratio goes down to 1:1, you’re simply covering your costs, not growing. A simple and unexpected increase in costs will throw you off your feet.
• A ratio higher than 5:1 means you’re probably spending too little and you’re missing the market, giving room to your competition to do so. Consider expanding to new audiences, allow your paid side to cover more of your potential market, getting more extra impression share and premium placements.

The LTV/CAC ratio is a leading indicator that’s good for predicting a business future growth, but it’s something that can quite easily change. For instance, your LTV could drop if there’s a new competitor in the market driving your churn up. Or your LTV might increase if you make a really positive product change and your overall churn goes down.

Enters CAC Payback Period (CPP)

Very likely, and even by knowing all of the above, in a scenario where you have managed to get very low churn and an incredible LTV/CAC ratio, your business may only have a few months to pay back its debts.

“CAC payback period determines how much cash the company needs to grow.” — Tom Tunguz, Partner at Redpoint Ventures

More of a real-world example, you have Profitwell’s take.

If you pay for a cup of coffee, you enjoy the warmth and taste in the moment and benefit from the caffeine kick a few hours later. If you pay for health insurance, you benefit from it two years later when you need your routine exam. If you pay for a customer, you don’t benefit from the acquisition until the customer’s subscription revenue exceeds their cost of acquisition. — Profitwell

This is when you need to be aware of the concept of CAC Payback:

You can calculate the payback period for one customer by dividing their CAC by the total revenue they contribute in one year (their monthly subscription rate multiplied by 12).

A customer that costs $350 in sales and marketing spend to acquire, and contributes $25/month, or $300/year, has a payback period of 13.9 months.

The example above shows revenue/spend and time. As time increases, a customer pays back more of their customer acquisition cost (CAC) through their incremental subscription payments.

You can also invert CPP into what we call the CAC ratio, which tells us how much % of the CAC is your Sales & Marketing teams able to recover in 12 months.

If you want to get a deeper read on CPP, I suggest you read the amazing work put in by the Kellblog to explain why CPP is the most misunderstood CAC metric and ProfitWell’s Complete Guide on reducing Payback Period.

Why it should matter more

Understanding your business CAC should matter. It should matter more in the sense that I still see a lot of startups and small businesses using general CPA models to guide their day-to-day, not knowing that they are missing out on making their business more efficient acquiring and retaining customers.

Technically speaking, there is no absolute “right” answer to the CAC question in my mind. Ultimately the amount you spend on anything should be related to what it’s worth, which means we need relate customer acquisition cost to customer lifetime value (LTV). — KellBlog

Calculating your overall business CAC and breaking it down to customer type and acquisition channel gives you focus, forces you to stop spending resources on what doesn’t bring revenue to your business, channeling those resources to the segments which do, and deep-dive instead on improving the efficiency of lower stages in your funnel, mending the holes in the bucket and — consequently increasing LTV giving you some extra leg room in to push your business growth.

Pedro is the father of a little girl and a well-rounded marketer with 12 years experience under his belt working for Google, B2C, B2B and SaaS businesses.

Want to reach out? Get in touch on LinkedIn.

This story is published in The Startup, Medium’s largest entrepreneurship publication followed by +438,678 people.

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The Magic Formula to CAC is Knowing How Soon You Need to Get it Covered. was originally published in The Startup on Medium, where people are continuing the conversation by highlighting and responding to this story.

I clearly remember the first time I heard the word. I was around 17/18 years old and going through my classes plan for the first semester in college, when I saw it. “Marketing”.

Well, not really. I had heard it before for sure, but had never thought of it as something you could learn more about it. That it could be a subject one could study. With do’s and don’ts, terminology and method.

Nevertheless taking those Marketing classes was, I admit, on my top 3 of favourite things to do at that early age. Let’s ignore the remainder.

Here’s something that I heard at the time quoted by a Philip Kotler: “The art of marketing is the art of brand building. If you are not a brand you are a commodity. Then price is everything and the low cost producer is the only winner.”

There was something about marketing that was about to change then, back in the early 2000s, that only a few people knew: A new channel was being born. Waves of people were jumping in to dial up connections and broadband, a trendy topic at the time. MySpace was founded. An immense opportunity window was opening to marketers everywhere. The biggest changes since the era

Backtrack a few years into 1994… and the first banner was born. AT&T paid HotWired $30,000 to place the banner ad above on their site for three months. The ad enjoyed a click-through-rate of 44% — a number that would make most marketers balk in disbelief today. To put that in perspective, the average click-through rate on display ads today — 24 years later — is closer to 0.06%.

Just 3 years later and we had our first popup ads rampage. Those were the days! From then onwards we got AdWords, quality score metrics, got hyper targeting, Facebook ads and arrive to 2010 with native ads and the concept of sponsored content.

With the digital era, and as the market became more saturated, smaller and niftier companies with rather not so deep pockets needed to get more creative on making the most out of their buck. With time, acquisition became more and more second to engagement and since then, we’ve moved to a time where product and marketing teams can’t work if they follow the approach of the past.

Product excellence became the new marketing and building a product with an instrumentation mindset is the basis for any intelligent marketing.

Data becomes available, analysts get a purpose instead of a reporting task, becoming data scientists who have the mission of desiccating each and every step of the customer journey, testing, improving and recommending changes as the product roadmap becomes an amazingly efficient assembly line.

At the same time, product managers move from being primarily focused on execution and measured by the on-time delivery of engineering projects, to the more well-rounded role of being a mini CEO of the product, with hats for different purposes, iterating frequently, constantly bringing feedback not only from different teams within the company, but also intimately from the customer through an obsession with usage metrics and direct shadowing interviews, learning how the customer actually uses the platform.

The new product manager is currently indeed the role with the most skill-diverse maturity evolution.

Flexibility, adaptability and capacity to iterate is now rule of thumb. As new venture tech businesses push for growth from the ground up and need to scale in increasingly shorter times, development in house is solely product focused, with one-man-show marketing teams having a new belt of 3rd party tools which they can integrate to in order to expand their own capabilities, independent of internal IT resources.

Automation replaces manual and repetitive non creative work, the search for the latest “hack” becomes trend for the quick-turnaround. However, the real work of the modern marketer comes in with adaptability and with having the right mindset to take a well thought content strategy and manage an inbound omnichannel strategy of nurturing segmented customers with targeted content along the funnel.

The product manager and the marketer.

The first focused on optimising the efficiency of the process, the second on optimising the efficiency of the message, are the true innovation players of the modern marketing that is being shaped with the power of data and automation.

Currently the above structure profiles are the ones that demand a more radical break from the traditionalist approach. They also belong to a structure, that for the speed of execution required, needs to be filled by adaptable people, not afraid to go out of their comfort zone, it’s a structure where communication has to be horizontal and where top and middle managers need to step out of their offices and engage in fuelling teams and enabling their innovator drivers.

Understandably, if in one hand a company’s focus is more and more on digital environments, it can also be hard for smaller companies located away from business centers to have access to such qualified workforce within their range. This is also where a strong culture of remote working brings down recruitment barriers that usually exist within a country or region with a less modernised workforce and working culture.

Remote work is more efficiently applied when you have good communication tools and principles, good documentation and high performer individuals on your teams, driven by inspiring leaders and challenging multi-hat roles, the issues that usually are paired with remote working are more easily overcome. Highly performing teams, due to their natural motivation, ensure that remote work is more productive and with less distractions than the traditional workspace approach. At the same time, hiring the right middle management is crucial to ensure leaders can delegate and focus on the business strategy instead of micromanagement.

While working remotely, middle managers have increased challenges of making sure to create an environment where their teams can communicate effectively and efficiently, as well as keeping them motivated, professionally engaged and personally involved.

Modern marketing can be described then as the natural evolution from the combination of 3 elements: Marketing experience accumulated throughout the years from the age of Madison Avenue, the faster-paced environment of the digital society setting as ineffective the traditional concept of work culture, and finally adaptability of highly performing teams that are driven, and not daunted by change, that are self-learners and knowledge insatiable, that are independent and results oriented.

These are incredibly fun times to be at.