First time entrepreneurs looking to launch SaaS startups often ask me for advice. I’m always happy to help and have noticed over the years that most of them focus too much on the product — and neglect the customer.
It’s easy for founders to speak volumes about their product: “It’ll have amazing design! It’ll have awesome features! It’ll be cross-platform!” All that is great. But having a great product is only half the equation.
I ask first-time entrepreneurs these questions:
- Who is the target customer?
- How will you reach these customers?
- How much will that customer acquisition cost?
- Is that customer acquisition scalable and affordable?
That’s when things get real quiet.
It’s easy to understand. Creating a new product is fun! Figuring out how to get people to pay for it? Not fun!
When we started Onehub in 2007, we initially targeted Sharepoint users and priced our product at $50-100 a month. With that price point, we knew we couldn’t rely on a traditional sales team, because the commissions would be too small or our cost of sales would be too high. So we focused on targeted search marketing and automated the follow up to help customer through the trial process. This approach allowed us to acquire customers for a few hundred dollars each which we then made back in the first 4-5 months of service.
For those in need of some help thinking about how to acquire customers, here are some rough guidelines. If your revenue is:
$5 – $20/month – don’t use sales people. You’ll have to master online advertising with automated follow up or rely on viral or network effects. Think: Netflix for consumer or Squarespace for business.
$20 – $99/month – focus on targeted web-based marketing with automated follow up. Think: GoToMeeting or Basecamp
$100 or more/month – Along with your automated marketing efforts, you can add an inside sales team. Just be sure to grow that with the business — don’t over-hire a sales team right off the bat. Think: Onehub, we actually grew to where we needed a focused, dedicated sales team.
$500 or more/month – You are in the big leagues. Congratulations! By all means, hire a robust sales force to lock in those contracts. Think: Salesforce.
Let these numbers serve as a starting point, and adjust them accordingly to your business as it grows. But also let them serve as points to think about when you are starting your SaaS business.