Software as a Service (SaaS) is a popular business model where software is sold as a product. It uses subscription-based pricing. SaaS companies deliver software or apps to the end-users via the cloud. Since it is a different model with unique needs and requirements, it requires a different approach to marketing. This article covers everything on what is SaaS marketing, how it is different from other marketing efforts, leading SaaS marketing strategies, and techniques, and much more.
What is SaaS Marketing?
Software as a Service marketing is focused specifically on promoting SaaS products. All the marketing efforts and strategies are geared towards acquiring, nurturing, and retaining users for subscription-based SaaS products.
Since these are subscription-based apps and tools, therefore, SaaS marketing is mostly focused on customer retention. Here is a typical SaaS sales funnel to help you understand the SaaS model:
While normal sales funnels end when a user takes an action, the SaaS sales funnel doesn’t end there. You have to onboard new customers, convert them into paying customers, and retain them. These are the most crucial funnel stages of SaaS marketing.
And marketers spend a whole lot of time on these stages as the success of a SaaS depends on free trials, paid subscriptions, and retention.
Buffer, for example, is a famous social media management platform that uses a SaaS model. It offers a free for life subscription to its users and a paid version with better features:
Its sales funnel doesn’t end when a user subscribes to a free plan. It doesn’t even end when the user switches to the paid plan. It has to use marketing to retain its current customers to keep making money.
All such steps and processes that are focused on converting free users into paid customers and then retaining them are considered part of SaaS marketing plan.
Top SaaS Companies
To help you better understand SaaS businesses and the SaaS model, here is a list of the popular companies out there:
- HubSpot
- MailChimp
- Buffer
- Netflix
- Salesforce
- Microsoft
- Canva
- Shopify
- Adobe.
How is SaaS Marketing Different?
There are several characteristics of the SaaS model that make it different from other businesses. And this makes SaaS marketing different.
If you don’t understand the ins and outs of software as a service firm, it will get tough for you to market it. Here are the key characteristics that make SaaS marketing different:
- Free Trial
- Short Sales Cycle
- Long-Term Customers
- More Information than Service.
1. Free Trial
Free trials are a basic constituent of the SaaS model. Giving a free trial to users is the most common SaaS marketing strategy. Look at any leading SaaS company and you’ll notice one thing: Free trial.
SaaS corporations offer different types of free trials. Some offer free for life plans while others offer a free trial for a limited time (7 days, 14 days, or a month):
The problem marketers face is converting these free users into paid customers. SaaS users love free trials. Most of them never convert to a paid subscription plan.
Free trials make SaaS marketing different.
Think of an ecommerce website. It sells products. There are no free trials. You either buy a product or don’t buy it.
This isn’t the case with SaaS businesses. Their ideal customers need to be converted from a free trial to a paid subscription. From a marketing effort perspective, giving away your app to potential buyers for free and letting them use it is a great way to generate leads and sales.
But it can backfire too.
It backfires too often for SaaS ventures.
Canva, for example, has a free-for-life plan and a premium plan. In such a case, most of the users stay at the free plan forever, and converting them into paid customers becomes too big of a challenge:
Free trials need to be used smartly by SaaS enterprises and SaaS marketers.
2. Short Sales Cycle
SaaS products have a short and simple sales cycle. The potential customer buy SaaS products within a few days – mostly immediately.
Think of the last app you downloaded from the play store. How much time do you spend on decision-making? Probably less than a minute.
Why?
Because SaaS products come with a free trial and this lets users try the product.
Having a short cycle has both pros and cons that impact SaaS marketing. A short sales cycle means you need to provide as much information as possible pre-purchase. The onboarding process needs to be top-notch so that it guides users on how they need to achieve first success with your product (more on this later).
On the flip side, a short sales cycle might confuse your ideal customers and make them insecure. They might get skeptical as this isn’t the type of sales process they’re used to seeing. This makes SaaS marketing challenging.
The two key factors that play a significant role in determining the sales process are price and complexity (this includes buying and using complexity):
The length of the sales cycle directly impacts your marketing approach. And this makes SaaS marketing different from other types of marketing.
For example, when the sales cycle is short, the buyers have the option to instantly download and uninstall your app. At the same time, you have to spend more time converting free users to paid customers as a short sales cycle will eventually lead to a high number of free customers.
So, a marketer’s job shifts from customer acquisition to customer retention in case of a short sales cycle.
3. Long-Term Customers
SaaS customers are long-term. They stick. And this makes a key difference in SaaS marketing because you have to focus more on customer engagement and retention as opposed to customer acquisition. A major chunk of SaaS revenue comes from existing customers.
Annual recurring revenue (ARR) is the most common metric that is used by SaaS to track recurring revenue from its customers. Buffer, for example, crossed $20 million in ARR in 2019 which shows how heavily SaaS rely on their current customers:
Customers who stay for 12 months or more play a key role in the growth of SaaS. And this is what makes SaaS marketing different. It isn’t just about customer acquisition only.
This can go against your company too.
If you don’t update your SaaS product too often and don’t add new features, your customers will leave. Most SaaS companies need to stay on their toes to retain their customers – and marketers have a key role to play.
Telling existing customers what’s new and why they should renew their monthly subscription every month is the most important task SaaS marketers have to do. You just can’t leave your customers. If you do, they’ll leave you forever.
4. Focus on Content
SaaS corporations have a single product. There are limited options (if any).
Think of Dropbox. It offers file hosting services. It has no other product. And this is the case with many SaaS companies. They just have one product/service.
This makes them focus more on information and content for digital marketing. They can’t rely solely on the features and benefits of their app to reach and connect with their target audience. It is like restricting yourself to one area only.
This isn’t the case with other businesses where they have several products to sell. And these companies can talk about their products forever.
SaaS have to rely heavily on content for digital marketing. Consider HubSpot that is the leading marketing and sales software out there. It uses content to promote its software. It covers all the topics related to marketing and sales on its blog:
Buffer followed the same model to grow from $0 to $5 million business and it ran a successful SaaS marketing campaign. It used only one thing: Content. The co-founder published around 150 guest posts to generate backlinks and established Buffer blog as an authority:
Creating and publishing content is a key task that SaaS businesses have to focus on for sustainable growth. This content is used to generate leads and sales. This makes SaaS marketing different as it uses content and inbound marketing for lead generation.
Understanding SaaS Free Trial and Onboarding
If you want to promote a SaaS product, you must understand how the software as a service business model works. Among several other things that make SaaS firms different, the free trial coupled with the onboarding process is the key to conversion.
SaaS Free Trial
SaaS offer free trials to generate leads and let potential buyers explore the software. Converting free users into paid customers is a big challenge for SaaS. And this is achieved by helping users achieve success with your software.
You need to help new users achieve first success with your software as quickly as possible (preferably right after the sign-up). First success means users are able to achieve a milestone with your app and can extract value from using it:
Research shows that when a user achieves first success with your software, he/she is more likely to stay forever. And this means you need to guide and help new signups to complete a milestone with your app via the onboarding process.
What is Customer Onboarding in SaaS?
Customer onboarding is defined as the process that new users go through to start using your app. Here is a basic layout of a customer onboarding process:
Here is an example of the customer success via customer onboarding process:
The idea is to help new users set up and get started immediately. The earlier they do it, the better. But how is this related to SaaS marketing?
Imagine an app with a poor or no customer onboarding process?
You can keep spending money on marketing and new sign-ups will keep leaving your app after a few initial interactions. SaaS marketing has to be supported by an extremely user-friendly and intuitive onboarding process. The aim of the onboarding process must be to convert free sign-ups into paid customers by helping them get first success with your software.
This is how the free trial and customer onboarding process supercharge SaaS marketing.
SaaS Marketing Terminologies
Several key terms need to be understood to clearly know what is SaaS marketing and how to do it the right way. Here the key SaaS marketing terminologies:
Monthly Recurring Revenue (MRR)
It is the total revenue generated by the SaaS product from all the subscriptions in a month. It is the predicted revenue from monthly subscribers. MRR doesn’t include one-time payments and flat fees.
Customer Acquisition Cost (CAC)
The cost to acquire a new paying customer for specific marketing channels. It is the total amount that you spend on acquiring a new customer. For example, if you spend $100 on blogging to acquire two new paying customers, your CAC for blogging is $50.
However, tracking and accurately measuring CAC for inbound marketing and content marketing is a bit tricky. It is easier to calculate exact CAC for PPC campaigns.
Free to Paid Conversion Rate
Free trial to paid conversion rate is a key metric that measures the percentage of users who convert from the free trial to a paid subscription. A high free trial to conversion rate means you are doing a great job as most of the free users are becoming paid subscribers. A low free trial to conversion rate means users stick with the free plan and aren’t switching to a paid subscription.
And this is where it gets problematic.
Retention Rate
Retention rate is the percentage of customers who continue paying for the subscription and stick with the SaaS company. It is measured over a given time period such as a month, quarter, or year.
Churn Rate
It is the opposite of the retention rate. Churn rate refers to the percentage of customers who stop using your software or product over a certain time period. If your SaaS has a churn rate of 20%, it means it loses 20% of the paying customers out of 100% customers. The other 80% are the customers your company retains.
Both churn and retention rates are the key marketing metrics for any SaaS firm.
User Engagement
User engagement refers to the activity status of SaaS users. Not all users who are subscribed actively use your software. Measuring engagement based on user interaction with your software helps SaaS firms identify how engagement links to customer churn and retention.
Refer back to the first success chart above. The first success with your app leads to high engagement. And when users start using your software (after they have realized how to use your app to get value), they’ll stick with your brand.
Customer Lifetime Value (CLV/LTV/CLTV)
Customer lifetime value is the total worth of a customer to your business. It measures the average monetary value of a customer and how much he/she will pay your company for the entire period of the relationship. This is a crucial metric that helps you determine CAC.
For example, if the average CLV is $200, this means you can’t have a CAC of more than $200. It doesn’t just help you identify the maximum cost you can pay to acquire a new paying customer (aka marketing budget) but it also helps you predict revenue and cash inflows.
Annual Rate of Return (ARR)
ARR is the yearly rate of return of an investment. It is the total revenue towards the end of the year minus investment at the beginning of the year. The annual rate of return is used by SaaS to calculate their profitability.
Year-to-Year (YOY) Growth
It is a percentage that compares the growth of a company of one period with a previous period. The current growth is measured with the corresponding growth of the previous period such as 2021 to 2020. It is used by investors to see how a company has progressed and grown over a year (or a period of time).
The Best SaaS Marketing Strategies
Let’s get to the nitty-gritty.
How to do SaaS marketing? Do you need a SaaS marketing agency? What techniques, strategies, and tactics you must use to promote your software as a service company and take it to the next level?
When it comes to SaaS marketing strategies, you don’t have to reinvent the wheel. There are several proven techniques that have worked for different companies extremely well. You just need to pick the right SaaS marketing strategy, tweak it as per need, and you are all set to grow your business exponentially.
Here are the proven SaaS marketing strategies that you must try:
1. Offer Free Trial
The first thing you need to do is offer a free trial of your software (if you aren’t already).
Freemium is the best way to generate leads for your SaaS company. And since it has become a norm, you can’t take the risk of not going freemium.
Imagine when your top competitors are offering trials to their users except you. Why will a potential buyer buy your app by neglecting apps with trials? Not offering a free trial means you are narrowing down your target audience as a decent percentage of your target audience is interested in free trials.
Even with a 1% free to paid conversion rate, you have a decent chance of acquiring new customers regularly. However, benchmarks show that the average trial to customer conversion rate is 25%:
The best part: You let your ideal customers try your software. If you have created an awesome product and you are confident it works, let your target audience decide.
Let them use it for free and if they like it, they’ll buy it.
How to Do It
You can use any of the two free trial options:
- Limited-time free trial
- Free trial plan for life.
The best duration of free trial is 14 days as it gives ample time to the users to test and explore all the features of the app:
Ideally, you should start with 14 days free trial.
Free for life plans should be used with care as it makes users stick to the free plan forever. This should be used only when there is a huge difference between free and paid plans. Else, free users might never switch to paid plans.
When offering free trials, don’t ask for credit card information. It will significantly boost the conversion rate. And you can then follow up via email marketing with free users and convert them to paid customers:
When you don’t get credit card information during the sign-up process, the retention rate is much higher after 90 days. This is because only long-term users who are satisfied with your app will continue to a paid subscription.
2. Make Onboarding Process Epic
Here is a hard reality: 40-60% of people who opt for a trial of your SaaS will use it once and never return.
There are several reasons for such a high churn rate but there is only one solution: The customer onboarding process.
If you’ll leave new sign-ups alone, they’ll not be able to get the value from your app that you want them to get. You need to guide them. You need to show them what is your tool about and how it can help them solve their biggest issue.
An epic onboarding process is a must-have for any SaaS company.
Refer back to the first success chart above. When users don’t achieve first success with your app, they won’t use it again. But if they get first success right after the download, they’ll stick for life.
So how does the onboarding process contribute to helping users achieve first success with your software? Let’s take Evernote’s onboarding process as an example:
1. As soon as you sign up with Evernote, the onboarding process starts that walks you through the key features and their benefits. Here is the first feature., its benefit, and how to do it:
2. The second step of the process tells users to try the camera and explains key benefits of why and how connecting camera will benefit them:
3. The third step explains the next big feature and its benefit:
4. Finally the steps 4 and 5 explain two more key features and benefits:
See how smartly Evernote didn’t just highlight key benefits but it guides users on how to do it. By the time a user finishes the onboarding process, he/she knows how to use Evernote and how to drive value from it.
Better yet, the user has already achieved first success with the app by creating a note.
How to Do It
Create an onboarding process for your software with one goal: To help new users get success with your app and drive value from it.
Forget everything else.
Avoid using the onboarding process to upsell, cross-sell, or as a marketing instrument. This is where most SaaS businesses fail. They use an onboarding process to convert free users into paid customers. And this is where it gets complicated.
Have a clean and purposeful onboarding process. Period.
3. Invest in Content
Moz is a SaaS business that’s driven by content. It runs one of the leading and most credible blogs on SEO:
Why do they have to rely on content and blog posts when they have an awesome SEO tool for marketers?
Short answer: To drive organic traffic, generate leads, and boost brand awareness.
Content marketing is the cheapest yet most effective source of lead generation out there. It costs 62% less than traditional marketing and generates 3x more leads:
Generating high quality leads and driving more traffic to the website are the two top goals that marketers achieve with content marketing:
Content is a sustainable and long-term marketing strategy. If you publish an article today, it will continue driving traffic to your website for years to come. The older it gets, the better it will perform. Research shows that it takes 2-3 years for a new webpage or piece of content to rank in Google top 10 results:
So, if you want to generate consistent traffic for your SaaS website, content is a must.
How to Do It
Here is how to get started with content marketing for your SaaS firm:
- Create a blog for your SaaS business and start publishing informative blog posts for your target audience
- Create an editorial calendar and a style guide for your blog to keep things manageable and systematic
- Promote content using different techniques such as social media, content repurposing, content syndication, guest blogging, etc.
- Test and tweak your content marketing strategy. Use Google Analytics and other tracking tools to see what type of blog posts work and what doesn’t.
4. Create a Referral Program
This is one heck of a SaaS marketing strategy that you must try. Dropbox used this marketing strategy and it grew its users by 3900% in as low as 15 months with a simple referral program.
Here is what Dropbox did:
It rewarded users to refer friends in the form of free space. And this type of referral program works on complete autopilot. It spreads like a chain reaction.
Creating a referral program has other benefits too such as:
- As much as 81% of people are more likely to engage with SaaS companies that have a referral program
- People who are referred by a friend or a relative are 4x more likely to become a paid customer
- Referred customers have a 16% higher LTV and 18% lower churn rate than their counterparts
- Referred customers also have a 37% higher retention rate.
The best part: Referral marketing is trusted by everyone. People consider it natural and are more likely to act based on a recommendation from a friend or family member:
Impressed?
How to Do It
Follow these steps to create a killer referral program for your software:
- Pick a referral tool such as ReferralCandy or Referral Factor
- Decide your incentive. This is the key part. The incentive you choose must be of value for your users. It is recommended to ask your customers what type of incentive they’ll prefer receiving from your company. And then decide accordingly
- Create terms and conditions of your referral program. You need to be thoughtful here. Set clear limits and restrictions. Make sure that the referral program or incentive doesn’t influence your paid subscription plans negatively
- Promote your referral program via email marketing to your current customers
- Track and tweak your referral program. Don’t expect results immediately. You might need to tweak your program several times before it starts delivering results. Google Analytics is one of the key tools that will help you here.
SaaS Marketing is About Customer Retention
Marketing software as a service product is a bit different. A clear understanding of what is SaaS business model, how the SaaS industry works, and what is SaaS marketing will help you stay ahead of the competition.
It all comes down to maintaining a balance between customer retention and churn rates. You’ll need to focus more on current customers as they’re the key to monthly revenue. How to hook them with your software forever is the basic ingredient of SaaS marketing strategy.
Master it and you won’t have any issues.
Featured Image: Pexels
