Rethink Commerce Blog

Three Ways to Reduce Cost of Sales For Your SaaS Business

Posted on February 15th, 2016 by

Do you know how much you’re REALLY spending to acquire each new customer? No doubt you know the importance of bringing in new clients. It’s the lifeblood of your business. However, there is a point at which you can be spending too much. In fact, according to For Entrepreneurs, the high cost of sales is the second biggest cause of start-up failure. The cost of sales involves two very important calculations. The first and obvious one includes all the acquisition costs in their entirety. In other words, everything it took to get that customer to sign up, including advertising, marketing, sales, and onboarding costs and support during their trial period. The other, and equally important, calculation is the amount you’ve spent on acquisitions that don’t convert. Now, take the sum of the two and divide it by the number of new customers. That’s your true acquisition cost, and if it exceeds what you thought you were spending and/or your planning targets, it’s time take aggressive action to reduce it.

So, how can SaaS companies like yours reduce the cost of each sale? Read on for some tips and guidance from experienced SaaS businesses.

Get High-Quality Leads

A customer acquisition strategy that relies on sorting through large numbers of marginally qualified inbound leads is akin to looking for a needle in a haystack and most likely won’t bring the success needed. A more effective strategy is to focus on the leads most likely to convert. But, wanting high-quality leads and actually getting them are two different things. One way to start is to adopt the strategy of pipeline marketing, which eschews volume and instead uses data and analytics to focus in on activities that are likely to bring in the most revenue – even if it reduces the overall number of leads.

For an example, let’s look at the SaaS marketing firm Bizable and its experience with using live chat as a way to generate high-quality leads. While chats are expensive to operate and don’t generate as high a volume of leads as other tactics, the leads they do bring in are typically more qualified and of a higher potential value. For Bizable, live chat leads had a 50 percent higher lead-to-opportunity conversion compared to other leads, and after its introduction, live chat now makes up 25% of Bizable’s monthly new revenue. A live chat may not make sense for every business, but it does for Bizable, which has the pricing structure to benefit from it. The lesson from Bizable is that quality matters, and once you figure out how much you can spend per customer, you need to identify and focus on the activities that are most likely to acquire them.

Identify Your Target Audience

Casting a wide net for new customers wastes time and resources and ultimately increases your cost of sales. A more effective strategy is to identify your target audience or buyer profiles beforehand. The first step is to identify those that meet the following criteria: (1) Have an immediate need for your product and (2) have the means to purchase your product. From there, you need to develop questions that each potential buyer would ask him or herself before buying your product. Can we afford this? Is it compatible with our current platforms? Does it meet our needs? Get in the mind of the customers you seek. Then, develop a strategy that hones in on that group and tries to answer their questions in advance.

Encourage Referrals

It seems simple, but did you know that customer referrals can cut your cost of sales by 50 percent? As a bonus, referral customers are just plain better and more valuable.  According to Extole, new referrals, in comparison to other customers, spend 20% more, are four to five times more likely to refer other people, and are worth 25% more over their lifetime. Thankfully, in today’s digital world, word-of-mouth referrals have expanded far beyond earshot. For business, word-of-mouth referrals are the now the providence of social media and content marketing. It is here where you can get your customers talking about your products either through your social media account or their own. The best strategies are those that encourage conversations–not hard sell tactics. When customers are happy enough about your products or company to share their positive experiences, their peers in the industry will want to hear and learn more about you.

Reducing cost of sales for your SaaS business is mostly about using smart marketing to reach the best prospects. Learn more about building effective sales channels by viewing this free webinar, B2B Commerce and Subscriptions-The New Frontier of Software and Sales.

Avangate powers modern Digital Commerce, solving the complexity of online commercesubscription billing, and global payments for SoftwareSaaS and Online Services companies. Backed by a proven cloud platform, unmatched expertise and a depth of digital commerce services, Avangate helps digital business leaders drive the fastest path to revenue, maximize the value of every customer, and expand global reach. Contact us for more information about how our digital commerce services can help you grow your business.

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Raj Badarinath

VP, WW Product Marketing and Alliances

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