Your product is ready for prime time — but is your sales model scalable and sound? Matrix Partners‘ David Skok shares four SaaS customer acquisition best practices to ensure your approach isn’t actually a disservice to your bottom line.
As the launch-day excitement fades and reality sets in, take a long, hard look at your sales model. Without the right balance between marketing, on-boarding, support, and price, you risk losing money every time a new customer signs up.
David Skok, General Partner at Matrix Partners and author of the popular blog For Entrepreneurs, warns that a scalable sales model requires more than a skilled team with resources behind it. Below, he shares four best practices for improving your customer acquisition strategy and leading the way to scalable growth.
“Keep spending low initially. Try using the founders of the company on as many sales calls as possible.”
First, Calculate Customer Acquisition Cost and Lifetime Value
When assessing the profitability of a sales model, Skok recommends that you look at the average cost that it takes you to acquire a customer, and then how much profit the average customer brings in. In other words, you need to consider customer acquisition cost (CAC) and compare it to customer lifetime value (LTV).
First, calculate your Customer Acquisition Cost (CAC) by dividing all of your sales and marketing expenses for a given time period (Q3, for instance) by the number of customers you signed up.
Example: Let’s say your company spent $100,000 on salaries and marketing programs and acquired ten new customers.
CAC= $100,000 / 10 = $10,000.
Calculating Lifetime Value (LTV) can be trickier — it really depends on your software model. Perpetual-license products are easy, since it’s a one-and-done affair, but if you are like most SaaS companies and operate on a subscription-based model, you’ll need to look at the monthly or annual payments and work out how long you expect the lifetime of that customer to be. From there you need to multiply that dollar amount by the gross margin associated with that relationship.