How To Negotiate The Long, Slow, SaaS Ramp of Death
Mar 19, 2013
Priceless lessons learned in building an online product. This is the compelling story with many real life facts on how the world’s largest email service, Constant Contact, grew and thrived. Complements of Business of Software.
“Our biggest barrier to usage is content. Small businesses doesn’t know what to say” – Gail Goodman, Constant Contact (the raison d’être for our Flashissue newsletter creator).
Wanted to reach minimum critical mass – the magic number for break-even.
Building was a series of mirages (failures).
- Partners Will Do It For Us (e.g. AOL for small businesses. Took 9 months to do deal and nothing happened). Partners never worked. We needed to do it for ourselves).
- The next product release – looking for wow factor and getting customers to knowing value of our product. We were always 1 product launch from nirvana.
How we got people to learn about us – inbound optimization worked but only got us so far. i.e. keywords, natural SEO, landing page inbound.
What worked? offline – radio
What didn’t work? – Direct mail, feet on the street, boxed retail.
Crazy idea (winning formula) – How to get them hooked? lets teach small businesses how to do internet marketing (they have no idea). Must do 1 to many, not 1 to 1 education. Webinars didn’t scale. Seminars did (talk to a room – through Chamber of Commerce, trade associations i.e. work with small business influencer organizations). Be branded but not salesy. Implemented by 22 Regional Development Reps. Taught 125k businesses in 2011.
How to get them to buy? Get them on phone after trial sign up. Real life human beings called the business to help them learn and have the confidence to hit the send button (= big fear for the non tech chef). The product delivered quick-to-wow a human needed to do the rest.
#1 way to get a customer to stay = show them quick results. First success is best retention lever.
“Our biggest barrier to usage is content. Small businesses doesn’t know what to say” – did things like help stimulate thought. Instead of having “Your Title Here” in our design template, we put example content.
Innovate everywhere and be guided by customer experience. Be quick to wow with product on boarding.
Funding path = horrible: Year 2000 – $10m @ $29m post valuation and then 2002 $2.5m @ $5m post valuation = ratchet anti dilution (aka goodbye founder equity). Profitably came at 13k users, late 2003 (took $21m to get there). Always knew we could turn down marketing and go cash flow positive if necessary.
Current finances: $25om annual revenue with ARPU $39.
Best blog post – SaaS Metrics 2.0 – A Guide to Measuring and Improving what Matters, David Skok.
Constant Contact monthly customer retention = 97.8% (2.2% attrition); $1,800 life time value before acquisition costs; 72% gross margin; $450 customer acquisition cost.
Source business: 15% partner resellers (biggest reseller = Mind & Body) / 50% word of mouth.
Majority of our new customers are new to email marketing. Wanted to pay monthly and know what they are paying for i.e. list size was know to the user but frequency of send wasn’t so we charge for the former.
Why did we keep going when things were bleak? = “customers are telling us we have something” and “we backed it up with the metrics”
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