I was recently asked. What is the single biggest reason that B2B SaaS companies fail?
It took me a while to think about it a little bit, but I really think the reason is they either do not track metrics. They don't understand the metrics they're tracking. or they don't know how to address the metrics when they do find a problem.
Hello! My name is Bill Arnold. I am the president of Prevail Marketing. You may find us at prevailmarketing.com. Every day we try to provide you with some strategies, techniques, and suggestions on how to grow your business through better sales and marketing. And for the last 5 days, we've been talking about B2B SaaS specifically. We're talking about what works, and what doesn't work. We've given you 4 dynamite strategies that we've worked with every single climb ever had. We've given you 6 strategies that can be done between now and the end of the year to try to make 2023 still a good year. We've given you about 12 others that work. Just takes a little time to develop.
So we've been talking about B2B SaaS, but each one of those techniques, each one of those strategies, each one of those concepts needs one thing. They need somebody to understand the metrics, the performance metrics they're under. If they're going through and make adjustments, make improvements. To make sure the results turn out properly. That's critical. I've said before that B2B SaaS May, you may hit home runs occasionally but to a larger start a large extent. It's a game of inches. It's whether or not, you know, you can make incremental improvements that will change your stars.
So, we're going to talk about those metrics today. And I'm going to do something. I've never done the past. I'm going to share with you our scorecard. Not all of it. I wouldn't do that. Actually, our scorecard has 52 tabs. When I bring it up on the screen. You're probably going to see 12 at the most.
But you'll get the idea because we're going to talk about some of the metrics that apply to B2B. SaaS and why they're critical, why they're important, and why you need to care. So, let's do that. Let me try to bring the screen up here.
You should be able to see my screen right now. Right now, you're looking at a 60,000-foot performance of a B2B SaaS Company. It's a snapshot view of things you need to consider when you run a B2B SaaS company.
We have for every single month, market-qualified leads, sales-qualified leads, opportunities, Demos, customers, and churn, and each month we have the number of people, the number of companies, I should say that had been acquired or lost during that particular period. What is a market-qualified lead? People have permission to engage number one. These people are your targeted buyer personas. You're right, buyer personas. They're not just everyone who comes to your website or everyone you meet an event. These are people who are your ideal customer, your ideal buyer Personas, who have given you permission and have taken enough activity. So you should have a reasonable opportunity, and you can market to them.
Sales-qualified leads are people who have done a bottom-of-the-funnel activity. They have raised their hand in a webinar, saying, I want to talk to somebody. They filled out a form asking for sales to contact me. They've inquired about pricing some buying signals they've engaged in saying that they're ready to talk to sales. In fact, it might not be something you've done. Maybe you've done lead scoring. You should be doing lead scoring. Maybe they've acquired enough activity at enough velocity that you know they're ready to talk to sales, even though they haven't raised their hand. These are all sales-qualified leads.
Opportunities are people are going beyond sales-qualified leads. They have people who are wanting to engage more. Maybe talking about contract terms talking about, you know. Maybe they've done a free trial. They've done everything but take a demo.
Why is the Demos its own category? Why is that so important? Why is this so critical? Because Demos is the Holy Grail for a B2B SaaS company. B2B SaaS is an intangible product. Can't taste touch feel or hold it. You do not know the value of it unless someone shows you the value. You have to kick the tires. You have to look at the product and how the product works. Yes, you can do that on a free trial. However free trials have a very poor conversion rate because most people don’t even know how to use a free trial. If they bother at all. They're going to find that they don't understand what they're looking at. They don't understand on to navigate it, and they get frustrated. So, they go away saying, that product's not any good. It's not usable. But with someone walking you through the product, it’s more like wow! That makes sense, I get it. Thank you. I now understand.
Customers, you know what that is.
Churns are people that no longer do business with you. We track that for every single month, and we compare it to the previous year. Why not the previous month? Because you may have a seasonal product that you know December's great. But July and August are terrible. So, you compare it against the previous month. It's going to not give you a good representation. So, we compared against the previous year. Again, this is a 60,000-foot view of your business.
Let's look at the next category acquisitions cost per lead. Here is your acquisition attributes and cost. We would look at every single lead source that you would get a lead from organic referral sites, influence or nurturing social. Every social organic traffic's there pay demand, Co-branded emails, Google PPC, Bing PPC. Yes, we even go there. Display ads, look-alike, retarget ads and every single social media outside of blue sky social. I have to add that it's not in there, but I've got TikTok, Threads, Instagram, Twitter, LinkedIn, and Facebook. But I need to add blue sky as well. We're going to add that soon. But we track all that because we need to know from that lead source what has happened. Look at podcasts, look at webinars, look at events. We look at everything. If it's not on this list, and you're doing it. We add it.
We look at the number of customers that have been acquired in that month from that source. Now it may have originated 3 months ago but we track what came in this month, what landed as a customer, where its original lead source was, and the acquisition cost and do the same for SQL and cost per lead. Why do we track the acquisition costs? Why is that so important? Why is that so critical? But you know we've seen many, many, many, many B2B SaaS companies who put all their budget into PPC. Most of them have no clue how to do PPC. They don't know the long tail keyword from a branded keyword. They wouldn't know what to do it if it bit them and they blew their budget. They have a 100,000 PPC budget, and they're making 125K, barely making money, barely supporting themselves. They're not profitable, and they're wondering why they're not getting traction. Well, they're not tracking any of this number one, so they don't know. So we basically track all that. We make sure that things are actually being profitable.
Remember, profitability is one of the 3 measures of marketing/sales success. Substantial increases in customers and revenue are the other two.
We track that every single month monthly attribution again, the same sort of thing we just looked at. All the leads are done on the left. Then MQLs, SQLs, opportunities and sales are there, plus the cost required at each level
For this next category, you will see the SaaS metrics at the bottom.
If you were a manufacturer company, you wouldn't see this as a scorecard. We make all these scorecards available for our clients. They come online. They can look at it anytime they want. Ask questions, poke around. We're we are very transparent. But if you're a marketing manufacturer company, you wouldn't see SaaS Metrics as that wouldn't apply to you. You have your own metrics. You have your own tab there, that says, Manufacturing Metrics. If you're a direct-to-consumer, you have your own direct-consumer metrics. Ecommerce. You have your own e-commerce tab because you each of these industries.
Each of these models has its own metrics that are unique and special to them. You're seeing SaaS Metrics because that's what's unique to SaaS. Let's take a look at those that are unique.
Now remember. this is an aggregate slide where we look at the big picture from 60,000 feet when you get to something like a Customer Engagement Score or Customer Health Score for every single customer we have it figured out. This is an aggregate of that. In fact, we look at everything. Look at the bottom. We've got 12 different tabs showing but there are a total of 52 tabs. We look at everything, every single campaign.
For every single campaign, we look at dozens of metrics, we look at the cost per acquisition, but we look at the CTAs and the performance of the CTAs. Is it working better than it did yesterday? Because we are always doing A/B testing? What's the performance of the landing pages? Is it doing better than the previous version? We look at the messaging is the messaging doing better than the previous version. Everything is tracked, and everything is analyzed. Everything is A/B tested because it's a game of inches. So right now, you're looking at the aggregate of that, there are tabs out there that you're not seeing that cover the actual minutia the 6 inches off the ground, if you will, of how it's working.
Let’s look at the aggregate customer lifetime value that applies to any business. Take a look at that pending diminution percentage. What is that? Well, most B2B SaaS companies work on a contract basis, some are month-to-month, some are year-to-year, and some are multi-years.
Those that are month to month have a hundred percent diminution percentage, because that means a hundred percent of the contract at the end of that year is up for renewal, and they may or may not renew so obviously the lower score you have the better. You always are starting for multi-year contracts, or at least annual contracts. But you want to lower that.
The activation rate is the rate of activation of new customers.
Monthly Recurring Revenue and Annual Recurring revenue are the holy grail of B2B SaaS.
This you need to know that you need to understand that every marketer, everyone in the marketing department should know what the MRR is monthly.
Annual Recurring Revenue is the projected amount you will have at the end of the year. Let's say, in January, you get you have $50,000 of MRR and in February have 75,000 MRR. What is that rate projected out for ARR for the next 12 months or at the end of the year? You need to know that, investors need to know that, you track that.
It's so an important number, that when I talk to B2B SaaS owners, I talk to them about what constitutes marketing/sales success. I always say there's a fourth category. Besides substantial increases in customers, revenue, and profitability, it includes a substantial increase in annual recurring revenue. That is what's deemed marketing/sales success for SaaS companies.
Return on investment, you obviously know what that is, but we actually look at this number a little differently. Here we look at the marketing and sales internal cost as well as the external cost, and we look at, the marketing and sales efforts that went into acquiring this customer. What is our return on investment? Don't look at the whole company. We don't have access to the numbers often, but we can look at marketing sales and internal and external costs.
Customer engagement score. Every SaaS product has an app or an online portal that you need to access to use because it's in the cloud, and they can monitor how many minutes you're on that site. How many people go to that site? If you have someone who has a thousand minutes a week on average, let's say and now they're only putting in maybe 10 minutes, there is a problem.
Are they going out of business? Are they looking at another vendor? Are they moving to another vendor? You need to make this acquires you to find out because you're about to lose that client. If you don't
Customer health score. That's a proprietary number that a lot of people have their own version of what that looks like. We do ours. We have 23/24 different factors we factor into what that consumer health score will be. It basically tells us the likelihood in the next 6 months of that customer churn it. And we're pretty accurate. We know that in 6 months the company's customers are likely to churn. We do this on an individual level. This is the aggregate. Again, we do an individual level. We know that the company is likely to churn. We now have 6 months to take proactive action to bring them back into the fold, choosing enough time, but you need that kind of time net promoter score. Everyone knows what the customer retention rate and customer churn rate are. SaaS companies live and die with this number as well. If you don't have a high customer retention rate, you're going to die as a company.
Most SaaS companies have a month-to-month subscription base. You're renting them and they are renting you.
What is a good customer retention rate? Well, the industry average for software B2B software tends to be 77%. That means there's a 23% turn rate. Is that good?
If you have a 23% churn rate, you're going out of business. You just don't understand that yet. Okay, that's terrible. What's reasonable, and what's acceptable? Is there an acceptable churn rate? Well, you're always going to have a churn rate, because there are always going to be people being acquired, going out of business, or maybe new management came in there, and they have their own preference as to who they use. So, you're always going to have a churn rate.
But the acceptable rate is no more than 10%. I tell clients ideally it is between 5 and 7%,
Can you get to 5 or 7%? Absolutely. In fact, it's such an important criterion for success. For the next 5 days, starting tomorrow, we're going to talk about client retention. We're going to talk about how to improve client retention, what to look for, and what metrics to track we're going to look at. And we're going to give you programs for every department. From what marketing can do, what sales can do, and what customer support can do, including what the C-Suite can do, and what product development should do. Everyone that we're going to talk about and the things we implement to get that retention to get that churn rate down to 5 to 7%.
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If you have questions we need to address, go to our website, www.prevail.marketing, and fill out a form asking for someone to contact you. You can specify me if you like. Give us a call. We'll respond. There's an email on the site you can respond to but reach out to us. We're glad to have a conversation about your particular concerns, your particular issues, and your particular company. We will provide you with some guidance. Now, even if we don't do business with you, we'd love to have the conversation. We enjoy talking about this, so until tomorrow I appreciate your time.
Thank you. Have a great evening.