This action might not be possible to undo. Are you sure you want to continue?
The Key Elements behind “Business Model”
Cost to Acquire the Customer (CAC)
Profit from that Customer (LTV)
There is a common problem:
An out of balance Business Model
Entrepreneurs are over-optimistic
Cost to Acquire a Customer (CAC)
What we are looking for A well balanced business model Monetization (LTV) Cost to Acquire a Customer (CAC) .
complaints and comments .The Big Power Shift The Internet caused the disruption Buyers are now in charge Able to find all the information they need on-line Comparison shopping Detailed reviews Consumer reviews.
I simply do not have time to read them. which is what I usually do. looking for customer references in blogs and forums. word of mouth. I find this type of approach to sales to be largely annoying to me and unproductive for you. … … Finally. .” CIO of Large Pharma Co. or reply to them. a small comment. follow-up on them. The most effective solution to this problem is for me to ignore the messages. dig into them. As a customer. and by finding white papers on your site that concretely describe solutions to problems we are having. We learn far more about what we want to purchase by searching the web.Buying Behavior has Changed “Please understand that I get dozens of these types of messages a week.
Sellers need to change An intimate understanding of the Buyer Buying behavior Likes Dislikes … is the key to success .
Buying Behavior has Changed Outbound Marketing: Annoying to your customers Expensive Increasingly less effective What is the new process? Google Search Web Site Reviews Blogs & Social Media Influencers Trials or Free software / services Requires Inbound Marketing thought processes .
.It’s not all bad news The Internet has also given marketers some powerful new tools Web sites. etc. to convey rich information Search Marketing (SEO/SEM) The Social Graph Viral acquisition Behavioral tracking Location information A/B Testing Etc. trials. videos.
Business Model Disruption in B2B New Low Cost Customer Acquisition Models: The Low Cost Sales Model (Inside Sales instead of Field Sales) The Touch-less Conversion Freemium .
The Low Cost Sales Model (Inside Sales) SolarWinds 2009 Revenues: $116 million EBITDA: $60 million 52% operating margins Others: HubSpot. Salesforce. JBoss. LogMeIn. Constant Contact.com. . etc.
The Touchless Conversion ZenDesk Common Funnel Metrics: 10% of visitors do a trial 20% of trials convert to paid Extraordinarily scalable Extremely low cost .
) Fast proof that it works . etc.Free Trials require different Product Thinking The product is your salesperson Extreme focus on: Ease of installation Ease of use Clear instructions on how to test (short videos.
Sales Complexity Freemium No Touch Self-Service Light Touch Inside Sales High Touch Inside Sales Field Sales Field Sales with SE’s .
How I assumed the two would relate .
000 – $75.000 $8.000 $75.000 $2.A rough estimate of CAC versus Sales Complexity Freemium No Touch Self-Service Light Touch Inside Sales High Touch Inside Sales Field Sales Field Sales with SE’s Rough Estimates of Cost of Customer Acquisition (CAC) $0$10 $50 – $200 $1.000 $25.000 .000 – $200.000 $3.
The relationship is roughly exponential Clearly adding Human Touch dramatically increases costs .
000 $1.000 10x $10.CAC (logarithmic) $100.000 10x $100 10x $10 $1 Freemium No Touch Inside Sales Field Sales Sales Complexity .
High CAC, requires high scores for: Value, Pain, Urgency
Value / Pain / Urgency = LTV (logarithmic) $1,000,000
Unprofitable: LTV < CAC
Freemium No Touch Inside Sales Channel Field Sales Sales Complexity
How SaaS changes Sales Complexity
Value / Pain / Urgency = LTV (logarithmic) $1,000,000
$1 Freemium No Touch Inside Sales Channel Field Sales Sales Complexity
Levers you can use to move from Red to Green
Make it easy for customers to sell themselves Make the first decision to work with your product easy
Simple product Free versions, Free Trials, Open Source
Remove Complexity from closing the Sale
Remove IT (SaaS) Eliminate committee decision making
Make the first financial commitment easy
$10,000 or below for enterprise sales $250 per month for very small business SaaS
000 $1.000 $10.000 $100.000 $100 $10 $1 Freemium No Touch Inside Sales Channel Field Sales Sales Complexity .Able to leverage the Internet revolution Human Costs dominate: Old world business model Value/Pain/Urgency $1.000.
Another trait of highly successful companies A Sales and Marketing Machine .
BUILDING A SALES & MARKETING MACHINE Brand Advertising Email Marketing Events PR Webinars Sales Social Media Tradeshows .
? WHAT IS A “SALES & MARKETING MACHINE” .
PREDICTABLE CLEARLY DEFINED LEVERS THAT YOU PULL TO MAKE IT GO FASTER SCALABLE SALES & MARKETING MACHINE 9 INSTRUMENTED WITH GREAT METRICS AUTOMATED COST OPTIMIZED .
HOW DO YOU GO ABOUT BUILDING ONE OF THOSE? .
9 STEPS .
WHY 4 FIRST?
BECAUSE 1, 2 AND 3 ARE NOT OBVIOUS SO WE WILL COME BACK TO THEM AT THE END AFTER WE HAVE SEEN WHY THEY ARE SO VALUABLE
ALIGN EVERY MARKETING ACTIVITY AROUND ONE GOAL… CREATING LEADS THAT HELP SALES
CLOSE MORE DEALS
Blogging Social Media eMail Campaigns SEO Webinars SEM Sales CLOSED DEAL PR .
it doesn’t belong . or directly contribute towards closing a sale.RULE NUMBER 1 If it doesn’t create a lead.
Sales CLOSED DEAL .
RULE NUMBER 2 If the cost per lead is too high. it doesn’t belong Exception to this rule: If you can recover cost through: • higher conversion rate to closed deals • higher average deal size .
Sales CLOSED DEAL .
5 LINK .
At the end of every action.CLEARLY LINK FLOWS FROM START TO FINISH $ SEO LANDING PAGE FREE TRIAL EMAIL CAMPAIGN SALES TOUCH CLOSE 1. there should be a clear link to the next action The overall flow from start to finish should be carefully designed . 2.
AN ORGANIZATIONAL STRUCTURE… .
YOUR CUSTOMER’S PURCHASING STAGES PURCHASE CONSIDERATION CLOSED DEAL AWARENESS .
AN ORGANIZATIONAL METAPHOR FOR THE KEY FUNNEL STAGES SALES MIDDLE OF THE FUNNEL CLOSED DEAL TOP OF THE FUNNEL .
WHAT IS TOP OF THE FUNNEL? customer is not aware they have a problem. or that your product category exists customer has a problem and is looking for a solution GENERATE AWARENESS GET FOUND .
WHAT IS TOP OF THE FUNNEL? RAW LEAD GENERATE AWARENESS WEBSITE .
WHAT IS TOP OF THE FUNNEL? RAW LEAD GENERATE AWARENESS & GET FOUND Inbound marketing Outbound marketing WEBSITE .
WHAT IS THE MIDDLE OF THE FUNNEL? NURTURE QUALIFY MQL (MARKETING QUALIFIED LEAD) SEGMENT .
PROBLEM: SALES SAYS MARKETING ISN’T GIVING THEM ENOUGH LEADS MARKETING SAYS THAT’S RIDICULOUS. THEY JUST DON’T FOLLOW UP ON THEM PROPERLY. I GAVE THEM A TON OF LEADS. MARKETING SALES .
CAUSE: SALES CALLS A FEW UNQUALIFIED LEADS. AND FINDS THEY ARE WASTE OF TIME THEY STOP CALLING THE REST OF THE LEADS SALES .
SOLUTION: GET AGREEMENT ON THE QUALIFICATION CRITERIA NEEDED TO BE ABLE TO PASS A LEAD ACROSS TO SALES (MQL) MARKETING .
SALES SALES FURTHER QUALIFIES THOSE LEADS TO FIND OPPORTUNITIES .
USING BANT BUDGET AUTHORITY NEEDS TIMING .
COMMON LEAD STATES RAW LEAD CLOSED DEAL MQL (MARKETING QUALIFIED LEAD) OPPORTUNITY (SALES QUALIFIED LEAD) .
6 AUTOMATE .
SALES MIDDLE OF THE FUNNEL CRM MARKETING AUTOMATION CLOSED DEAL TOP OF THE FUNNEL INBOUND MARKETING .
LEAD SEGMENTATION .
7 MEASURE "IF YOU CAN NOT MEASURE IT.LORD KELVIN ." . YOU CAN NOT IMPROVE IT.
THE KEY METRICS CAMPAIGNS TO DRIVE TRAFFIC OVERALL CONVERSION % VISITORS CONVERSION % TRIALS (BY LEAD SOURCE) CONVERSION % CLOSED DEALS .
8 ANALYZE .
Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects BUT EVEN IF YOU ARE MICROSOFT. OR GOOGLE YOUR FUNNEL WILL HAVE BLOCKAGE POINTS . ORACLE. CISCO.
IDENTIFY YOUR BLOCKAGE POINTS .
WHAT IS STOPPING ME FROM INCREASING SALES BY 5X ? .
9 IMPROVE .
IN DIAGNOSING MANY FUNNEL BLOCKAGE POINTS. I HAVE FOUND THAT THERE IS A CLEAR PATTERN… .
YOU ARE HOPING YOUR CUSTOMERS WILL DO SOMETHING THAT THEY ARE NOT MOTIVATED TO DO .
IN OTHER WORDS… YOU DESIGNED YOUR FUNNEL THE WAY YOU HOPED IT WOULD WORK… BUT YOU MAY NOT HAVE THOUGHT ENOUGH ABOUT THE CUSTOMER’S POINT OF VIEW .
JBOSS EXAMPLE PUT A REGISTRATION FORM ON THEIR WEB SITE BEFORE A FREE DOWNLOAD IMPACT CUT THE DOWNLOAD RATE BY MORE THAN 10X .
Hate being sold to .Don’t want to get spam sales emails .GET INSIDE YOUR CUSTOMER’S HEAD CONCERNS .
UNDERSTAND WHAT MOTIVATES THEM CONCERNS MOTIVATIONS Want to solve my problem Recommended by a friend Education - Data/ information reports Entertainment Free stuff .
CREATE A SOLUTION THAT ENTICES THEM AND ADDRESS THEIR CONCERNS CONCERNS ENTICE & ADDRESS CONCERNS Customer testimonials address vendor risk - Free trials address product viability and fit concerns .
Referred to in social media or blogosphere .EXAMPLE: DRIVING TRAFFIC TO YOUR WEB SITE GETTING FOUND Not going to find your site unless: .Recommended by trusted source .On 1st page of Google search concerns .
LESSONS FROM WEBSITE GRADER
• • • • • Free tools drive viral spread Low customer work required High value delivered Score leverages competitive urge Builds trust through clear demonstration of expertise
GOOD LINKAGE TO NEXT STEP
using engineering for marketing .
USING DATA TO DRIVE WEB TRAFFIC SYSOMOS: SOCIAL MEDIA MONITORING LEVERAGED THEIR DATABASE TO CREATE BLOG POSTS WITH DATA ON TOPICS OF CURRENT INTEREST: • IRAN ELECTION RIOTS • TWITTER’S GROWTH • FACEBOOK USAGE .
LED TO: SYSOMOS ARTICLES IN ECONOMIST. NY TIMES WEB TRAFFIC TO READ THE FULL REPORT LEADS – IMPRESSED BY THE CAPABILITIES OF THE SOFTWARE .
Yet another password to remember .GETTING CUSTOMERS TO SIGN UP FOR A TRIAL .I don’t have the time .I don’t want to get spam email concerns .
RE-THINK THE PROCESS CONVENTIONAL APPROACH CONVERT TO CUSTOMER SIGN UP FOR TRIAL WOW! WOW! FIRST. REGISTER LATER WOW! SIGN UP FOR TRIAL CONVERT TO CUSTOMER Source: Josh Porter – Designing for Social Traction .
1 2 4 3 .
PROBLEM: GETTING A MEETING .
GETTING TO EXECUTIVE DECISION MAKERS TECHCRUNCH FOR INSURANCE CLAIMS .
DROPBOX: SIMPLE FILE SHARING SOFTWARE – – – Get you hooked for free Storage slowly increases to the point where you need to pay But by then they have established trust – And it is hard to move your data that is shared with others .
First Contact Sell First Contact Build Relationship Build Trust Sell .
SELLING IS 10X EASIER… ONCE YOU HAVE ESTABLISHED TRUST .
YOUR BLOG CAN ESTABLISH TRUST… HOW? .
VALUABLE CONTENT EDUCATION INFORMATION ENTERTAINMENT WITH ZERO SELLING .
Combined with OUT-OF-THE-BOX THINKING .THE KEYS TO SUCCESS DEEP UNDERSTANDING OF YOUR CUSTOMER • • • • • • What don’t they like? What do they like/need? What motivates them? What are their problems? What does their boss expect of them? etc.
APOLOGIES MY EXAMPLES ARE ALL SOFTWARE COMPANIES THIS APPLIES EQUALLY WELL IN OTHER BUSINESSES .
FINALLY… LET’S GO BACK TO THE BEGINNING… .
…AND INTRODUCE THREE NEW STEPS AT THE BEGINNING OF THE FUNNEL DESIGN PROCESS… .
1 IDENTIFY IDENTIFY ALL THE PEOPLE INVOLVED IN THE PURCHASE DECISION .
2 UNDERSTAND SKETCH OUT THEIR BUYING PROCESS AND CONCERNS AT EACH STAGE .
3 ENTICE ADD THE STEPS TO ADDRESS THEIR BUYING PROCESS AND: ADDRESS THEIR CONCERNS ENTICE THEM .
Measure 5. Link 3.WE WENT FROM THIS: 1. Automate 4. Improve . Align 2. Analyze 6.
7. 6. 4. 9.TO THIS… 1. 5. IDENTIFY UNDERSTAND ENTICE Align Link Automate Measure Analyze Improve . 2. 8. 3.
THE NINE STEPS 1. IMPROVE Use software to automate Measure key funnel metrics Identify blockage points Brainstorm better enticements and ways to address concerns . ENTICE 4. UNDERSTAND 3. ALIGN 5. IDENTIFY 2. ANALYZE 9. LINK Identify people in purchase decision Address their buying process and concerns Design actions to pull them through buying process & address concerns Ensure funnel actions lead directly to sales Link every funnel action to the next step 6. MEASURE 8. AUTOMATE 7.
SALES-DRIVEN FUNNEL DESIGN TO A CUSTOMER-CENTRIC FUNNEL DESIGN .
CASE STUDY JBOSS .
downloaded 5 MILLION times .JBOSS .FREE open source software .
The Highlights • Breakthrough Business Model – Open Source – A great example of the power of Free – 5 million downloads • The first challenge: How to monetize • The second challenge: Conversion – While keeping CAC low – Solution: Build a Sales & Marketing Machine .
ORIGINAL BRAINSTORMING SESSION .
THE FIRST BLOCKAGE POINT • 5 million users had downloaded JBoss – But none had given their names • The problem: – email registration in front of download reduces conversion rates significantly .
JBOSS example NEEDED: SOLUTION: RESULT: a carrot to incent them to provide an email address give away the documentation for free 10.000 leads per month .
Sales & Marketing Machine Suspects Closed Deals Enterprise Rollouts Web Leads Web Scoring Phone Call Inside Sales Lead Nurturing .JBoss .
Metrics: The End Goal 4:1 (25%) 3:1 (33%) Telemarketing 4:1 (25%) Telesales Closed Deals Raw Leads Web activity scoring .
Using the model to work backwards 4:1 Raw Leads 3:1 4:1 Closed Deals Web activity scoring Telemarketing Insidesales • To do $4m in the month: – If Average Deal Size is $10k – Need $4m divided by $10k deals to reach target = 400 deals – Means 1.600x4) .200 deals being worked in Inside sales (400x4) • Know that each rep can work 60 deals at a time.200x3) – Means 14. means 20 reps – Means 3.600 telemarketing contacts (1.400 Raw Leads (3.
THE NEXT CHALLENGE: INCREASE LTV • Multi-pronged approach – Add services to the subscription (beyond just support) • Key service was JBoss Operations Network – Broaden the product line and upsell • JBoss Enteprise Middleware Suite (JEMS) – Scalable Pricing • 4 axes to drive pricing higher • Result – Drove average deal size from $10k to $50k – While maintaining the same pipeline flow and conversion rates .
THE RESULTS • Before venture financing – 2003 $2m 70 60 50 40 30 • Early 2004 – venture round closes • Bookings Growth: – 2004 – 2005 – 2006 $11m $26m on plan to do $65m 20 10 0 2003 2004 2005 2006 .
JBOSS SUMMARY • Business Model disruption – Gave the product away entirely free – Monetized support & management • Low CAC – Leveraged free and virality to acquire non-paying customers • Sales & Marketing Machine – Careful study of customer motivations – Low cost Sales model – Excellent Metrics • Scalable pricing model .
For More information Visit my blog at www.forEntrepreneurs.com .