Nick Hollinger — February 21, 2019 Software as a Service (SaaS) companies that are looking to target small and medium-sized businesses commonly face similar issues. The two most common issues they face are:
- customer churn or attrition (the rate at which customers are canceling) is higher
- average revenue per account (ARPA) is lower
when compared to companies targeting enterprise level clients. Driving churn down and ARPA up can be a not-so-fun balancing act that puts the validity of your business model in question. Not to worry though, there are a number of companies that have succeeded in going “downstream” like this. These companies have several characteristics in common and almost all use the following strategies.
Be as low-touch as possible
Due to the fact that your ARPA is low when compared to other business models, you want to ensure you are able to drive sign-ups, onboard users, and keep them engaged while minimizing 1-to-1 human interaction. The more 1-to-1 human interaction needed, the harder it is for you to scale quickly. To minimize human interaction, utilize these strategies:
- Automate as much communication as possible
- Simplify your UI/UX so that users can understand it themselves
- Build resources so that users can self-learn and troubleshoot
Marketing-driven vs. sales-driven business model
Similar to the tip above, because you’re ARPA is on the lower end, you likely can’t have a sales-driven business model. Just picture your sales team having to prospect, pursue, and close clients, taking them 1-3 months, all for $ 50 per month – this just doesn’t work. Instead, use marketing efforts to drive users onto free trials and then close their business via automation. Further information about sales-driven vs. marketing-driven business models can be found in this article.
Drive down your cost per acquisition (CPA) through high potential marketing efforts
In order to scale quickly, you’ll have to monitor and drive down your CPA by utilizing high potential marketing efforts (some would call these growth hacks). Essentially, how you want to think of it is – how can you drive a high number of qualified sign-ups, at a low cost per sign up? Some common strategies to consider are referral programs, content creation, and partnerships. All of these examples have the potential to generate a high number of sign-ups at a low cost.
Work on your service
Generally speaking, you should always be developing your service further in order to lower churn rate, increase conversion rate, and drive more sign-ups. A good way to think of this is that your product department is a revenue-generating department because you don’t have a large sales team.
Run promotions regularly
Without devaluing your brand/service, run promotions regularly to encourage clients to convert. Sometimes, SMB purchasers need an extra little incentive to purchase (commonly in the form of a discount). I recommend running them every 2 months or so to empty your funnel of any users that are on the fence.
Offer annual plans at discounted rates to increase engagement
One of the biggest issues you’ll face is that your low-price causes users to sign up with you before they’ve fully thought through their use case. While you may think this is great because it is such a low price, users will set it up and forget about it; not becoming engaged with your service. This will lead to them churning quicker, as low engagement generally means they aren’t seeing the value in your service. However, if you offer annual plans, they are forced to pay a larger price upfront, which will then cause them to engage more with the system.
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