Being a startup in the SaaS segment, the topic of customer acquisition has always been one of the most challenging for us. Since this topic is of interest for many other startups and organizations that are equally affected by it, we describe in this blog post our experiences on the matter, while refraining from posting too general step by step instructions that would help no one.
At the beginning of our journey to attract customers, we had to reach a certain product/market fit, for which we struggled for a long time. We weren’t able to define the right audience or customer, and that surely complicated our lives on our search for the first paying customers (in the form of companies). As already mentioned in the article “My Mistakes and Lessons Learned from 4 Years of Startup-Life”, we initially implemented a Freemium-Model on Stackfield and we received quite a lot of media attention for our end-to-end encryption. This helped us attract quite quickly our first Beta-users that have remained with us even after this phase has ended. However, in the beginning there weren’t any payment possibilities or even premium features, whereby our tool could only be used for free. This has posed no issues for us at that time, as we were convinced that the majority of users will want to use the premium features as they become available.
When we finally went live with the payment system on 01.05.2014 and other few (not very important) premium features, licenses were purchased from day 1. This was a great feeling for us – to finally earn money after 2 years.
Our joy was short lived, as the next purchases took a long time to materialize – and even worse, the existing users cancelled the premium features. A lot of people tested Stackfield, used our tool for a short time and almost no one turned into a paid user.
Likewise, as already discussed in the article “My Mistakes and Lessons Learned from 4 Years of Startup-Life”, the users heavily used our tool initially, but this value declined considerably over time, and finally hardly anyone remained with us for more than 6 months.
We changed a lot of things on our platform: the design, the organization of users and ultimately the payment model. From this time on all users had to become paid users at the end of the 14-day trial period.
Retrospectively, we can say that these changes were essential for the progress of Stackfield. However, we were thus again at the same point as 2 years before, as we only had a few paying customers and along with the realignment of our product we virtually had to start from scratch.
Marketing without big budgets – is this feasible?
While we received consistent media attention during our founding and beta phase, leading many visitors to our website, after the changes that wasn’t the case. We barely received any article coverage and so we had to find new ways of attracting users.
We started small test rounds with both classical and new forms of marketing and tried to develop our own user growth strategy.
We are operating with Stackfield in a highly competitive market, filled with large competitors. Each product has its own pros and cons, but almost all products share the same keywords. Whether it is “project management” (€ 6.00 per click), “social collaboration” (€ 4.40 per click) or other similar keywords, the costs are in high ranges. In the absence of Search Engine Marketing, we were getting double-digit conversion rates at Stackfield (from website visitor to free user). However, during our trial period of 2 weeks, this rate was significantly lower for visitors coming from Google ads - only 2.03%. This meant that we required 50 clicks on the advertisement in order to obtain one registration during this testing phase: this translated into a cost of € 300.00 when considering the pay per keyword and placement of first rank.
If the bid is optimized and the advertisement is not necessarily placed on the first rank, this cost can be significantly improved. In our case, the average cost dropped to € 240.00. But that’s only the price for one free/test user - since not every tester directly becomes a paying customer, the cost rises further. For a SaaS product to be economical, approximately one third of the Customer Lifetime Value (CLV) can be used for marketing.
The CLV for our largest business-package is approximately € 780.00. Therefore, we could direct € 260.00 to the marketing budget for every paying customer. If this in turn is applied to the cost of a tester, nearly every tester would have to be converted into a paying customer, so that Google Adwords can be profitable. In our case, this was far from the truth. The described calculation is also simplified a lot and there are other factors influencing it – but even in this simplified example, it is visible that this marketing approach doesn’t work for our SaaS product and that we cannot reach the desired scaling with this approach. And that is probably the case for most of the products from our segment.
In parallel with the Google Adwords tests, we also booked various advertising formats on Facebook, hoping herewith to quickly reach a large crowd of potential customers. Compared to Google Adwords, advertising on Facebook is much cheaper. However, there is a big difference between users of Google and Facebook: while on Google users actively search for a term or product, users on Facebook are not searching for your product – for them the ad is simply displayed, without the necessity of having a connection with the company. The user is thus in a passive role, even if there’s a proper targeting.
This also changes the conditions for all marketing efforts. Whoever visits Facebook (almost every person) will soon notice that lifestyle products are the ones being predominantly advertised. These products generate a certain desire to possess them – only that a SaaS product does not belong to such a category. It is less sexy and desirable and the beauty of the product can only be seen by the ones that recognize its benefits. For all other users, it is a software that is simply not perceived. In addition, our numbers and the targeting were falsified by tons of fake accounts.
By using highly targeted campaigns, it is possible to achieve costs per click of around € 0.80 and a high reach, but the conversion rate of visitors from this source also fell – but only to 4.04%. Instead, there was another problem: far fewer testers converted to paying customers. Although the costs were lower versus the ones of Google Adwords, they were still too high. Therefore, Facebook was not important for us, as well.
Classical sales activities:
For us as a startup, time has been and still is just as important as money – both are in short supply. We were already in contact with many large companies, be it because of partnerships or the usage of Stackfield. Here we discovered that the sales process is indeed extremely long and time consuming, as all rumors indicate. From a department that required the accounting’s approval before using a free test project, up to answering 67-page long questionnaires - we put a lot of effort into the acquisition of those potential customers.
We have often filled catalogues of requirements while presenting Stackfield at exhibitions. Ultimately, we had to admit that, in our situation, it made little sense to proactively reach out to these companies, and that it was more important to invest our time pursuing other strategies, before running out of money. Consequently, we started to retreat from sales activities, at least as long as our team was primarily busy with the optimization of the platform and the online business. Sales to large corporations can work for startups, but we soon learned that the confidence in new companies and concepts from this segment is rather low.
Besides the problem with the lengthy sales process, you also need a large team to meet the big company’s requirements, such as large support team. Therefore sales are only efficient when a certain number of licenses are sold through a deal – however, the complexity and length of sales processes increase with the number of licenses.
So how did we get paying customers?
Having noticed that the marketing for a SaaS platform is not as easy as we initially thought – despite the end-to-end encryption – the road to be followed became clear to us. The product has to promote itself. And this is exactly where we put all the wheels in motion, so that the product gets perfected on all aspects and can consequently attract users.
1. Excellent Customer Support:
After our experiences with the first users, we noticed what essential role the Customer Support has in the B2B sector. Paid users want to be sure that in case of emergency there is always someone available and that the company cares about solving their problems, given that the tool is ultimately used for relevant processes. Therefore, we integrated within each account a dedicated support channel, besides being always available by phone or email – whenever a user has a question or problem, everything is stopped and put aside until this request is solved. For this purpose, we do not employ any special staff or a call center, but rather make our entire team available for solving these inquiries. Most requests are quite complex or of technical nature, so they must be handled by a person that is truly familiar with the platform. Additionally, we want to be close to our users, so that we can offer a product that complies with the requirements of day-to-day activities – and for us, the best possible support is an essential part.
2. High quality of the product:
After the changes, our platform was considerably less cluttered and much easier to use than ever before. All functions that did not meet our expectations were removed from Stackfield and we focused on the essential functions, which we controlled well. With this approach we were completely right, as from now on our tool was attractive to the right customers, was directly understood and was no longer subjected to error by confusion. Following these changes more users remained with us and we finally saw them convert into paying customers. The conversion process was also understood faster by users and this is an advantage for the more distant target group of large corporations, as well. Smaller teams are more flexible and appreciate the progress, instead of just applying a questionnaire and ending up with a poorer tool that they have to work with.
3. Strength of the brand itself:
The Internet offers many opportunities to actively contribute to other people’s lives and their interests – and what speaks more for your own product than the employees who are particularly knowledgeable in their field and can provide useful advice? Our team was always active in these situations: from presentations on the encryption subject, the problems with the project management of a university or question rounds on the founding of startups - these engagements formed the basis of trust and helped the brand and the product gain visibility.
Even if these forms of marketing are really time consuming and do not always generate results, they can at least help to move the product forward through new ideas and feedback. This is how we have acquired some of our first and still existing customers on Stackfield, by actively caring about their problems and solving them.
What did these steps bring?
Word of mouth/Recommendations:
If the product is really good, the users are trusting you and the support is available 24/7, then the product is also often recommended. Along with the recommendation of a product, the user/customer is liable for it with his/her own reputation and therefore, if a tool is actually recommended, this is most likely a very conscientious action. While our first customers came from the above mentioned sources, including press articles, presentations, etc., almost 80% of our first 100 customers came through referrals. Another interesting point at this stage: hardly any user or customer recommended us due to cash benefits or discounts. We offer a 10% discount to our users when they invite new customers. However, when we looked at the number of actual referrals, we realized this program had little response.
The process of customer acquisition is, in the form used by us, long-term oriented, as opposed to the fast growth driven by a large marketing budget and high click counts. However, this carries with it the advantage that Stackfield has so far grown organically and continues to currently grow in the absence of a high marketing budget.