Software-as-a-service startups have become a staple of the new cloud-based economy. There are an estimated 10,000 private SaaS companies, and 50 publicly traded giants with a total market cap of over $225 billion.
And what do these companies have in common? They leveraged what is usually referred to as SaaS marketing.
But what’s SaaS marketing it? What do you need to measure to succeed and what channels perform better than others to sell your SaaS product?
Let’s try to answer these (and more questions) with this blog post. Ready? Let’s dive in!
What’s SaaS Marketing?
SaaS marketing refers to the unique set of activities, tactics, and strategies implemented to position and sell subscription-based products to new customers.
You can think of SaaS marketing as the art of making sure that your SaaS product is relevant and able to address your target customer’s needs in a way that makes prospects want to know more about your product, try it, and eventually subscribe to, over the multitude of competitors.
We’ll see later how SaaS companies get their customers, but first let’s clear an important aspect when it comes to SaaS marketing: terminology.
Like any specific category of marketing, even with SaaS marketing, there are some technical terms you should get more familiar with like CAC, LTV, Churn, and NPS to better understand the concept behind this type of marketing.
SaaS Marketing Terminology Explained
There are a couple of terms that are mostly used when discussing SaaS marketing. We’ve compiled a list of them here, and explained each one.
Customer Acquisition Cost (CAC)
Simply put, the customer acquisition cost is the dollar amount it costs you to gain a new paying customer on any given marketing channel. For example, if you spend $1,000 dollars on Google ads, and get 10 paying customers, your CAC is $100.
Formula: All expenses on marketing channel / Number of paying customers it results in.
With organic channels like content marketing, organic search, or organic social it can be complicated to accurately measure CAC.
Customer Lifetime Value (CLV, CLTV or LTV)
Customer lifetime value is basically how much a single paying customer is worth to your business on average. If you only sell one subscription at one price for $30/month, and your customer stays on for an average of 6 months, your CLV is $180.
If you have multiple subscription prices, the calculation becomes a little bit more complicated.
Formula: Average Subscription Price * Average Customer Lifetime (Length of Subscription) / Number of Customers.
The CLV:CAC ratio is simply the ratio of which the customer lifetime value is greater than your customer acquisition cost. If it costs you 60$ to generate a customer, and each customer is worth on average $180, your CLV:CAC ratio is 3.
This article was written by Matteo Duò and originally published on Blog – Kinsta Managed WordPress Hosting.