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Continuing with the sales and lead gen theme from the previous two days (here and here), I came across a blog post today from Bruce Cleveland titled SaaS: Lead Generation – Not Sales Capacity – Drives the Model courtesy of an analyst friend. The general idea is that SaaS companies, compared to traditional enterprise software companies, are driven more by the ability to generate leads than the the number of trained sales reps. SaaS companies, compared to regular software companies, typically have much lower up-front fees and are essentially leasing the software, and thus need to be more capital efficient at acquiring customers.
Think about it this way: if the market bears you charging $250k for an enterprise software package and you give sales reps $2M annual quotas, they can go beat down doors and deliver eight deals per year. With SaaS, and much lower average customer revenues spread out over several years, that same rep delivering $2M in sales and earning $200k in comp wouldn’t be able to deliver several times more deals to equal the same cash flow for the business. Thus marketing, sales, partners, and customer referrals, all of which contribute to lead generation, drive the growth of the business because the cost of customer acquisition has to be commensurately lower than installed software due to the economics of the SaaS model.
Lead generation drives SaaS startups. Too many SaaS startups don’t understand this and fail, not because of a bad product, but because of a lack of leads.
What else? What other ways does lead generation drive SaaS startups?
Product development is also driven by leads as new customers provide product development. Without enough data points like profitability, sales cycle, etc. products can be developed before there is a viable market.