David Cummings on Startups

Sales Strategy for SMB SaaS Startups

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David Cummings

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This morning I met with a startup in town that recently closed their Series A round and was getting ready to ramp up their sales and marketing. We talked about a number of different aspects of building a SaaS company focused on the small-to-medium sized business market.

Here are few takeaways from the conversation:

  • Once you charge more than $100/month an inside sales team becomes necessary as people are much less likely to do a self-service credit card checkout process.
  • Pricing a product between $100/month and $500/month is usually no-mans land unless you have a really short sales cycle because prospects will require the same amount of sales engagement whether they are spending $200/month or $500/month.
  • Pricing should follow Occam’s Razor where the all things being equal, the simplest solution is best.
  • A two-tiered sales process with sales development reps and junior/senior inside sales reps works well to develop a farm system of sales reps and specialties.
  • Having more $30k base/$80k on target earning sales reps than the comparable expense with $75k base/$150k on target earning reps is better due to sheer number of activities involved to close a deal over the phone.
  • Writing skills are critical for today’s email-heavy selling environment and a written essay as part of the hiring process goes a long ways.

The inside sales process requires a completely different approach when compared to the traditional enterprise software sales model. My recommendation is to follow these best practices as part of the sales strategy for SMB SaaS startups.
What else? What are some other components of the sales strategy for SMB SaaS startups?

Comments

8 responses to “Sales Strategy for SMB SaaS Startups”

  1. Mike Schinkel Avatar
    Mike Schinkel

    This post was super relevant to me right now. Two questions:

    1.) Can you elaborate more on the $100-$500 range? What about if it is advertising sponsorship for $199/month where the sponsorships are priced in the 4 tier SaaS model? (for a client’s project.) And for my main project why which is more of a true SaaS model, why is $500 the upper level? Is $500 good, or is $699 better, for example?

    2.) Would you mind elaborating on “A two-tiered sales process with sales development reps and junior/senior inside sales reps?” I’m not sure I understand exactly what the roles you propose would be?

    Big thanks in advance for your help.

    Reply
    1. David Cummings Avatar
      David Cummings

      Great questions.
      1. There’s the human psychological element of charging more than $100/mo for a service that results in the desire to talk to another human before making the purchase. Depending on your audience and market the upper bound for a self-service transaction could be $50/mo or $150/mo but isn’t likely to get much higher than that. Once a human is required to sell and answer questions in a consultative sale you’ll have a sales cycle and a good rep will only be able to close so many deals, so you need to compensate them well per deal so you probably need to charge more per deal. 10% – 20% of first year’s revenue is a typical commission so charging the equivalent of $6k – $12k/yr provides for enough money to compensate reps.

      2. Here’s more info on the tier 1 reps:

      Sales Development Reps in Startups

      Let me know if this helps.

      Reply
  2. Carlos Vidal Avatar
    Carlos Vidal

    David,

    The one universal law of SMB is that there are more potential prospects than your inside team will ever be able to reach. A key part of the strategy has to be defining an Ideal Customer Profile and direct the inside team towards this subset of the SMB population. This takes a lot of discipline when you are growing a startup and every dollar counts.

    Reply
  3. Mike Schinkel Avatar
    Mike Schinkel

    @David: That was incredibly helpful, especially the link to the other post for #2.

    As for #1, let’s assume that I want to generate $299/month is sponsorship sales. Do you think that it would be potentially viable to offer for $79/week rather than $300/month?

    BTW, earlier I said it was a client site but in reality I am the client (I have a consulting business that will be moving into open-source software and SaaS soon,( But this website is a side business that generates $900/month with 6 sponsors at $150/month and zero add sales efforts. The site looks awful and for 2+ years we’ve done zero work on it, but we are able to replace it with a custom design that is gorgeous and start offering different levels of sponsorship modeled after how a SaaS business sells monthly service and also start a crowd-sourced content idea which I’m pretty sure will offer very compelling content (visitors have been emailing me asking for it) and we’ll go from 47 solutions listed to 400 solutions over the next year.

    We already know the traffic is there to support ~6 sponsors and have had sponsors proactively continue to advertise without effort on our part for $150/month but we’d like to double it because we think that the vendor will get sufficient results. But if we have to have someone sell it will cost us more than that $150 for free. so wondering if you think the $75/week might be a way to get them to think <$100?

    -Mike
    P.S. Anxious to tell you face-to-face about the consulting-to-product/SaaS business sometime in the near future. Will be anxious to get your feedback and any suggestions you might have.

    Thanks in advance for the insight.

    Reply
    1. David Cummings Avatar
      David Cummings

      Thanks Mike.

      I don’t know how the dynamics of selling sponsorships compares to selling a SaaS product so I don’t know if “no man’s land pricing” applies the same way. If you can charge $299/mo and it is simple order taking or self-service check-out then that sounds like a great way to do it.

      BTW, who do you recommend that does a good job converting sites into WordPress? People keep asking what I recommend to power SMB sites and I say WordPress is great and the next question is who can they go to to get their site converted.

      Reply
      1. Mike Schinkel Avatar
        Mike Schinkel

        RE: Who can help SMB convert WordPress site? It really depends.

        Who would think WordPress had so many subspecialties? But most people who do WordPress sites are great a few aspects and horrible at the others.

        It helps to know at least the following:

        – What they are trying to accomplish with their site (brochureware, e-commerce, blog/news/recurring content/, workflow, etc/)

        – What type of business is it (replicative like a law/accounting firm, restaurants/bar, auto repair/etc.) or innovative (startups and other unique businesses?)

        – What existing assets they want to retain (logo, color scheme, layout, content, URL structure, etc?)

        – Do they have any existing relationships they want or worse feel they mist retain (i.e. designers, web hosts, etc.) and/or do they have employees with specific skills that will be involved in the process?

        – What integrations to third party services do they need (i.e. email server providers, CRM systems, analytics, etc.)?

        – What level of performance and scalability do they need to support (traffic of 50 visits a day or 50,000 visits an hour?, or worse 50 most days and 50,000 ever so often?)

        – How often do they intend to update the site, and what kind of updates (Content only, or new marketing promotions/campaigns?)

        – Do they intend to integrate email newsletter marketing as part of their digital strategy?

        – Do that have a technical/power user in house, or will they need constant handholding?

        – How important visual branding is to their business?

        – Do they have a rigid vision of what they want (and thus require completely custom plugins and theme), or are they flexible to use off-the-shelf themes and/or plugins even if those themes and plugins don’t give them exactly what they might otherwise prefer?

        – How tolerant are they of occasional breakage, especially when adding new features? If it breaks for 30 minutes, or even 3, is that they end of the world in their eyes? Or it is happened that the site didn’t display correctly on same pages for 30 hours, they wouldn’t stress too much?

        – How concerned are they about the “hit by a bus” problem; i.e. do they worry about catastrophe and accept that being secure will typically cost them 3x will they be okay, or would they rather roll the dice and save the money instead?

        – And lastly, what’s their realistic budget? $500? $5000? $25k?

        As you can see it’s not an easy answer although I do know a lot of people who do great work depending on their answers to the above.

        BTW, I can tell you one “who” that is not a good fit, and that would be me and my company NewClarity. We are very specialized and our expertise trends in a different direction than individual site building. Maybe we should have lunch and I can share my rolodex of web site builders with you…?

  4. Amat Avatar
    Amat

    I have done a lot of work with Telcos from SaaS perspective and I have a somwahet different take than everyone else. While Telcos do have a relationship with virtually all of the SMBs, there are 2 things Telcos need to overcome before they will be successful selling SaaS. First, Telcos need to learn how to sell SaaS from a value perspective rather than price. SaaS is a new concept to SMBs and they don’t understand the value. Secondly, it will take several years for a Telco’s SaaS sales to exceed the $50 million mark. For most Telcos, $50M in annual sales is not interesting and therefore doesn’t get the attention needed for the service to take off.

    Reply
    1. Mike Schinkel (@mikeschinkel) Avatar
      Mike Schinkel (@mikeschinkel)

      “For most Telcos, $50M in annual sales is not interesting…”

      Yep, sounds like the classic “Innovator’s Dilemma”: http://www.businessweek.com/chapter/christensen.htm

      Reply

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