The Importance of Optimizing for the Right Customer

by | Jan 28, 2021 | Marketing

Since Salesforce hit the market with their software-as-a-service (SaaS) offering in 1999, the SaaS space has become more crowded than ever. Finding, nurturing, and converting qualified leads into long-term customers can be a challenge, but the good news is, it’s not ‘Mission Impossible’. The key for businesses is to figure out who their ideal customer is. 

All SaaS businesses have strong similarities, but one thing differs for almost every firm–the unique, desired outcome of the ideal customer, which is why optimization for the right customer is vital to longevity.  

How to identify the ideal customer 

Identifying your ideal customer is a data analysis trip. This means taking some time to explore your database and identify which industries, job titles, and personas are staying with you the longest, referring you to other customers, and opting for the higher-priced subscriptions. Before you know it, this activity will start to inform you on what your ideal customer looks like. If you are in the very early stages of a service rollout and you’re attempting to find who your ideal customer is, then you will most likely rely a bit more on market research, as there might be limited data to come to any significant metric conclusions.  

Example of what a typical SaaS customer journey looks like 

There are a vast number of journeys that a SaaS customer can take, so let’s assume your content marketing strategy is top of the line: you’ve got a great LinkedIn presence, your search engine marketing is set to pull in loads of clients, and your conversion rate optimization processes are set to net those clients.  

For the sake of example, let’s say that your business is looking to host a webinar. A potential client is attracted by your tailored advertising for the webinar and hits your site landing page. They might say, “Yes, that webinar you’re advertising seems quite interesting to me,” and then they sign up for the webinar. After signing up, you share a couple of targeted emails with them: one pre-webinar, giving them the exciting value touchpoints and one just before the webinar informing them that the webinar is about to go live. 

After they attend the webinar, you share some more free value touchpoints post-event via email, and you now have them on you re-marketing list as well. One of those emails could include, for instance, a whitepaper or a lead magnet. After they download it and read it, their interest ratchets up a couple of notches. So, now they have had two touchpoints, and this will be added to your SaaS firms’ marketing qualified lead (MQL) scorecard. 

Your potential client may then go back to your website to read a bit more information on your service. Does it address their pain points? Do you offer a free trial for them to check out your offering? They might go back again a couple of weeks later and make an inquiry, filling in a form for a free trial. 

Most SaaS firms offer free service trials between 7-14 days, but the drop off rate or churn rate following the trial can be up to 40%, maybe even 60%. If you’re noticing a high churn rate, you might need to follow up with customers to properly onboard them to your service. A good onboarding program will explain how the platform works, how to use it, how the platform can benefit your customer, and how your platform addresses their all-important pain points. It is key that you build a relationship with them in this free-trial phase. And, at the end of the day, if they choose not to continue, you will have a better understanding of why.  

How to reduce churn rate and associated revenue churn 

Your company’s churn rate is the number of customers that cancel their subscription with you. So, if you have 100 customers and three cancel – that’s a three percent churn rate. Revenue churn is how much revenue goes out the window when those three customers cancel their subscription.  

So, what can we do to minimize these two connected drop-off rates? 

First things first, check what your clients are actually doing on your platform. If they aren’t interacting with the platform very often, you need to target these firms with emails, re-marketing, and tailored ads. Remember, just because you’ve secured a customer, this doesn’t mean that you need to stop advertising to them. 

You could also call them with questions like: “Are you having any problems? Is there anything you need help with?” Offer them incentives and talk to them about the benefits of your service offering. It’s all about staying at the “front of mind” in a positive way and educating them as to why they should use (and continue) to use your product.  

Ensuring your service is well-communicated and targeted to the right audience 

One sure-fire way of making sure you target the right audience is to audit your current communication tools. This will help your marketing team mix, resource, and budget decisions by basing these decisions on hard evidence gleaned from your audit.  

Before you start auditing, make sure tracking is set up on your customer relationship management CRM system(s) and ad platforms. Otherwise, you might have turned off attributes that could have indicated there was a potential opportunity with a client. If your system is configured incorrectly, you might miss the boat big time! 

By running regular audits, you will be able to identify which messaging, for example, is giving you a higher click-through rate on your website or leading to better conversion rates. Check your ads, website, and emails – is any messaging here giving you a low conversion or engagement rate? If there is, modify it and check the effect of the change. This is called “split-testing.” You should continually be optimising this and examining the effects. 

You should also discern if you’re putting money into the wrong channels. For example, you could be putting too much money into Facebook – where lead quality might be cheaper but may not be giving you that prized MQL. Or maybe you’re not spending anything on LinkedIn, because the cost per lead is higher – but if you did, your lead quality could go through the roof, giving more MQLs. 

Once you have an audit in place, it is easier to see where things are going wrong, for example, which areas are giving you value, and which ones aren’t. Once you’ve made those changes, you have a baseline for growth, and you can then split test on strategies that are actually working for you, thus improving your outcomes long term. 

Calculating the customer lifetime value (LTV) 

The simplest way of calculating LTV is the average purchase value (the company revenue divided by number of purchases in the same period of time), multiplied by the average customer lifespan (the number of years on average a customer stays with you on the subscription). This will give you a rough LTV estimate and does not account for monthly recurring revenue, expansion, churn, and other related parameters. Various shades of LTV calculations are possible – like average revenue per account times gross margin divided by revenue churn rate. 

Why is it important to do this?  

First of all, it’s important to get your cost per acquisition (CPA) correct, because if you’re spending more on customer acquisition than customer lifetime value, you’re not going to be profitable. It varies, but normally CPA is 10-20% of the customer LTV. If it is higher, it’s probably because you have a new product and you’re willing to take a bit of a hit to get your name out there. 

Knowing your customer LTV and attributing it back to your campaigns means you can work out your 80/20 activity ratio. You’ll often find that 20 percent of your keywords, ads, and activities are driving a higher portion of your revenue. Identifying who your highest LTV clients are and where they come from will allow you to put more budget, resources, etc., into that activity and drive more profitable clients.  

In Summary 

To achieve optimal business goals and to optimize for the right customer you must:  

  • Track all metrics on your site correctly  
  • Connect your platforms and campaigns to your CRM system so you can “track the full-funnel” 
  • Continually improve metrics recursively and check: how many people are clicking through your ads to your landing pages? Or how many people are enquiring about your services on-site?  

Ongoing campaign and site optimisation such as ad split-testing and Conversion Rate Optimisation will help to improve these metrics and lower your overall cost-per-acquisition. Remember the “80/20” approach, keep analysing your data, and use your findings to make evidence-based decisions.  

In the end, using these tips should help you making that “Mission Impossible” become “Mission Possible.” 

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