The Winning By Design Blueprint Series provides practical advice for every part of a SaaS sales organization. In this blueprint, we take a tactical approach on how to build a go to market strategy.
This will then help you diversify your revenue, make your business more resilient to economic setbacks and help you plan for growth.
5 Steps To Building Your Go To Market Strategy
1. Where you can apply this GTM strategy
2. How to map your GTM strategy to different customer segments
3. The SMB segment—going upstream vs. downstream
4. Using CAC to model your GTM strategy
5. Setbacks of using a 2-Stage inside sales organization
Where Can You Apply This Go To Market Strategy?
1) Across regions
Cultural and geographical regions (think of Asia, Latin America, South Pacific) often respond with a 1-2 year delay to the US Market. Some regions, such as within Scandinavia, behave similarly to the US. Others require a dedicated approach, like Germany and Spain.
2) Spanning markets
Vertical markets such as Healthcare, MarTech, Government, etc. can have very specific requirements for entry. This may require a specific product or pricing model on your part.
3) Covering multiple segments
Pro-user, SMB, Enterprise, this requires a specific Go To Market strategy. Think of the differences of calling on a pro-user vs. an enterprise.
CASE IN POINT: In the late 90s, SkyStream followed Cisco’s footsteps in infrastructure sales. It primarily sold to high tech companies. In 2002 the “bubble” burst to wipe out most of the Silicon Valley. However, SkyStream was able to sustain itself as it had diversified with a $10M contract with Disney on a new product, a $5M 3-year contract with the Department of Defense, and a $2Mrevenue stream from both the EMEA and APAC region.
How to Segment B2B Your Customers
When we map the number of deals committed against a listed price (ACV), you will notice deals starting to segment around discount levels.
When salespeople get involved (!) discount levels quickly start to group around 10% and 20% levels. Although this is depicted in the shape of a bell curve it does not have to be.
Figure 1. Distribution of B2B deals as a function of price (a product of discount and list price).
B2B segments in focus:
- Enterprise/Company wide – selling a platform (CRM/ERP) using multi-year contracts
- Mid Market/Department – selling platforms and applications using annual contracts
- SMB/Group like – selling applications using an annual/monthly/usage contract
- Pro-user – selling a browser plug-in under a freemium/monthly/usage contract
You’re likely to see a number of bell curves across these segments. The next figure shows such segmentation against the number of deals per segment.
Figure 2. Segmentation based on Deal Size (ACV).
The SMB Segment: Going Upstream vs. Downstream
When companies start in SMB and move towards Enterprise, this is referred to as moving Up-Stream. When companies sell in the enterprise and they start to sell to the faster paced SMB market or Pro-User market is called going Down-Stream.
The most common problem is that companies move UpStream or Downstream by just hiring additional salespeople, not contemplating the consequences for the other parts of the organization. However, pursuing a new segment needs to be a company initiative. It may even require you to re-assess your product-market fit.
Figure 3. The importance of the SMB segment.
Comparing spending flexibility, you’ll find that Pro-user is cost-centric and max out at spending $1,000/yr. In Mid-Market, the value of a specific product is obscured by many other products and often you find yourself selling to only a small group or department at best.
Enterprise vs SMB: The enterprise market may use lengthy RFP/RFQ purchasing procedures based on spending thresholds and are often focused on the service offered. SMB, on the other hand, offers greater flexibility—spending anywhere from $1,000 to $100,000, and with shorter 30-90 day sales cycles as they seek immediate impact.
CASE IN POINT:
An SMB with a $100k problem is willing to spend $12k on a solution. That same SMB is willing to spend 3x that for a $300k problem. 3x the problem, 3x the spend. An enterprise with a $1M problem is willing to spend $100k, however, it’s hard to convince the enterprise to spend 3x the money for 3x the problem. Purchasing procedures and spending thresholds put in place over decades have flattened out spending flexibility.
It explains why so many SaaS startups use SMB as a jumping-off point in their initial go-to-market strategy. This is in comparison to the Perpetual Software industry, which uses the Enterprise market as the starting point.
Your CAC Determines the Go To Market Strategy You Choose
Selling a $5/month Chrome plugin to a Pro-user? It’s foolish to travel across the country for an in-person demonstration!
Likewise, it’s foolish to expect an Enterprise client to commit to a $100,000 platform by simply visiting your website and entering their credit card details.
Clearly, each of these has a different Go To Market approach for which the customer acquisition cost (CAC) has to fall in line with the revenue it generates.
Figure 4. GTM Approaches as a function of Annual Contract Value.
Below you will see a variety of GTM approaches we know per today as a function of Annual Contract Volume and Volume of Deals/Month. Each of these approaches is modeled on the best customer experience.
For Web Sales, this may be optimized for speed (online), and for Local Sales—complexity (integration in the existing infrastructure).
Figure 5. GTM models as a function of Annual Contract Value.
6 Go To Market Models Based on Your CAC
A customer signs up for a free service. The customer gets hooked and has to pay for more premium services (e.g. more storage, personalization etc.) A common strategy here is to use these Freemium customers as a lead source.
Transactions are processed online via credit card, questions are addressed through FAQ and YouTube videos. Think of a Google Chrome plug-in/extension as an example.
2) Web sales
If multiple customers from the same domain name sign up for a Freemium account, you can convince them to purchase”Corporate License” with “security” as an added feature. This can be automated. Think of LinkedIn’s Sales Navigator subscription as an example.
3) Online sales
As the solution becomes more comprehensive, your customers tend to have more questions. For example, signing up for a Zoom.us group license.
Customers want to talk to someone instead of using the online FAQ. Online chat offers a solution where Inside Sales Reps (ISR) field questions from the customer. This is preferred over inbound phone calls to avoid any challenges with accents etc.
4) Inside sales
As the solution increases in complexity, once again more questions arise and customers go through a purchasing procedure.
They need assistance. They reach out to talk to an expert, that is, an Account Executive (AE). A Sales Development Rep (SDR) picks up the phone and directs the call based on the qualification. This works well for growth organizations that use marketing to generate inbound leads.
The solution does not generate enough inbound leads, and/or the number of inbound leads generated doesn’t match quality.
A group of Sales Development Reps identify and contact prospective customers and set up meetings with solution experts (AEs) often based on a CRM, although sales engagement tools are also becoming more popular. This is one of the most common approaches to kick-start sales—it’s often based on a service that sits on a platform (CRM).
5) Field sales force
This applies to platform sales such as an ERP or CRM.
Customers may demand custom integrations with their databases, workflows etc. They want to discuss their specific situation and their customized needs.
A salesperson gets on an airplane and visits the customers. To identify these customers you need a more sophisticated approach with an Account Development Rep (ADR) who targets multiple people in the account with coherent messaging aka account based selling. This is often split by region to keep the travel cost low.
6) Local sales force
You may wish to target AT&T Dallas and therefore use a local sales approach with a Dallas-based sales executive. This local salesperson is expected to have in-depth relationships within the account that lets him navigate their org chart easily.
This tends to be the most costly approach, but it also comes with the highest rewards. This approach is often reserved for million dollar deals, under a multi-year, wall-to-wall enterprise deal to justify the cost associated with a dedicated resource.
Setbacks of Using a 2-Stage Inside Sales Organization
2-stage inside sales organizations consist of SDRs who send thousands of emails and place hundreds of phone calls to set up meetings for AEs.
The AEs then gain contractual commitment. With slumping response rates to emails and phone calls, this approach has caused industry-wide failure.
- An SDR/AE team closes 3 deals/month at an ACV of $6,000/deal.
- The AE has a win rate of 1 in 5 deals, meaning 15 SQLs are needed per month.
- The SDR sends out a couple of hundred emails and makes dozens of phone calls each month to secure these 15 SQLs.
- The SDR/AE combo closes 12 x 3 x $6,000 = $216,000 in ARR per year.
- Total compensation is $80,000 for the SDR and $150,000 for the AE. Thus, adding up to a total of $230,000.
Here’s the problem:
The hard CAC of $230,000 exceeds the first year revenue of $215,000.
Solution 1: Tackle compensation
Lower the SDR/AE compensation by moving the team to cheaper locations.
For most companies, the efficiency lost being remote from the company results in reduced effectiveness nullifying the impact.
Figure 6. Use of Volume-based outbound at an ACV of $6,000 using a 2-stage sales model.
Solution 2: Apply a different prospecting process
Figure 7. Split the model.
Solution 3: Raise your product’s price (remember the elasticity in SMB!)
Figure 8. Raise the price and use the inside sales team on bigger deals.
Want to learn more about Winning By Design?
Feel free to reach out and connect with us!
Also published on Medium.