by Kate Harvey
A proven template designed to prioritize your marketing efforts for maximum ROI. Stop wasting your time copying other people’s marketing tactics, and reliably get the biggest results to propel your business and career forward.
The following is a guest post by Nicholas Mullen. Nick helps B2B SaaS companies increase their self-service conversion rates. Want to get more paying customers from your existing traffic while you focus on the rest of your marketing metrics? Learn more about how he can help you do that at nicholasmullen.com.
The self-service B2B SaaS world is flooded with marketing tactics: conversion optimization, behavioral emails, remarketing ads, in-app messaging, the list goes on forever.
In your work as a marketer, deciding which tactics to invest in is a major decision. If you spend your limited time and effort pursuing the wrong tactics, improvements to your marketing metrics will be sporadic and unremarkable. Your company’s growth will stagnate.
In today’s blog you’ll learn how to:
- Stop wasting your time trying to copy other people’s SaaS marketing tactics
- Prioritize your marketing initiatives [free spreadsheet provided]
- Reliably get the biggest ROI from your marketing efforts
So, how do you choose which marketing tactics to invest in?
Too often, SaaS marketers will unthinkingly settle into one of three strategies:
- Copy specific tactics they read about that worked well for other marketers
- Implement whatever are considered to be “best practices”
- Attempt to brute force success by simply applying as many tactics as humanly possible
Unfortunately, all three of these strategies suffer from the same flaw; they completely ignore everything about your business.
Each of them start and end with isolated tactics divorced from any understanding of the priorities and constraints of your business. They may not have anything to do with your acquisition channels, your metrics, or even your customers. They reflect none of your insight or intuition. At the end of the day, they involve little more than grabbing a tactic at random, spending the time to implement it, and hoping for the best.
[Tweet “Implementing random marketing tactics and hoping for the best is a terrible strategy.”]
You’ve probably seen some of the results of approaching your marketing like this: split tests with no winners, blog posts no one reads, and drip campaigns that no one signs up for.
While implementing random tactics that sound good may be common in the marketing world, you don’t have to settle for it. You can approach your marketing in a systematic, business-oriented way that doesn’t leave your results totally up to chance.
Let’s step back from your process for a moment and think about how things could be:
What if you could distill the endless list of possible marketing tactics to only those that could make a significant impact on your company’s growth?
What if you could know that your time and effort wouldn’t go to waste implementing tactics that have no chance of getting you the results you need?
What if you could stop copying random tactics and reliably come up with creative, impressive marketing campaigns that permanently move the needle on your company’s core metrics?
You can do all of these things. I’m going to show you how, and we’re going to do it with Excel.
Let’s start at the beginning: Your business
Before we get into numbers and formulas though, I want to start at the beginning, with your business.
Specifically, I want to start with your core funnel metrics: traffic, conversion rates, average revenue per user (ARPU), and churn. These metrics are the lifeblood of your company. They define how fast you grow your revenue and when it will stop growing. They are the reason you go to work and the reason you get paid.
To reliably get bigger marketing results, we are going to move away from marketing strategies oriented around tactics and towards one strategy oriented around these metrics. The specific tactics that you ultimately invest in will flow from this orientation.
In light of this, we are going to pursue a different marketing strategy:
Let’s break this down:
“prioritize the metric with the highest revenue potential”
By prioritizing a your most impactful metric, you ensure two things:
1. That even small improvements cause consequential gains in your revenue. Small improvements to low priority metrics aren’t going to get you the results you need and can create a false impression of progress. By focusing your work on the metric with the most potential, you ensure that even minor improvements accumulate into a real difference.
2. That you have the best odds of creating very large outcomes. Large outcomes are rare, but by focusing on the metrics with the highest revenue potential you give yourself the best chance of getting a home run.
“focus exclusively on it for a month”
Focusing exclusively on a single metric for a non-trivial period of time is just as important as picking the right metric. There are also two reasons for this, but they are a bit more subtle than the previous ones.
1. You have the time to study the metric in question and the underlying area of your business. This is what allows you to move beyond randomly applying tactics. You can research the relevant part of your acquisition funnel in depth and identify weak parts to fix and strong parts to double down on. Doing this will allow you to better align the tactics you pursue with the specific details of your business.
2. You can create momentum. When you focus on all of your metrics at once, you end up working on multiple, isolated tactics. It becomes difficult to use what you learn from your successes and failures to guide your next steps since your tactics will largely have little to do with one another. When you focus on a single metric, your understanding of that area of your business grows, and you can build on that knowledge. Anything you learn preparing for and implementing a tactic can be immediately folded into what you do next. This allows you to improve your odds of success with every attempted tactic, even if any particular one fails.
Now, how do you know which metric has the highest revenue potential?
This is where we break out Excel. Don’t worry, I’ve done the homework for you and linked to a pre-made spreadsheet below that you can plug your numbers into.
What we’re going to do with Excel is develop a revenue model of your SaaS business and then use that to examine the consequences of improving any of your core metrics. The metric with the biggest impact is the one we want to focus on first.
Our model will be pretty simple. We’re going to estimate your acquired and lost revenue on a monthly basis, combine that with your existing MRR, and then project that out over a two year period. Once we do that, we will modify your core metrics based on reasonable goals, perform the same calculation, and compare the results to see which metric has the most potential.
Stick with me for a few seconds, and don’t worry, everything I’m explaining here is already built into the spreadsheet.
To calculate your acquired revenue, we will multiply your traffic, traffic-to-trial conversion rate, trial-to-paid conversion rate, and ARPU together. This will give us a reasonable estimate of the revenue you gain each month.
To calculate your lost revenue, we will simply take each month’s MRR and multiply that by your monthly revenue churn.
Then we take each month’s MRR, add in the new revenue, subtract out the lost revenue, and set that as the next month’s revenue. Repeat this process twenty-four times, and we have a simple projection of your future revenue.
Once we have this, we will use the same model to project our revenue based on possible changes to each of our core metrics. E.g. How would our revenue be affected if we improved our conversion rates vs. acquired more traffic? The metric with the largest potential for improvement based on our revenue projections is the one you should focus on first.
Note: this method doesn’t take into account natural growth rates, so the projections will curve downwards rather than upwards. This is because your acquired revenue in this model remains the same while your lost revenue grows. This works for our purposes since we are looking only to compare the consequences of marketing outcomes, but don’t use this to estimate your future MRR! You need more advanced models to do that.
Let’s work through an example, and then I will give you the link to the spreadsheet.
For our example, we will use a small but successful self-service, B2B SaaS company.
Our initial metrics will be:
- MRR – $500,000 (for 6 million in ARR)
- Monthly Traffic – 100,000
- Traffic-to-Trial Conversion Rate – 2%
- Trial-to-Paid Conversion Rate – 10%
- New ARPU – $200
- Monthly Revenue Churn – 5%
The first step in our model is to calculate our monthly revenue acquisition. To do this, we multiply our Monthly Traffic, our Traffic-to-Trial rate, our Trial-to-Paid rate and our ARPU. For our example, this is 100,000 * 2% * 10% * $200 which results in a monthly revenue acquisition of $40,000.
The second step is to calculate our monthly revenue loss. To do this, we multiply our current MRR by our Monthly Revenue Churn rate. For our example, this is $500,000 * 5% which gives us $25,000 in lost MRR.
The third step is to calculate our MRR for the following month. To do this, we combine our MRR gained and MRR lost with with our current MRR. For us this would be $500,000 + $40,000 – $25,000 which results in $515,000 in MRR for the next month.
Repeating this process 23 more times while updating each month’s MRR gives us a simple model of our projected revenue based on our current metrics. You can see this projection here:
This graph will be generated automatically in the spreadsheet.
As you can see from the graph, our projected revenue one year from now is $637,892.
The next step in our process is to use this same model based on modified marketing metrics. We will take each marketing metric, set a reasonable goal for the month, and compare the subsequent revenue consequences.
Now, this part is admittedly a bit hand wavy. You can’t know what your results will be ahead of time, but we can use this method to get a good sense of what the relative potentials of our marketing metrics are. Ultimately, there’s no way to turn marketing into a science, but we can use this to significantly improve our odds.
For our example, we will modify our marketing metrics as follows:
- Monthly Traffic – 100,000 -> 120,000
- Traffic-to-Trial Conversion Rate – 2% -> 3%
- Trial-to-Paid Conversion Rate – 10% -> 13%
- New ARPU – $200 -> $250
- Monthly Revenue Churn – 5% -> 4.5%
These modified metrics result in this set of revenue projections:
This graph will also be generated automatically in the spreadsheet.
From our graph, we can tell that improving our Traffic-to-Trial Conversion Rate is currently our biggest revenue opportunity. Given our original numbers, this isn’t a particularly unreasonable result. The 2% Traffic-to-Trial conversion rate was the weakest metric, and there are a number of marketing tactics that could generate a 50% lift like this (going from 2% to 3%). Both rewriting your main site’s sales copy based on deep customer research and creating a pre-trial, drip email campaign for a successful industry blog would be excellent examples.
Of course, your metrics and goals will be different and will probably result in a different metric to focus on.
When you click on the link, Google will ask you to copy the spreadsheet. This allows you to have your own version, so that your company’s metrics stay private.
Open up your copy of the spreadsheet, enter your current metrics in the first set of fields and then individual goals in the colored fields below. To illustrate, here is a screenshot of the spreadsheet with the modified marketing metrics we discussed earlier:
The spreadsheet will the calculate the projected revenue of each possible change and show you a comparison. Take the metric with the biggest possible revenue impact, focus your efforts there, and let your specific marketing tactics flow from that.