Software as a Science: Unlock Limitless Recurring Revenue Without Losing Control

Metadata

Title: Software as a Science: Unlock Limitless Recurring Revenue Without Losing Control
Author: Dan Martell, Matt Verlaque, Johnny Page, Marcel Petitpas, and Patrick Campbell
Book URL: https://amazon.com/dp/B0DGDHK69F?tag=malvaonlin-20
Open in Kindle: kindle://book/?action=open&asin=B0DGDHK69F
Last Updated on: Wednesday, December 18, 2024

Highlights & Notes

The easier it is to start a company…the harder it’s going to be to grow it.

Your competitive advantage isn’t how you write your code. It’s how you serve your customers.

“You may think your business is unique…but trust me. It’s not.”1 NOAH KAGAN, founder and CEO of AppSumo and author of New York Times bestseller Million Dollar Weekend

When your company is adding and losing the same number of customers, you’ve hit your Growth Ceiling. And it sucks.

The first plateau (for most SaaS companies) usually pops up somewhere between $10, 000 an d$ 30,000 in MRR. And the only way through it is to stop brute-forcing growth and start taking a systematic approach to solving the math problem that is your SaaS company.

Your company is a math problem. And math problems have solutions.

“Most companies die from indigestion, not starvation.”

You can do the right thing in the wrong order and still fail. You can do a really great job solving a problem that’s not actually a problem. You can even “fix” the wrong thing and end up with a worse result than you would have had if you’d ignored it.

“All software companies taste like chicken. They’re selling different products, but 80% of what they do is pretty much the same.”

A Growth Ceiling is the point at which the number of customers coming in and the number of customers going out equalize—and

four key numbers from your business: Current Customers New Customers Per Month Monthly Churn Rate Monthly ARPA (Average Revenue Per Account)

When you’re at your Growth Ceiling, you mathematically cannot grow.

At its core, your SaaS business is just a highly emotional math problem.

The ego was definitely taking a hit—Matt and Jake couldn’t hide behind the excuses that we all try to use: My business is different. My product is complex. My customers ‘don’t get it.’

Your product might be unique. But your company is not.

My Growth Ceiling is in _________ months at ________ MRR.

Calcular

“A business without a path to profit isn’t a business, it’s a hobby.”3 JASON FRIED, co-founder and CEO of 37Signals and author of New York Times bestseller, Rework

If your SaaS company is losing half of its brand-new customers before their implementation period is over, you’ve got big problems. For one, your new customers should be the most excited—they’re getting the most attention, they’re excited about the product, and they should be fired up about the value they’re receiving. Second, when that many customers are leaving that frequently, they’re clearly unhappy, and unhappy people talk, and when unhappy people talk, your sales team ends up having to answer to more and more objections. Enter problem three: at that rate, you’ll churn right through the entire market—and ruin your reputation in the process.

Turns out, they were so focused on demolishing their numbers that they were closing software deals with customers who didn’t even own computers.

If your SaaS company is healthy, you’ve got 3 things happening: customers are coming in, customers are staying, and customers are buying even more from you after the initial sale.

Net-Negative Revenue Churn: Your expansion revenue (from existing customers becoming more valuable) outpaces your churned revenue (from existing customers leaving or downgrading their accounts).

Twilio’s net dollar retention has been between 130% and 140% since their IPO.

So, a lemonade stand converts customers. SaaS companies keep them. World-class SaaS companies increase their value over time. A lemonade stand has one goal: ACQUSITION. A decent SaaS company adds another: RETENTION. A world-class SaaS company adds a final one: EXPANSION.

As a recap, here are the only numbers you need to predict and graph exactly when your company will mathematically stop growing: Current Customers New Customers Per Month (ACQUISITION) Monthly Churn Rate (RETENTION) Monthly ARPA (EXPANSION)

The Three Levers of SaaS: ACQUSITION: Get More Customers RETENTION: Keep Customers Longer EXPANSION: Make Customers More Valuable over time

The reason that SaaS companies command these types of multiples is threefold. First, in a well-run SaaS business, the revenue shows up again and again, every month, for every customer that you bring in (as long as you do your job right and deliver ongoing value). Even better, there’s usually a decreasing amount of effort required to retain a customer after they’ve been around a while.5 Then, as the company keeps going, a world-class SaaS company gets to that Holy Grail—Net-Negative Revenue Churn, expanding ARPA6 on customers it already has.

No metrics are more important than customer retention and acquisition. Why? We need to know that customers rely on the companies we buy—year in and year out. We also want to know that more growth is possible, and that customers today are still choosing our companies over the other options.

From there, your job is to proactively serve the customer—monitor their usage, ensure that they’re getting continued value from the software…and make sure that they know about it.

Success begins after the sale.

You can do the right things in the wrong order and still lose. Sequencing = Success

most acquirers are going to place a higher valuation on a company that’s great at retaining revenue vs. one that’s churning through a ton of sales—even if they have the same top-line revenue numbers. Ask anyone who has been through due diligence to sell their company (we’ve done it five times)—revenue retention is a major part of the conversation.

You could achieve this relatively modest increase in ARPA by tweaking your plan limits (known as feature fencing), introducing add-on features, services, or a host of other options.

In 2023, Shopify generated almost 3 times as much revenue9 from merchant services as they did from software subscriptions.

In the example we’ve worked on in this chapter, our assessment as business coaches would be to focus first on fixing retention, and then re-evaluate to make a decision on increasing sales vs. increasing customer value (based on how much we think we could move each needle and how much effort it would take).

You only have three levers: There are only three ways to grow your company—you can Get More Customers, Keep Customers Longer, and Make Customers More Valuable. That’s it.

Success begins after the sale: For a well-built SaaS company, most of the financial opportunity lies in RETENTION and EXPANSION after the sale. You can look to the industry titans as examples of this (Twilio and Shopify were our two examples, but there are tons). Building a large customer base and making them more valuable over time is the way to grow your enterprise value.

Sequencing = success: You can do the right things in the wrong order and still lose. When you’re deciding which part of the Hourglass to work on next, run three scenarios and see which one will drive the biggest ROI.

softwarebook.com/levers

“Marketing is a game of attention. You have to be able to play the game.”11 DAVE GERHARDT, CEO of Exit Five and former vice-president of marketing at Drift

There are two critical parts of your company’s growth engine: Your marketing channels (plural) Your marketing funnel (singular, usually)

Channels and funnels are the foundation of your entire marketing operation.

Marketing channels generate net-new attention. Marketing funnels convert (some of) that attention into leads and customers.

Marketing channels are where you invest time and money to generate attention in return.

A marketing funnel converts the attention into leads and customers. A well-designed funnel engages with prospects wherever they are in their buyer’s journey and helps nurture and educate them until they’re ready to become your customer.

You need both your channels and your funnel working together properly to win.

The four types of channels we mentioned are what we call “macro channels”—which we categorize as Earned Media, SEO, Paid Ads, and Cold Outbound.

The easiest way to think about earned media (or partnerships) is that you’re borrowing attention from someone who has already done the work to build an audience. All earned media strategies are built upon a single question: “Who are my customers already paying attention to?” From there, the goal of earned media/partnerships is simple: find a way to get your partners talking about you, featuring your platform, or giving you access to their audience. And this type of channel can be quite rewarding—it’s one of the most cost-effective and quick ways to start building authority in any market.

Modern earned media is all about capitalizing on other people’s content—which means that guesting on podcasts, speaking at industry events, collaborating on social media with influential people in your industry, guest-posting on industry blogs, getting featured in industry newsletters, and doing joint webinars with influential people and brands are all high up on the list.

When you’re on someone else’s channel, you’ve got to have something to give away. That’s where the lead magnet comes in.

A lead magnet is something you give away (PDF, workbook, template, etc.) in exchange for someone entering their email address (and sometimes phone number)—the key information you need in order to capture the attention you’re creating.

There are lots of ways that partnerships can work—product integrations, affiliate and/or reseller agreements, portfolio sales that include your products…and of course, co-marketing efforts like we’ve already talked about.

Your mission with earned media and partnerships is to borrow attention from someone else who’s already got it.

The 3 Fs of Borrowed Attention Looking to dive straight into an earned media/partnership channel? Use this quick framework to find out how to best create an earned media/partnership channel that maximizes borrowed attention: Fund: Who is your best-fit customer already buying products and services from? Follow: Who does your best-fit customer pay attention to? Think about authors, podcasters, blogs, websites, business coaches, influencers, publications, etc. Frequent: Where does your best-fit customer hang out? (Groups, events, masterminds, user conferences, etc.) Take out a piece of paper, fire up Google, and write out the three lists above. The result will be a database of all the places that your customers’ attention already goes—and from there, your job is to network, deliver value, and create the relationships with the owners of those places so you can get you into those platforms, serve those audiences, and borrow that attention.

To do

Whenever you’re writing on the internet, try to include target keywords that your customer would search for. It’s free.

A Note on Keywords As of the writing of this book, there are a lot of things changing in the SEO world. There are a ton of questions: How will the algorithms evolve due to AI-generated content? Will keywords become less important over time? How will keywords be utilized when AI is actually generating the search results? You get the idea. The timeless strategy in all this is that you should try to “own a few terms.” The tactics of how you do that are changing incredibly fast—but the correlation between the words that your customers use to describe their problems and the content you produce is here to stay. The noisier the internet becomes, the more important quality becomes. The way your customers behave when they’re on your page really matters. Are they staying long enough to read? Are they clicking into other articles you’ve written? We don’t know what the future may bring—but good fundamentals will always serve you well.

Don’t just write about your product. Write about the problem that your customer experiences before they know they need it.

Importante marketing

Create helpful content about the main problem and how to solve it—that doesn’t have anything to do with your software. Why? Because you’re not telling them that you’ve got the best product. You’re teaching them how to think about the problem—and that it needs to be solved in a certain way. And (of course) your product should be the best way to create that solution. “Your top-of-funnel content must be intellectually divorced from your product, but emotionally wed to it.”—Joe Chernov (CMO of Pendo).

Importante seo

If you’re a self-funded company, your goal should be to recover all costs associated with getting a new customer in three months or less.

CAC Payback Period—A Quick Primer CAC Payback Period: The amount of time (in months) that it takes to recoup the money you spent to acquire a customer. For example… You spend $2, 000 t o g e t a c u s t o m er . Y o u r a v er a g e d e a l i s$ 500 per month, and your business has an 80 percent gross margin, which means that you’re generating $400 p er m o n t hin g ross p ro f i tp erc u s t o m er . Y o u c an t h e n d i v i d e$ 2,000 by $400 which equals 5 (the number of months it takes you to earn back your cash). Your CAC Payback Period is 5 months. Your goal is to get your money back in 3 months or less.

Kpi cac

Note: Whenever you DO go down the path of paid advertising, make sure to approach it scientifically and be ready to do a lot of testing. When you run a test, change one variable at a time, measure the change, and keep stacking small wins until you’re able to maintain your CAC Payback Period under 90 days and scale up your ad spend.

Cold outreach is interrupting your perfect-fit customers—typically via email, direct messages on social media, a phone call, or even old-school direct mail. Otherwise known as outbound prospecting, you’re reaching out to leads who you’ve never talked to before. It might sound old-fashioned or obnoxious, but a cold outreach channel could be an incredibly valuable channel for the right types of companies.

Cold outreach is a viable option when your average deal size is at least $5,000 annually. This doesn’t mean you can’t do cold outreach in other cases; it just means that cold outreach might get prohibitively expensive and/or your CAC Payback Period might be super long.

Indicador outbound

But in our eyes, if your price point allows it, it’s certainly worth a shot—because you get to learn fast, iterate fast, and take control of the number of deals you’re generating. If you can get to a point where cold outbound is giving you repeatable success, it’s actually one of the simpler channels to scale up, because it’s just a function of adding people to follow the process and work the lists. Just like paid ads, there’s high risk because of the capital outlay you generally need to make up-front, but high rewards in that it can scale pretty quickly if you can get good unit economics.

Chris at Trainual. David at DealMachine. Marcel at Parakeeto. Matt at Review Wave. They’ve all got one thing in common: they used one channel, got it cranking, used it to generate millions in revenue, and only then did they branch out and add more.

Un canal a la vez

But for some reason, most entrepreneurs don’t like acting like lasers. We tend to get impatient (or even bored)—and end up with a little bit of SEO, a little bit of earned media, a few ads on Meta, a couple on LinkedIn, some cold outreach emails… and all that firepower becomes diluted.

You have four “macro channels” to choose from: Earned Media, SEO, Paid Ads, or Cold Outreach.

To determine which of the four macro channels to start with, we built a simple worksheet (which you can grab at softwarebook.com/channels).

Process: Do I have a process for this channel that’s documented, executable, and consistently producing results? People: Do I have people dedicated to executing this process without my direct involvement? Scorecard: Do I have a measurable scorecard for this channel that allows me to measure its inputs (activities) and its outputs (results)? Testing: Do I have a testing cadence in place to continually test new strategies to improve or maintain the results of this channel over time? CAC Payback Period: Am I recovering my Customer Acquisition Cost in under 90 days?

We don’t like to put a time limit on this strategy. We want you to focus on one column—which represents one channel—until it’s all the way green. Once you get it green (whether that takes a day or a year), you can go on to the next one.

You’ll grow faster by prioritizing speed of execution over perfection.

You can absolutely scale a company to over $1 million in ARR built on the “wrong” marketing channel—as long as it’s optimized. So…optimize it.

Some More Details on CAC As we mentioned earlier, CAC stands for Customer Acquisition Cost—the amount of money your company is spending to get a single customer. If you’re not sure how to calculate your CAC, here’s a simple formula: CAC = (Marketing Spend + Sales Spend) / # Of New Customers During That Spending Period Let’s say you spent $5, 000 o n s a l es an d ma r k e t in g inam o n t han d a c q u i re d 5 c u s t o m ers in t h es am e m o n t h . Y o u r C A Cw o u l d b e$ 1,000. Ideally, your CAC Payback Period is under 90 days. To calculate CAC Payback Period, you’ll need to know two other numbers: Gross Margin: The amount of money that is left over after you remove your Cost of Goods Sold from your Revenue (as a percentage). Average Revenue Per Account (ARPA): The average monthly revenue for each of the new accounts that were sold. Now that we have those, here’s the formula for calculating CAC Payback Period (in months): CAC Payback Period= CAC / (ARPA * Gross Margin) So, for example, let’s say your CAC was $1, 000, yo u r G ross M a r g ini s 80 p erce n t, an d yo u r A RP A i s$ 300. CAC Payback Period = $1, 000/ ($ 300 * 80%) CAC Payback Period= $1, 000/$ 240 CAC Payback Period = 4.16 months

Cac formula

Every channel you stack will increase your growth faster than the last.

Every new channel will take less effort to mature than the prior one.

Different channels and different messages resonate with different prospects—it’s just human nature. By ruthlessly focusing on one channel at a time and then stacking them on top of each other, you can build a marketing engine that never underperforms and that is incredibly resistant to external influence (like AI hurting cold outreach, or Facebook changing their algorithm). And that’s a fun game to play.

One channel at a time: Trainual’s success story illustrates the power of focusing intensely on a single marketing channel. Rather than spread yourself thin across many different channels, you’ll get better results by focusing on one channel at a time.

Understand channels vs funnels: A company’s growth engine consists of two components: marketing channels (where you generate attention) and marketing funnels (where you convert that attention into leads and customers). Both need to work in tandem to drive growth effectively.

Pick one macro channel: There are four main types of marketing channels: Earned Media and Partnerships, Search Engine Optimization (SEO), Paid Ads, and Cold Outreach. Each channel has advantages and disadvantages, but all of them can produce repeatable and scalable results. Pick one to start with.

Mature each channel before moving on: Make sure a channel will continue to produce results, without your involvement, before moving on to the next one. You can build maturity starting with process, people, scorecard, testing, and finally, by getting your CAC Payback Period to under 90 days. Get at least the first four of those items “green” before moving on to the next channel.

Stack channels over time: Once a channel is fully optimized, stack additional channels to build a truly durable marketing engine. Each new channel should build on the success of the previous ones to create scalable growth that compounds over time.

“The best way to sell something: don’t sell anything. Earn the awareness, respect, and trust of those who might buy.” RAND FISHKIN, co-founder and CEO of SparkToro and former founder and CEO of Moz

“We started creating mid-funnel blog posts, which resulted in a 51 percent lower cost of conversion.”

A great funnel is like alchemy—it turns attention into customers, over and over again.

The well-designed marketing funnel is more than a “buy now” button; it’s a multi-stage process that’s designed to engage with your future customers at every step of the buyer’s journey. It doesn’t matter where in the journey they are when they first discover you…when this is done well, they’ll always have a way to engage with your brand.

Funnel

The attention from your marketing channels will attract people who are at all 4 stages of this funnel.

The vast majority of the attention you generate will come from people in the Awareness and Consideration stages of their buyer’s journey.

The amount of people in a market who are “ready to buy right now” is usually under 10%.

By meeting a customer where they’re at and entering the narrative early, it accelerates them towards your solution—and keeps them engaged along the way.

Think about it: how many times have you been watching a YouTube video, reading a blog, or listening to a podcast and learned about a problem that you didn’t even know you had? That’s top-of-funnel content at work. By design, that thought leader already has your attention (from their content). Maybe you’re a casual part of their audience and had no intention of buying anything from them at any point in the future. That’s cool—but now, they’ve made you aware of a problem—and when you think of that problem, you’re also thinking about them. They’ve made you problem aware.

“The money is in the list.”—Jeff Walker (New York Times bestselling author and founder of Product Launch Formula) “If you’re not building a list, you’re making a HUGE mistake.”—Derek Halpern (co-founder of Truvani) “It’s not how many people are on your list, but what you do with them.”—Joel Gascoigne (CEO of Buffer)

Your funnel’s job is to help your prospects realize they have a problem that your product can solve—and to be there for them when they’re ready for the solution.

Funnel proposito

The key to nailing the Awareness stage of the funnel lies in high-value, free content.

If you can describe your customers’ problems better than they can…you win.

Example of Hot-Button Issues In Matt’s first company, his perfect-fit customer was a small, independent gym owner. The hot-button issues that these gym owners had were: Not having enough members in the gym Not having time to market the gym to find new members Not knowing how to keep members engaged and activated Not having time to learn new software tools and marketing strategies Not making enough money to earn a sustainable living Based on these issues, most of his content was based around client acquisition strategies, social media marketing (even though they didn’t offer that as a service), and client retention.

The best content in the Awareness stage will get your customer to think, OK—I need to solve this—but what should I do next? And just like that, you’ll move them into the next stage of the funnel.

For each funnel stage, we’re going to give you a secret weapon called an accelerant. It’s one specific tactic that you should employ to help move people down to the next stage of the funnel faster.

For getting people from Awareness to Consideration, retargeting ads are your best friend.

Retargeting ads work by placing a “pixel” from an ad platform (Meta, Google, etc.) on your content—which essentially “tags” users who visit that content, adds them to an advertising audience, and allows you to place ads in front of them on social media or in their search results. Retargeting ads will keep your company top of mind, lead the prospects back to your content and resources, and are incredibly efficient to run from a financial standpoint because you’re only serving them to people who have already interacted with you.

Retargeting campaigns can often be run for a few dollars per day and still be effective.

In SaaS, roughly 97 percent of your initial website traffic is going to leave and never come back on their own. Retargeting ads are the best way to take that 97 percent of traffic and turn it back into trials and demos.

At the Consideration stage, your prospects are starting to develop a mental model for how to think about the problem—and in turn, how to think about the solution. If you’re smart, you’re going to want to be the person who builds the model.

Your job is not to convince these prospects to buy. Your job is to teach them how to think.

A lead magnet is a gated piece of content—something that’s more valuable, actionable, and useful than your free content—that a prospect would be willing to enter their email address (and sometimes their phone number) in order to receive it for free.

Lead magnet

lead magnets should be S.A.G.E.—Short, Actionable, Goal-oriented, and Easy to implement.

world-class lead magnet not only teaches your customer how to think about their problem…it teaches them to think about it in such a way that it positions your platform as the only viable solution.

When someone consumes your content and leaves, serve them a retargeting ad with a lead magnet—like clockwork.

Don’t deliver your lead magnet directly in the browser after an opt-in. The prospect should put their email address in, and you should then email them a link to the lead magnet.

A subset of people who download the lead magnet are ready for a sales conversation right now, and your thank you page should give them an opportunity to schedule one directly.

But delivering the lead magnet itself is just the tip of the iceberg. This delivery email should kick off a sequence of outreach where you can continue to offer additional help—in context of what they downloaded.

Once someone downloads a lead magnet, you should view it as the beginning of a conversation.

And if you run the conversation from a place of service (instead of from a place of selling), you’ll build additional goodwill with your prospects—and get a whole bunch of them to keep moving down the funnel without pissing them off.

The Decision stage is where your potential customer starts to get serious about buying something. They’re comparing the available solutions, looking at features, looking at pricing, and determining which platform makes the most sense for them.

When a prospect reads your website, they’re deciding whether or not what you’ve built is “for them.”

And the most common mistake that we see founders make? Having weak positioning on the website, specifically around who you serve and how you serve them. When a buyer is ready to make a decision, they’re trying to confirm that your software is “for them”—, and your website should clearly and explicitly explain whether or not that’s true. Don’t leave it up to your prospects…you’ve got to control the narrative. Other key elements include super-dialed product and feature pages, some solid case studies that map back to your ideal customer profile, and of course a one-click path to your free trial or demo booking page.

As a founder, you are a salesperson. You sell a product. You sell a vision. You sell a place to work. You sell a point of view in the market. Every single one of us is “in sales.”

Let’s make sure we’re all on the same page here. We’ve walked through four key funnel stages: Awareness Consideration Decision Conversion And for each stage, there’s a key tactic that’s been identified: Awareness: Content Consideration: Lead Magnets Decision: Marketing Website Conversion: Trial or Demo Process

Awareness → Consideration: Retargeting Ads Consideration → Decision: Email and Phone Nurture Decision → Conversion: All of The Above

All things being equal—you should start fixing your funnel at the bottom and work your way up.

Meet them where they’re at: In most markets, less than 10 percent of people are actively looking to purchase a solution at any given moment in time. The other 90 percent are either in the Consideration or Awareness stage of the buyer’s journey. To maximize your ROI, you must have content in your funnel that engages the 90 percent and helps guide them to a solution.

Teach them about their problems: Awareness-level content is free and ungated content designed to educate your market about the problems they face in their business. This content should focus on the five hot-button issues that are keeping your ideal customer awake at night.

Teach them how to think: Once your customer is “problem aware,” Consideration-level content should promise them a first step towards a solution. Whether it’s a template, model, training video, or guide, the best lead magnets teach your customer how to think about solving the problem in a way that positions your product as the best solution. Remember to ask for an email or phone number in exchange for a lead magnet.

Teach them who you are: The final step in the buyer’s journey is the Decision phase. At this point, they’re actively looking to solve their problem—and your job is to help them make a decision. This is where a strong website with clear positioning is critically important.

Remind them what to do next: Use retargeting ads to get back in front of your website traffic and leads, even if they’re not on your website—and point them to the next step in the buyer’s journey. Use email marketing and phone calls to offer more help to leads that download your lead magnets in order to move them towards a decision.

“Salespeople who are intelligent and helpful, rather than aggressive and high-pressure, are most successful with today’s empowered buyers.”14 MARK ROBERGE, author of The Sales Acceleration Formula

Sales is about understanding the mindset of your buyer.

“I was always value stacking, value stacking, value stacking.” said Alex. In other words, he was showing every prospect…every feature…every time. And that was the problem. Alex knew every single dark corner of restoration and had built a platform to solve everything. But restorers weren’t getting on sales calls to find out how powerful Alex’s software is. They were getting on the call to fix a specific pain point about their business.

Which three features? Glad you asked—because this is where the beauty lies. He lets the customer decide. At the beginning of the call, he spends time figuring out exactly what their pain points are, and then shows them exactly how Albiware can solve them. And then he stops showing them features and closes the deal instead.

Alex’s close rate nearly tripled –from 15% to almost 40%. By doing less.

Customers don’t care about your product. They care about their pain.

Nothing matters if you can’t make a sale. Period.

Nobody cares about what you’ve built. They just care about getting their problem solved.

“A great sales pitch isn’t just about the product; it’s about the customer’s problem and how you uniquely solve it.”

This is how you should interact with your customers on sales calls. They should feel like you’ve been there before. They should have confidence that you know how to solve the problem. And you should prove it—fast.

“Successful people ask a lot more questions during sales calls than do their less successful colleagues.”

you’re learning about your prospect’s pain points, doubling down, and pushing on them until they’re unignorable—at which point you can show them how your software is the only thing that can solve the tension. The quality of your questions demonstrates your expertise in your market.

we spend a lot of time on the promise (and not nearly enough on the pain). Why? Because it’s comfortable. It’s not emotionally challenging to talk about how cool your software is. But it’s wildly uncomfortable to ask probing questions about something that’s already unpleasant for your prospect.

Every sale happens in the space between the pain and the promise.

And if you stretch the gap wide enough, your prospect will be selling you—because the thought of not using your software will feel crazy.

In sales, as in medicine…if you prescribe without diagnosing, it’s malpractice.

When you show up and word-vomit about your features for an hour and a half, it feels good to you—and feels horrible to your prospect.

When you’re talking about the prospect and their business, it’s creating energy. When you’re talking about you and your software, it’s consuming energy.

Professionals have a process for selling. If you don’t have one, your prospect will show you their process for not buying.

Your sales process starts when the call is booked—not when the call takes place.

Before the call, your job is to learn as much as you can about the person you’re talking to, what their business actually does, the reason(s) they reached out for the demo, and how you might be able to help them.

Researching them on LinkedIn Cruising their personal social profiles Reading their company website, blog, and reviews

RESEARCH: James McAllister Founder / CEO of Centsical, in business 8 years Lives in Boise, Idaho—married w/ kids 42 team members, raised $14 million Series A two years ago Pain Points: Global workforce compliance issues / payroll tax in multiple countries. Wants to reduce HR spend and consolidate tech stack. Worried about legal liability.

Your prospects don’t want to talk about sports. They want to know that you did the work.

The first person who needs to be sold is the person doing the selling.

Appreciate: Let them know you value their time, and lead with information about them and their company (instead of asking them for it)

Check: Confirm the information you have about the pain points and reason for the call—confirm what you’ve learned but make no assumptions. Ask them explicitly if it’s accurate and if there’s anything they want to add.

End Goal: Reinforce that the goal of the call is for you to learn about their business, assess whether or not you can help them, and if it’s a fit, to discuss how to move forward.

Your opener should make the prospect feel like this is the only call that you have today—and that you’ve spent the whole morning preparing for it.

You’re selling from your heels, stretching the gap, and positioning from a place of service—which means you’re halfway to victory before you’ve opened a single browser tab.

My goal here is to walk through how our product can help you solve the problems we just talked about. By the end of the call today, we’ll get you in a position where you can make a decision to move forward.

You need to seed decision that you want the prospect to make.

Repeat after me: “I only need to show my three best features in order to close a deal.”

Pick the first pain point from the list and show the prospect the one key feature in your platform that solves it. That’s the “feature” part. Once you’ve done that for the first feature, transition right into the “ask,” which is made up of three key questions: Does what I just showed you solve the problem you have? What do you think the impact on your business would be if you implemented this? Is this something that you can see you and your team using?

Importante cierre venta . Preguntas

Ask these questions with a sense of purpose and curiosity—and be quiet in between each one to let the prospect actually respond. Silence is the most powerful tool a salesperson has—and a good question is what makes the space for silence.

You want to zoom-in on your customers’ pain points, showing them what the world looks like after you make that pain go away.

Ask the prospect to move forward. Out loud. On the call.

The Virtual Close is a dry run of what the buying process will look like. It’s simple—just ask the person on your demo to walk you through how they think the purchase would work. Common questions for a virtual close include: Who would be the other people involved in making this decision? What do you think is important to them? How did the process work when you purchased software similar to ours in the past?

Hanging up a sales call without the next call booked is a cardinal sin.

Aaron Ross said in Predictable Revenue: “There is ALWAYS a way to move forward, even without money.”

Being great at sales has everything to do with understanding what drives human beings to action. It has to do with acknowledging that everyone has their own self interests at heart, and they will run to you if you can truly solve their problems and help them achieve their own goals.

But here’s the truth about scaling a SaaS company: Once you’ve got customers rolling in, you’re at the starting line—not the finish line.

Stretch the gap: Your job isn’t just to ask about your customers’ pain. You need to dig the hole even deeper—so you can then show them the way out. The sale is made in the space between the pain and the promise. Never forget that.

Give demos not tours: No more ninety-minute-long feature-fest demos where you don’t let the prospect get a word in. You’re there to solve problems and get the deal done—so stick to the plan.

Run the Feature-Ask Flow: After every feature you show a prospect, ask these three questions to “lock in the solution” and to proactively surface objections: Does what I just showed you solve the problem you have? What do you think the impact on your business would be if you implemented this? Is this something that you can see you and your team using?

Ask for The Close: Don’t shy away from making the ask at the most important moment! Your job is to help your prospect make a decision, and you’re doing them a disservice if you fail to do that simply because it’s uncomfortable for you.

Have a repeatable process: Do your research the same way every time. Preload tabs with commonly used features. Complete the worksheet for every call. Record and review your calls. Figure out what’s working and what’s not. Professionals have a process that they run every time—and with this chapter, you’ve now got the foundations of a process, too.

“If our customers aren’t successful, neither are we.”17 DAVID NEVOGT, co-founder of Hubstaff

Until a customer has visited 3 times, they’re unlikely to return—even if the experience is amazing.

Your mission is to drive each new user to the “aha moment”—where they use that key feature, see it fix their pain point, and get excited to do more.

Jon figured out this moment for restaurants—it was the third meal. After the third time a guest sat down, after their last bite of free cheesecake, they were considered “fully activated.”

Do you know your “activation moment” with this same level of clarity?

If you don’t do this well, things will get bad…fast. A customer will come in, get confused, and churn within a month or two.

If you’re seeing behaviors that confuse you, your next move should be to talk to your customers—NOT to try and explain it on your own.

This happens all the time—we end up focusing so much on the mechanics of the product that we don’t focus on what the user actually needs, in that moment, in order to get the value we promised them.

User activation can be boiled down to a single moment in time. Find it and get your users there as quickly as possible.

“without a single killer core use case, product/market fit is just a dream diluted by features.”

And when you obsess over your user activation, and make sure that your shiny new customers are all hitting that First Value moment quickly and consistently, you’ll be well on your way to conquering churn—forever.

Strangely enough, for a group of data-driven tech entrepreneurs, we’re incredibly good at ignoring similar signs in our own businesses. We’ve created a software that we believe is somehow the world’s next wonder drug, and we just keep selling it to the public. We’ll ignore massive issues—in this case, churn—and just try to sell more of our wonder drug. All the while, our customers will grow resistant to our incredible platform, and we’ll just keep selling more and more, hoping the downstream problems will go away.

More sales will not solve your activation problem…more sales will make it worse.

Customer success

Don’t build a growth strategy based on feelings. Build one based on math.

Trying to outpace a solvable churn problem with new sales means you’re literally spending more money to let people down.

Ever said any of these? “I have no idea why our users aren’t smart enough to figure this out.” “If they’d just read the docs, they’d know exactly how to use it.” “There’s no way these people can’t figure out how to get set up—it’s so obvious.” There’s a reason for this: Johnny calls it the “Expert’s Dilemma.” The Expert’s Dilemma occurs when you’ve spent so much time solving a problem that you forget how to explain it to a beginner.

Onboarding is the same. You’ve looked at your software and thought about solving a specific problem for years, so it’s easy to forget that it’s your customer’s “first time out on the road.” And whether you realize it or not, you’ve signed up to be their guide.

No matter how simple you think your platform is, assume it’s ten times more complicated, and that no one, ever, will read any docs you send.

“The fact that the people who built the site didn’t care enough to make things obvious—and easy—can erode our confidence in the [software] and the organization behind it.”

It’s not your users’ job to “figure it out”—it’s your job to give them the GPS and make sure they don’t get lost.

Your activation flow should be the minimum effective dose of configuration required to get the user to First Value.

The first time your new customer logs in, they need a few, super simple next steps—and they should only be the steps that are specifically required to get them to First Value (and hooked on your product).

Create a new habit: Make it obvious. Make it attractive. Make it easy. Make it satisfying.

Break a habit: Make it invisible. Make it unattractive. Make it difficult. Make it unsatisfying.

The right guardrails to keep someone on the path to First Value are usually made up of four tools: A well-designed onboarding flow that points them towards the First Value moment In-app prompts to make sure they know what to do next Trigger-based emails to pull them back into the platform if they get stuck Customer support that’s readily available if they can’t figure out how to move forward

Populating sample data is a great way to avoid the Dashboard Dump.

People had been told their entire lives that they weren’t creative, that they didn’t have a design bone in their body. And all of a sudden, they were put with this tool, and they were scared to actually use it. And so, we had to spend a lot of time refining that user experience when people first jumped into the product, to ensure that when people came in, within a couple of minutes, they were having fun, they felt playful, they felt that they could actually do this.

The first thing to understand is that Elevar is a very technical product. We’re sending data from point A to point B, which means that we need to get things integrated, get conversion tracking set up…there’s a lot to do there. And we work with a lot of platforms.

Brad and his team did the next right thing—they talked to all the customers who had failed to activate to figure out what the issue was. And the biggest thing they heard was that there were too many options and that they weren’t sure what to do next.

If a user can log in for the first time and “do anything they want” … you’re missing the opportunity to truly guide them.

He fixed this in two ways. The first was to move the customer support up in the onboarding flow. They started doing 1:1 onboarding for their customers, and eventually started charging for it

When a new customer activated, they had them indicate which platform was most important for them to integrate. And then they built the onboarding so that it focused only on that one platform until it was “plugged in.” The customer started to get conversation data out of Elevar—which is the whole point of the software in the first place.

We now keep our email activation flows very specific, triggering the customer to go from point A to point B, with emails and in-app prompts, or other triggers. And we’re hitting them with very specific cues. And we just try to bust our asses as hard as we can to just get that customer onboarded and fully activated as quickly as possible.

Notice the sequencing here. They started by talking to churned customers to figure out what went wrong—and they worked backwards from those data points until they’d fixed the problem in the software.

We get so wrapped up in the beauty of our platform that we forget what really matters: fixing the customer’s pain.

The concept here is easy: find the one action that every one of your successful customers takes. The one achievement that gets them excited. The one experience that shows them a clear ROI on the platform they just purchased, and that makes them want to continue using it forever.

Make that path super simple, clearly laying out each step. Once they reach one checkpoint, make it obvious where the next one is. It’s much easier to keep going when you can see where you need to go next.

For most SaaS products, there can only be 3 steps between a customer and their First Value moment.

As you probably guessed, this is the critical first step—we’ve got to figure out the “one thing”—the one moment that every new user needs to experience in order to see the value in your SaaS platform. Sometimes it’s obvious—but oftentimes, it’s not (or we have limiting beliefs about how “every user is different”). The thing your users want might be different than what you think they want. And to figure it out…you need to ask them.

Your users made a purchase to solve a problem—and you need to figure out how they expect it to work.

How would you describe our product in your own words? What’s the problem that solves for you? What was the exact moment when you realized that would solve the problem? What were the steps that you had to take to get ? If could only do one thing for you, what would be most important?

Truly listen to them and figure out the “one thing” that they want.

Audit Your Click Stream If you’ve got a SaaS platform with users, you need to have analytics software installed. It’s one line of JavaScript and a little bit of cash in exchange for all the intel you ever wanted. Ideally, you’ll choose a solution that tracks the click stream (what people clicked on, and in what order). It should also capture session recordings (screen recordings of users navigating your platform). We can almost guarantee that your customers aren’t using your solution the way you thought they would. Watching session recordings is one of the most illuminating things you can do to understand your software through the eyes of your customers.

Establishing these stepping stones can require additional work in your product, your onboarding process, and your customer success process too. But it all starts with figuring out how things should work and building backwards from there.

By watching session recordings, reviewing click streams, and talking to both happy customers as well as customers who fail to activate, you’ll be able to identify the friction points in each of your stepping stones.

They need some signposts—some clear guidance, inside of your software platform, to point them directly to the next action they need to take. They need clear, direct signals: “Do this. Now, do that.” The best products in the world have a step-by-step onboarding wizard that shows them exactly how to complete each of their stepping stone actions—and you should build towards having the same thing.

Tooltips and help text can be a band-aid, but they won’t fix a bad onboarding flow.

Your product should guide them through the flow from start to finish—and the experience should be awesome.

Importante

Your goal should be to eliminate as many inputs as possible, and replace them with one of three things: Automations Integrations Facilitated Experiences (via your success team)

The more complicated your onboarding is, the more likely they have to leave your platform to do it.

Instead of just sending your users emails based on time (i.e., X days after signup), figure out how far along the activation flow they should be—and then change the email based on whether or not they’re on track or off track. If they should have knocked out two of their stepping stones by day 7, and they haven’t done it yet, you should be sending them a customized email to help get them unblocked (and ideally having a CS person reach out as well).

Your new users will fall off the path—it’s your job to have a plan to get them back on track.

Properly configured text outreach campaigns have roughly triple the deliverability of their email counterparts—so if you’re having trouble keeping your customers focused on activation, you’re missing a huge opportunity by not doing this.

By taking the stepping stone approach to user activation, you can make sure that the vast majority of your users get to their First Value moment as quickly and reliably as possible—which is one of the most high-leverage improvements you can make to reduce churn, retain customers longer, and build an incredible reputation for your business.

Pro Tip: When Brad started working on this, his first move was to offer 1:1 implementation while he figured out how to improve the product. Turns out, the implementation was so effective that he kept it—and now charges for it—as part of his onboarding workflow. For a few hundred bucks, Brad’s team provides the white-glove service that many of his customers want. They’re basically paying to be activated more quickly.

Know your First Value moment: Get to know the habits and experiences of your best customers and distill it down to the exact moment when they’ll consistently say, “Oh, I get it now!”—and focus everything in your onboarding flow towards getting your new users to experience that moment as fast as possible.

Install instrumentation: You’re running a technology business—use it to your advantage. Get some software in place to track click streams and store session recordings so you can stop guessing how people use your software and actually learn it based on facts—which will help you build an activation process that’s tighter than it’s ever been before.

Nail the stepping stones: Identify the three steps (max) that every new user needs to take in order to get to the First Value moment. You should know the order that they need to happen in, how long each one should take, and the biggest friction points that stand in the way—which should be high on your product roadmap to improve.

Keep them on track: Install the guardrails that are required to keep users on the path—dedicated onboarding flows, help text, event-driven emails, proactive text outreach…whatever it takes to pull them in and get them to the activation finish line. Measure activation weekly: Like Brad did, you should be measuring activation every week as a company. How many new users should have completed activation last week vs. how many did? Don’t over-engineer it—but if you want to improve it, the first thing you need to do is pay attention to it.

“If your churn isn’t in the single digits, it’s absolutely the only thing you should be fixing right now.”19 JOSH PIGFORD, founder and CEO of Maybe and founder of Baremetrics

To truly get a handle on retention, your customer success efforts need to be proactive.

success starts after the sale is made.

To think through what it means to be proactive with your retention strategy, we can boil it down to a couple of key questions: What if you could determine who was at risk of leaving before they even thought about it? What if you could proactively reach out to the customers who need more attention to keep them fully engaged?

You can create one metric to figure out exactly how happy your customers are.

HubSpot is essentially reading their customers’ minds by watching how they’re interacting with the software. They can be truly proactive—solving problems before the customer even knows they exist.

Building a SaaS company that consistently retains and expands customer accounts means developing a C.H.I.-style metric. One number that’s so insightful that you know a customer is frustrated even before they do. When you do this right, you’ll be able to consistently and accurately monitor how your customers feel…and you can do it at scale.

Monthly recurring revenue is only useful if it keeps recurring.

Churn comes from customers that are on the bottom 2 floors.

To bring people up to the next level, you’ve got to do three things: Research: Understand what behaviors represent healthy customers Lift: Lead your customers to take more of those actions Monitor: Regularly track your customer base to ensure that the actions are maintained

You’re not going to nail your Customer Happiness Index the first time out.

Here’s a closer look at the model, using HubSpot as an example: Research: HubSpot found the key actions that equate to a happy customer and boiled it down to a single numerical score between 0 and 100 (C.H.I.). They refine it over time, returning to this Research step a few times per year. Lift: The team at HubSpot proactively engages customers in ways that make them “happy”—meaning they work to elevate the C.H.I. (because they know the actions that drive it). Monitor: Everyone at HubSpot knows the C.H.I. of the customer base—and because it’s tied to customer satisfaction, they can all rally behind why it’s important—and do whatever it takes to increase it.

A SWAG is a Scientific Wild-Ass Guess, and it’s usually more accurate than you think.

On an average night, Meeks said the White House would order about fifty pizzas. The night before the Clinton-Lewinsky scandal broke? They ordered over 900. In the three days leading up to Clinton’s impeachment, Capitol Hill ordered almost ten times their usual amount. And on March 23, 1999, the night before the U.S. bombed Yugoslavia, the Pentagon set its record—800 pizzas.

Don’t spend a ton of time developing something complicated. Keep it simple. Do less. And do it fast.

Look at how your top customers use the platform. Figure out which features your best people use, how often they use them, and how often they log in. Then, look at your worst customers. The ones you know in your heart are about to churn (even if you can’t prove it yet). Look at their stats for the same data points…because there will be a big difference between the two if you’ve picked the right metric.

Keep digging—because success leaves clues. It’s your job to find them.

A world-class C.H.I. in a more mature operation consists of both activity data (how often people are logging in and using the software) and feature usage data (how often they’re achieving key outcomes from the software itself). You’ll also see companies adding additional dimensions, such as the last NPS score, and even subjective ratings from account managers based on 1:1 interactions.

When a customer has a problem, it’s the perfect opportunity to dazzle them.

If there’s an issue, or something’s broken, or the customer just can’t figure out how to do the thing they’re trying to do—it’s the exact moment where you can swoop in to create a memorable experience. Whether they’ll admit it or not, your customers understand that hiccups happen. They end up with trouble logging in, or an email that was unclear, or an integration that bugs out. And when these things happen, Adii seizes the moment and uses them to build positive, lasting memories.

The smallest gesture can mean the world in the middle of a dilemma.

Importante

Your entire customer base should be classified as purple, green, yellow, or red. And your job is to move yellows up to greens, and reds up to yellows21.

When you first start reaching out to truly unengaged customers, you might get some negative responses. If you make phone calls to a few dozen “red” accounts, you’re almost guaranteed to have a couple that say something like, “Glad you called—I’ve been meaning to cancel. Can you handle that for me?” Sigh. It’s not what you wanted. It’ll feel like a bummer. But there’s some good news: You are creating the chance to learn firsthand why customers are leaving.

When we combine a C.H.I. with 1:1 customer conversations, you’ll build an incredible engine for capturing insights—which

A small improvement in churn has a huge impact on your Growth Ceiling—prioritize accordingly.

you don’t just need a bunch of customers; you need a bunch of Advocates (a.k.a. purple customers), because they’re the ones that drive referrals, social proof, and more. But you also need a system designed specifically to turn All Stars into Advocates in the first place—which is the only way to generate social proof and referrals at scale.

Find your C.H.I.: Build a single Customer Health Index score, just like HubSpot did, that will let you predict how likely your customers are to churn.

Less is more: Start out simple—even if it’s just measuring login activity. It can evolve over time to include other important information such as key feature usage and customer satisfaction data—but don’t overbuild it out of the gate.

Segment your customers: Use your C.H.I. score to segment your customers into categories—purples, greens, yellows, and reds—and build a dashboard that displays them in a clear and simple way.

Drive daily actions: Use your dashboard to drive daily actions—proactive customer outreach, offering help sessions, and sending re-engagement campaigns to customers who may have dropped off.

Use the Customer Engagement Elevator™: Work with a single goal in mind—to bring your reds up to yellow, and your yellows up to green. This simple model of progressively improving customer satisfaction will get you incredibly far. Remember…simple solutions will scale.

“Word of mouth is the currency of our generation.” GARY VAYNERCHUK, chairman and CEO of VaynerMedia and VaynerX (and about fifteen other businesses)

Their growth strategy hinged on amplifying the ways that their users were already talking about their product with their peers.

Specifically, it included tactics like: Creating user communities on platforms like Reddit Launching template galleries for people to share and sell their Notion creations with others Creating an ambassador program to create massive amounts of user-generated content Incentivizing users to create tutorials and other assets to evangelize their product

Social proof is one of the most important factors in the buyer’s journey.

It all comes down to trust. You’ve got to remember, your customers are essentially hiring your software to do a job for them. And the question they’re looking to answer is a simple one: Will your company live up to the promises you’re making in the sales process? Will you be able to get the job done?

There is literally nothing you can say or do that will mean more than an organic recommendation from another user.

every single area of your business becomes more efficient when your customers start referring other customers. It puts your whole funnel on steroids, and your growth becomes a self-fulfilling prophecy.

Even a tiny positive moment can trigger a wave of goodwill. Or, in other words: The best time to ask someone for help is right after they win.

Importante referidos

Imagine Shopify asking for a review as soon as someone makes their first dollar online. Or Mailchimp asking for a referral once a customer reaches 1,000 email subscribers on their list. If you can identify a milestone in the customer journey that correlates to a customer winning, you also have an opportunity to ask the customer to share that win with the world.

This is the Win/Ask method—the customer wins, and you ask. And as the wins get bigger, you can ask them to go deeper in what they share—building a systematic process for generating social proof, word-of-mouth marketing, and direct referrals.

Once they hit the milestone, you engage with them and celebrate—by telling the world about their success.

When someone experiences their first big win on your platform, hit them with a simple ask to leave you a review or to write a short testimonial.

Proceso referencias

This first stage is about generating a high volume of social proof.

coaching program that was designed entirely to help his ideal customers grow their businesses.

Here’s how it worked: Jonathan and his team launched a contest to all his customers and promised a $10,000 trip to Italy for them and their families as the top prize. All they had to do in order to enter was shoot an eight- to twelve-minute video documenting their personal transformations (that happened as a result of their relationship with Service Autopilot).

At their annual customer conference, they played the top 3 videos—and the crowd voted for a winner.

It was a built-in sales tool. We took these videos and made them part of our marketing, part of our sales process, and part of our onboarding—and they did a great job showing the market that our software was a better option than anything else out there.

Our big goal here is to make the customer the hero of the story and put them at the center of a case study, video, podcast episode, webinar, or any other medium that lets them share their win with the world.

When customers win big, get them to share their story. Your product might just happen to be an important character in that story.

Importante marketing

Situation: Describe the scene at the beginning of the story. Specifics help here—dates, revenue levels, names, and emotions will all help paint a great starting point. Struggle: Every great story is built on the pain of a struggle against a worthy adversary. Make sure that your customer pushes hard on this—they should go deep into the pain that they were experiencing before they had their “win” with your software. Solution: Coach your customer to always include the answer that helped them solve the pain. As we like to say, every “win” should come with a “how” alongside it.

Making a top-level ask requires a lot of trust.

So, with that in mind, the most important decision you’ll make is when to make the ask. And the answer is pretty simple: right after they say something nice about you.

The act of asking for a referral is simple—it’s everything leading up to the ask that’s harder to pull off. At Stage 3 of the Customer Value Chain™, think of everything that’s already happened: You’ve talked to the customer via your marketing channels and your funnel You’ve had a sales conversation, asked for the deal, and gotten it You’ve onboarded the customer, ensuring that they’ve reached First Value quickly You’ve measured their success with the platform, and have a good sense that they’re happy and receiving value You’ve seen at least three significant “wins” or ROI moments since they’ve been your customer, and you’ve likely already asked for some sort of social proof or case study material.

Proceso cliente

For every major milestone, you should systematize or automate the “ask” that comes next.

Capturing the wins is the foundation of this whole system—nothing can really happen without it. It’s so easy to not celebrate wins without a system, simply because your happiest customers are usually not the ones who are sending in support tickets and asking tons of questions. A great way to solve this is by incentivizing your customer success team around social-proof-creation. For instance, Johnny’s team at Silvertrac was expected to generate twelve reviews and one case study every quarter. It was simply part of their role, and they made it happen.

Automatizar celebraciones

Marcel says it like this: “Your product is Yoda, and your customers are Luke Skywalker.” Sometimes, your customers don’t even realize they’re making progress—and you have to tell them. Send them a message when they crush that sales goal, or capture those first hundred leads—whatever the mission of your software is, you’ve got to remind your customers when they achieve it.

Yoda, you must be. To help them celebrate, your job is.

Building A Machine to Extract Customer Value There are a few key ingredients to building a machine that captures wins which you can turn into social proof, case studies, and referrals: Seed the Request: It’s a great practice to tell your clients up front (during sales or onboarding) that you’re going to ask for a case study or referral after you’ve delivered the results that you’ve promised. Measure Client Wins: Define the signals that show you when customers are winning so you can build systems and automation around those milestones. Automate the Ask: Architect the “next step” after every category of wins and automate some sort of handoff or notification so that your team knows exactly what to expect. Focus on Distribution: Especially at the first two stages of the Customer Value Chain™, the strategy will be most effective if the customer sees themselves getting promoted in your marketing and in front of other customers. Close the loop with the customer and show them where to find their social proof in the wild. Do It on Repeat: Just like delivering value to your customers—this is a process, not an event. Keep the machine running and work to generate social proof at scale.

Your customers are your best salespeople: There’s nothing more credible, trusted and potent as a customer winning with your product telling their friends about how awesome you are.

Don’t leave WOM to chance: Most companies let word-of-mouth marketing happen organically, but if you really want to grow fast, help your customers share their wins and amplify their message in a systematic way.

The win/ask method: Your customers are significantly more likely to say yes to an ask—and say something nice about you—right after they’ve gotten a win with your product. Start tracking these moments so you can perfectly time a helpful suggestion to spread the word.

One step at a time: Use the Customer Value Chain™ to identify increasingly meaningful wins in your customer’s journey, and pair it with increasingly potent asks for social proof, user-generated content, and referrals.

Simple stories sell: Use the 3S Testimonial Template™ to help your customers share their story in a clear and compelling way that will actually drive engagement.

“Pricing fundamentally determines the nature of the product and the structure of the business that produces it.” JASON COHEN, founder of WP Engine

In many situations, the result that we desire is just on the other side of the thing we fear the most.

Charging more money and saying goodbye to a few customers is better than not charging enough and seeing your business die a slow death.

You hopped on Google. You looked at how your competition was priced (even though they don’t quite do exactly what you do). Then, you compared your features to theirs (even though they don’t directly match up). From there, you ballparked a number, probably reduced it by 20 percent, and voila—pricing appears. Over time, you probably added “levels”—an entry-level plan that was maybe 30 percent less than your original, and a pro-level plan that was 30 percent higher. You rolled it out, took a huge sigh of relief, crossed your fingers that you wouldn’t have to mess with it for a while, and got back to building.

Profits are driven by serving a higher number of customers for a longer period of time.

SaaS can capitalize big-time on economy of scale, because there’s not as much incremental cost for servicing new customers, especially once they’ve been on board for a few months. It’s why we focus so much on acquisition and activation—they’re the hurdles that you need to clear in order to run a durable (and profitable) business.

Value Metric: the one key result that’s driving value for the majority of your customers.

Depth-of-usage driver: a secondary metric that is likely to increase when overall value delivery also increases, but is not the primary Value Metric.

Examples of this include having pricing drivers based on things like number of API calls, database size, number of contacts, etc.

Feature fencing: offering specific features only on certain plan levels in order to drive upgrades between plans.

Ascension is the movement of a customer from their current plan level to a higher-priced one.

What makes a great Value Metric? Ideally, you’re tying your Value Metric to the growth of your customer’s company. That way, they’ll see their own success and attribute at least some of it to using your product (or justify the increased price as a “cost of their growth”). Highlighting the correlation between your product and their growth will make it much easier to expand their value over time.

the companies who build their pricing around a Value Metric grow at double the rate compared to those who only use features to differentiate between plans.

This is why this “third lever”—Making Customers More Valuable—is so potent. Yes, you need to Get More Customers, and yes, you need to Keep Customers Longer. But it gets much easier to hit a revenue goal when your customers are steadily getting more valuable over time.

Let’s say you’re earning $5, 000 p er a cco u n tp erye a r in yo u rco m p an y . I f yo ug o t an o ff er t o a dd an o t h erc l i e n t f or a cos t o f o n l y$ 500, would you take it? Of course you would. You’d make $4,500 off of that client—it’s nearly a 10x return. That experience is exactly how your customers should feel. Your customers should be getting a 10x return on their investment in your SaaS platform.

you should be able to work with a customer to assign a rough dollar value to your Value Metric, which will in turn, help inform your pricing strategy.

Take a good, long look at your client’s business. What new revenue are you helping them bring in? Are you helping them acquire customers or retain customers longer? Are you introducing efficiencies that might save them from having to make a hire? Or recovering cash that they otherwise would lose? Whatever it is that you’re helping them do, strive as hard as you can to provide a 10x return on what you’re charging them—it makes sales easier, holds your product development to a very high standard, and makes sure that you know your customers incredibly well—all of which are good things for your company.

If you charge your users based on how much they use your product, they might just decide to use your product less.

Bottom line: this is why we love building pricing drivers that are based on depth-of-usage—it generates a similar result without making your users want to stop using your product. How does Slack do this? They start with a free tier that includes unlimited messaging (which is their actual Value Metric)—but they cap the number of integrations and only let you see messages that were sent within the past 90 days. Why? Because once a user has used Slack with their team for three months, connected it to a few other apps, and sent thousands of messages, it’s part of their daily workflow. And they know that sooner or later, a user will need to look back in their message history further than 90 days—which will drive the upgrade. The most ninja part of it all? Slack doesn’t delete the messages…they keep the history, and only unlock it for people on the paid plan—so you can literally upgrade to get access to your message history. Stewart Butterfield (Slack’s founder and former CEO) said in an interview that search is one of their most important features…so building a depth-of-usage driver around message history (which is what their users are searching through) is a genius move.

Marcos asks a series of six questions to evaluate whether or not your Value Metric is strong: Does the metric grow with increased usage of the platform? Is it easy to track? Is it easy for your customer to understand? Can the customer predict their budget / usage ahead of time? Does the customer perceive it as fair? Does the metric tend to grow when the customer’s business also grows? If you can answer “yes” to all of these, your Value Metric is probably solid.

The point here is that there are likely features in your software that should be priced based on depth-of-usage. And if you’re not sure…here’s how to tell: If a feature will drive value for all plan levels, and increased usage probably equates to increased value for the customer…you should consider using it as a “depth-of-usage” driver. For your platform, maybe it’s API calls, database size, storage room, number of users per account, or something else entirely. Don’t overthink it—as long as you’re figuring out the components “under the hood” that will keep users on the appropriate plan level as their business grows, you’ll be in a good place.

There are two main ways to “fence” a feature in SaaS. The first one is by using your various plan levels—for instance, the Pro plan will include features that the Starter plan doesn’t include. The second way is to pull the feature out of all of the plans, and instead sell it as an add-on.

Customers will churn if they feel like they’re paying for something they’re not using.

if you add features that people don’t need into a pricing plan, the customers on that plan will feel like they’re not making good use of what they’re paying for—and that will show up in your numbers,

If a feature would be valuable for the majority of your user base, it should be priced into a regular plan.

“Ideal add-ons create a lot of value for a few of your customers.”

60 in 6: 60% of accounts in the lowest level plan should hit their plan limits in 6-9 months 40 in 8: 40% of accounts in the middle level plan should hit their plan limits in 8-12 months 20 in 12: 20% of accounts in the top-level plan should hit their plan limits in 12-18 months

“Each plan should be designed to solve a problem or do a job your customer is hiring your product to do.” Specifically, here’s what you need to figure out in order to build a pricing plan that’ll be the foundation of your growth for years to come: A clear Value Metric that passes Marcos’ six-question test with flying colors A short list of other metrics that will increase as the customer gets more value—these are potential candidates for depth-of-usage drivers A list of your key features, and which plan level you think they should correlate to, based on the problem your customer is solving.

This is a big idea—you should experiment with your pricing structure frequently (and you’ll learn exactly how to do it in the next chapter). And once you land on a structure that works…you can move your existing customers onto the new structure and you’re off to the races.

Pricing is a huge lever: Don’t underestimate the financial impact that fixing your pricing will have on your business. A great business with a bad price will still ultimately fail. If this is the “one thing” you’ve been procrastinating on, it’s time to stop.

Use the Pricing Triangle: Great pricing consists of three key ingredients: a Value Metric, depth-of-usage drivers, and feature fencing. Use all three to craft pricing models that encourage usage, and organically increase price as customers unlock more and more value from your platform.

Create a strong metric: Identify the key metric that maps to the value your customers get. It should be easy to track and understand, perceived as fair and correlate with the growth of your customer’s business. A strong Value Metric helps tie your product’s success to your customer’s success.

Remember depth-of-usage and feature fencing: Segment features and usage thresholds into higher tier plans to further align your pricing and packaging to value without disincentivizing usage in the immediate term. Features that create significant value for a small number of users but don’t correlate to your plan tiers can be split out as add-ons.

Know your breakeven point: Understanding the breakeven point is crucial when considering a price increase. Joe knew he could lose up to 27 percent of his customers and still break even, which gave him the confidence to proceed with the price adjustment

“You can determine the strength of a business over time by the amount of agony they go through in raising prices.” WARREN BUFFET, chairman and CEO of Berkshire Hathaway

He built a list of his most important accounts that were already on long-term agreements so he knew which customers to exclude from the increase. He had 1:1 conversations with the other ones, told them about the price increase, and offered them a choice of preserving their existing price in exchange for upgrading to a three-year contract. He looked at their plans and added new modules, professional services, and enhanced customer support in order to sweeten the deal.

If you increase your prices by 20 percent, you can afford to let go of 17 percent of your clients. Increase prices by 30 percent, you can afford to lose 23 percent of your clients. Even if you double your prices, you could afford to lose 50 percent of your customers and still break even.

If you haven’t raised your prices in the last year…you should raise them. Like, today.

Over a three-year time horizon, we’re pretty confident that almost every company has: Gained a better understanding of how to help their customers Shipped new features on their platform (likely without charging for it) Fixed a ton of bugs, increased speed and stability, and made other quality-of-life improvements. Built new integrations, updated databases, streamlined activation flows, and a ton of other improvements.

“The biggest mistake I see founders make around pricing is not changing it. If you haven’t changed your price in years, it’s effectively a price decrease.”

The companies that revised their pricing once every quarter grew at least 4 times faster than those who did it once every 3 years.

200 calls scheduled * 50% show rate = 100 calls conducted 100 calls conducted * 40% win rate = 40 new customers 40 new customers * $2, 500 A C V (ann u a l co n t r a c t v a l u e) =$ 100,000 in ARR

Instead of “covering your cost,” you should be putting a dollar estimate on the value you’re creating for your customers and working backwards from that.

On average, most companies can raise their prices 20% with minimal downside.

A customer who is receiving a 50% increase requires a different approach than a customer who is receiving a 5% increase.

There are typically three levels of outreach that we see most companies take: 1:1 Founder / CEO Outreach: All of your VIP accounts as well as customers that are high ACV and experiencing a major price increase 1:1 CS Team Outreach: All of your average ACV accounts that are experiencing a major price increase Email Outreach: Any accounts not falling into the first two categories (which will typically be the majority of your accounts)

, Over the past <12> months, we’ve added so much value to : We’ve made you < $18, 418 > F e a t u re A < i s n o w s t an d a r d in yo u r a cco u n t > F e a t u re B < i s a w eso m e, an d yo uu se i t d ai l y > F or u s t oco n t in u e t o in v es t inmakin g < C o m p an y > b e tt er f oryo u an d t h e < C u s t o m er C o m p an y > cre w, w e n ee d t o in cre a seo u r p r i ces . Y o u ’ v e b ee nin s an e l y l oy a lt o < C o m p an y > t h o ug h — u s in gu s f or t h e l a s t < f o u r an d aha l f > ye a rs . A so f t o d a y, w e ’ rer ai s in g p r i ces f or n e w c u s t o m ers, b u t s in ceyo u ’ v e b ee n so l oy a lw e ’ re g o in g t o k ee p yo u o n yo u re x i s t in g pl an f or t h e n e x t 6 m o n t h s (a f t er w hi c h w e ’ ll b u m p yo uu pt o t h e n e wp r i ceo f <$ X, XXX>. Thanks for being an integral part of the mission. If you have any questions at all, please let me know—all replies go directly to me. P.S. If this materially impacts your business, let me know and we’ll work something out.

Correo subir precios

NEVER use inflation as a reason to raise prices.

Apologizing for raising prices is a bad look—instead, you should be able to legitimately justify the increase based on the value you’re creating. Or to say it differently, don’t try to get away with raising your prices just because the cost of milk has gone up.

People don’t remember what you said, they remember how you made them feel.

The goal here is to lower the barrier to continuing on with your company in the short term. Customers are most likely to churn from a price increase immediately after it happens, so by pushing the effective date out six months, you’re significantly defusing that risk. Plus, it makes them feel like a VIP, which is never a bad thing.

The price point of your software and how much margin you have on your break-even numbers will drive how flexible you can be with your salvage offers. If you get a concerned reply from a loyal customer, you have space to negotiate—but if a customer that wasn’t really a fit anyway blasts you for a 4 percent increase, you’ll know that you can afford to stand strong. Work to accommodate your most loyal, best-fit customers—and the rest of the cards will fall where they fall.

Think about it—traditional SaaS strategy says to offer an annual plan at a discount of ten-to-twenty percent…but this is a chance to bypass that discount entirely by offering it at your full price—before the increase32. Especially if you’re self-funded, it’s also a great way to pull cash forward for reinvestment in the business.

Here’s how it tends to go: Non-Technical Founder: “Hey, CTO! What’s up? It’s time to change our pricing. Should be pretty easy, right? CTO: “Umm…I’m not sure. Pricing touches a lot of stuff in the platform. We’ll probably have to slot it into a sprint or two next quarter. Non-Technical Founder: “Why can’t we just do it this week?” CTO: rage

But running higher-frequency tests on new sales in order to validate whether or not the price point is a good idea? You should be able to do that whenever you want—and a subscription management platform is what keeps you out of the engineering backlog and into your pricing experiments.

So, our recommendation is that if you’re staring at significant rework to deploy your first pricing change…instead of doing that, use the roadmap time to implement a subscription management tool. The juice is worth the squeeze—because 4x faster growth is 4x faster growth.

Hopefully, you now understand the main reasons why SaaS businesses don’t change their prices: They aren’t aware how drastically it can impact your bottom line They don’t have the language to deploy the price increase They have a fear about the majority of their customer base churning They have technical limitations that make it difficult to test new price points

Pricing is a process, not an event: Companies that regularly experiment with pricing grow four times faster than companies that don’t. Nailing pricing models that capture more value and encourage EXPANSION and RETENTION is the wisest play you implement to improve your SaaS business.

Don’t be scared: Most founders are afraid of raising their prices. Our data on thousands of price increases shows that when it’s done right, the risk versus reward analysis makes this a total no-brainer.

Stack rank the impact: Don’t go into a price increase with blinders on. Make a list of your customers and calculate how pricing changes will impact them so you can tailor your communication to their situation.

Use The Ultimate Price-Increase Method™: Don’t reinvent the wheel—just use the template! Remember to remind your customers of the value you’ve delivered, justify the increase, reward them for their loyalty, and have salvage offers ready for anyone who is seriously impacted. Oh, and never (ever) grandfather your customers indefinitely.

Fix your tech stack: Don’t let your technical debt stop you from fixing your pricing. You may have to do some work but install a subscription management platform so you only have to do it once—and then you can be incredibly agile deploying pricing changes in the future.

“If ARR could be maximized without a professional services team or function, then no company would have one.”33 DAVE KELLOGG, executive in residence at Balderton Capital

VCs Are Wrong About Services Venture capitalists love the SaaS business model, and they typically turn their noses up at services companies. In fact, you’ve probably heard that adding services will actually decrease the value of your SaaS company, even if your revenue increases because of those services. And yes, if two-thirds of your revenue comes from you suddenly transforming from a SaaS company into a marketing agency, your valuation may decrease. However, if you build your services the right way (which we’re going to show you in this chapter), those services will actually make your SaaS company more valuable over time.

Consider how many of these jobs you’re already doing today: Onboarding and configuration Customer support (email, phone, live chat, 1:1 sessions, etc.) Quarterly business reviews with large clients Custom implementation services Customer-requested feature development Custom integrations

The main difference between a SaaS company and a services company is that SaaS companies tend to give away their services for free.

“What if, instead of doing this stuff for free, we charged money for some of it?”

In order to keep their world-class customer service, they’d need to turn those services cost centers into revenue-generating activities.

Importante

So, Brad’s team went from offering complementary concierge onboarding to charging $500 for the same service. They were all expecting a drop in sales.

“People who pay, pay attention.”

We don’t want you to get lost in services. The goal has been (and always will be) to build a world-class SaaS company. Period. But to do that, you’re going to need equally world-class support, onboarding, integrations, and whatever else your customers need to win. And you don’t need to provide all that for free.

Most SaaS companies can sell paid implementation for between 10% and 20% of their annual contract value… without impacting sales.

If you’ve got to sacrifice some revenue to get a deal done, sacrifice the services revenue and protect the MRR.

Most people will pay a little extra to skip to the front of the line.

Patrick’s rule of thumb is to start at 10% of your ACV36 for a priority support offering.

Customers will stick around as long as your company is solving their problems. Notice we didn’t just say as long as your product is solving their problems.

Many times, your product isn’t the issue, or at least not the only one. Your customers might have to jump through hurdles before they can get any value from your SaaS platform, and some of those hurdles might be issues your software doesn’t solve. These customer hurdles could be technical issues such as account provisioning and data migration, all the way up to high-level challenges such as organizational behavior change or overcoming limiting beliefs, all of which can get in the way of your customer’s own success.

Get customer feedback and analyze product analytics Determine which problem to solve next Brainstorm solution to the problem Design the features and write the specs Build the features Test the user experience Tweak, tune, and fix the bugs Write the press release Ship the new features Hope for a million users

“What if we weren’t confined to just software? What if we didn’t have to worry about scalability, or even about profitability? What would we build in order to solve our customers’ problems better than anyone else in the world?”

Pregunta importante

Think about it like this—if you build a gym, but you don’t have a parking lot or lockers, customers won’t be able to use your gym. Now, you don’t want to become a parking-lot builder or a locker company, but you need to have those items available so that your gym can grow.

As a founder, it’s your job to know everything that stands between your customers and their goals. And in order to do that, you need to do three things: Clearly identify your customer’s starting point as well as their ideal end state. Document every action that needs to happen in order to get from where they are now to that end state (whether those actions include your platform or not). Identify every problem and challenge that the customer will face during each step (these are the opportunities).

Your job is to map every step of the journey, not just the ones that have to do with your software.

Here’s a quick start guide to point you in the right direction: You should have a step-by-step map of your customers’ journey. As you follow the path, make a list of every single problem that frustrate your customers that your software doesn’t solve today. Rank those problems in priority order—not by how much you think you could charge, but by the risk those hurdles pose to your software MRR. In other words, focus on the problems that are most likely to cause software churn if left unsolved. Look for patterns. For instance, are three of the top five problems in your ranked list all things that happen during the activation period?

So, we’ve identified (at least) one customer problem you can solve that drives MRR. Now, take your customer’s current process for solving the problem and make it better, make it faster, or simply do it for them.

Here are some general guidelines for setting a margin target: Up to 40%: Allows you to recover at least some of the cost. 50%: Allows you to consistently break even. 60%: Typically enables you to make a modest profit. 70% and up: Usually creates enough cash to fund growth.

If you can estimate the delivery cost within 20%, use flat-fee pricing.

(So, if your delivery cost is $60 anh o u r, an d yo u r ma r g in t a r g e t i s 70 p erce n t, t h e n t h e ma t h l oo k s l ik e t hi s :$ 60 ÷ (1—.7) which means you should be charging $200 an hour.)

The moral of the story: Your customers need your help. You probably know all of the problems that they have that your product doesn’t solve. And now you know how to solve them without doing it for free.

A Note on High-Ticket Services Ok, so $400 i so n e t hin g, b u tl e t ’ ss a yyo u ’ re p er f or min g am u c hhi g h er - p r i ce d p ro f ess i o na l ser v i ce, so m e t hin g t o t h e t u n eo f$ 18,000. It might feel harder to sell up front at that price point—and it probably will be—but the gold is in the terms. There are a lot of different ways that $18, 000 c anb ee x p resse d t o a c l i e n t : I t ’ s$ 18,000 It’s $6, 000 p er m o n t h f or 3 m o n t h s I t ’ s$ 10,000 in data fees and $6, 000 in co n s u lt in g f ees I t ’ s 100 h o u rs a t$ 180 per hour Etc. No matter how we sliced it, the underlying margin didn’t change. You can get creative with pricing structures, terms, and timing in order to make it fit the deal.

The wild thing about a well-designed services strategy is that it’s one of the few tools that actually attacks all three levers simultaneously: Lever I: ACQUISITION—You’re getting more customers by offering something that truly solves their problem (instead of just creating more work for them). You’re also creating an offering that you can readily discount if that’s what it takes to move the deal forward. Lever II: RETENTION—You’re retaining customers longer by annihilating every roadblock that stands behind them and their First Value moment. And, in some cases, you’re even working with them in an ongoing fashion to guide them to success. Lever III: EXPANSION—And of course, you’re making customers more valuable by charging for the additional services you’re providing at a healthy margin.

Your competitive advantage isn’t how you write your code. It’s how you serve your customers.

You’re already a services company: Whether you realize it or not, you’re already providing a variety of “professional services” to your customers.

Monetize your existing services: You don’t need to invent new things to do in order to subsidize your MRR with services revenue. Chances are, you’re already providing services that you should be monetizing and building official infrastructure around.

Onboarding and priority support: Two of the quickest wins in services are paid onboarding and priority support. As a rule of thumb, start by charging 10 to 20 percent of your annual contract value so you can re-invest in the services you’re providing (and carve out a little margin, too).

Use the SaaS Services Planner™: First, identify customer problems that are slowing your MRR growth that you can’t solve with software. Then, create a repeatable process to solve a few of the most impactful ones. Finally, unlock the value by pricing your services with a margin target that aligns to your goals.

MRR is king: Use services to build your SaaS company, but don’t let them become a distraction. Stay focused on solving problems that lead to retaining customers and increasing your MRR. If you need to discount something to get a deal done, sacrifice the services revenue and preserve your recurring revenue.

“I knew we were doing the right things. I felt like we were incredibly close. But it didn’t feel like anything was really happening…until it happened.” MADDIE BELL, co-founder and CEO of Scheduler

Your SaaS business is just a highly emotional math problem. And math problems have solutions.

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Software as a Science: Unlock Limitless Recurring Revenue Without Losing Control

Software as a Science: Unlock Limitless Recurring Revenue Without Losing Control

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