The Latest from the ABM Experts
November 11, 2019
CAC, LTV, & ABM: How ABM Can Help You Improve Your SaaS Metrics
Are your SaaS metrics are in that tricky place between “really good” and “best-in-class”? Your business is viable and you’re on the road to profitability – but you’re still not cash flow positive.
To make the final push towards profit and achieve best-in-class SaaS metrics, there’s one strategy we recommend: account-based marketing.
Check out how you can leverage ABM to reach the SaaS sweet spot between customer acquisition costs and cash flow.
What is an account-based marketing (ABM) strategy and how can it boost metrics?
If you’re already familiar with ABM, feel free to skip this section.
For those not familiar with the term, account-based marketing (ABM) is an end-to-end go-to-market strategy designed to focus a majority of marketing, sales, and customer success efforts on the accounts with the highest likelihood of success through data-driven targeting and personalization programs at scale.
When we say “the accounts with the highest likelihood of success”, we mean the accounts that are most likely to have the best conversion rates, largest deal sizes, lowest churn rates, and highest upsell potential.
Rocket fuel for your SaaS 2.0 metrics 🚀
While much of the buzz around ABM revolves almost exclusively around marketing, note that our definition denotes an end-to-end go-to-market strategy. An account-based strategy doesn’t – and shouldn’t – only impact your marketing and sales teams.
Every team can benefit from ABM, including customer success, product management, development, and finance.
The first step of an ABM strategy is to identify the market segment that best represents your ideal customer (the ones who would be most successful with your product or service).
It costs less to acquire good-fit customers. They tend to invest more in your solution and they’re more likely to stay customers longer (because, as you guessed, they’re more successful with your product).
So what’s that mean? It means you end up with a lower customer acquisition cost (CAC) and higher lifetime value (LTV). And, because they stick around longer, your churn rate drops.
Okay, so how does ABM lower CAC?
Before we outline the CAC-lowering benefits of ABM, let’s outline the perils today’s inbound marketers are facing.
Many people use the net casting metaphor to describe traditional inbound marketing:
- Traditional inbound tactics “cast a wide net” and invest a lot of time and resources in appealing to the masses in an attempt to generate leads
- Many people who might end up in your “net” don’t fit your target persona and the companies they work at don’t represent your ideal customer
- When sales gets these leads, many end up going right back into the proverbial water
You end up investing way too much in bad-fit leads and drive up your CAC in the process.
On the contrary, a successful account-based marketing strategy can help you achieve the opposite.
More Efficient Marketing Spend
An account-based approach focuses your resources and budget on just the personas and accounts that fit your ICP.
And for increased efficiency, you can narrow your ICP to include only the accounts that are showing signals that they’re ready to buy. This helps you filter out bad-fit leads before they even fill out a form. See how Pramata accomplished this below.
“We were spending a good bit of money on content syndication. We were getting a ton of good form fills, but when I went in and looked at the data, it turned out that about 99 percent of the people that filled out the forms weren’t a good-fit.”
– Jeremy Middleton, Senior Director of Digital Marketing at Pramata
Check out their case study to learn how they used ABM to lower their customer acquisition costs by 60%.
Shorter Sales Cycles
As sales and marketing work in lockstep to convert best-fit accounts into customers, sales cycles get shorter. This brings the cost of sale down, which further lowers your CAC.
But a mature account-based strategy isn’t just about picking accounts that have the right firmographics; it’s also about monitoring those accounts for relevant buying signals.
Intent data is a valuable predictor of which companies are researching solutions you offer. Intent providers monitor hundreds of thousands of websites while utilizing deep-learning and natural language models to create groupings of related pieces, called topics.
After capturing which people are visiting these sites and what company they work for, they quantify the level of engagement each person has with specific content pieces.
This is helpful because it enables you to target accounts that are actively searching for your solutions — before they fill out a form (or even visit your site).
More importantly, it helps your sales team get their foot in the door before your competition.
Salesforce’ head of demand generation, Ben Howell, said they were able to shorten their sales cycle by 33% when they started using intent data.
“We’ve seen about a 271% return on our ROI for display and paid social when we combine Bombora Company Surge® and 1st party data through a couple of other providers.”
– Ben Howell, Head of Demand Generation at Salesforce
So ABM can decrease my CAC. How about LTV?
73% of companies report that their ABM programs deliver higher deal sizes, according to SiriusDecisions’ The State of the Account-Based Revenue Engine 2019.
Larger Deal Sizes
You’ve identified an account that shares attributes with your best customer. That account is actively researching your solution.
It’s only natural to assume that those accounts are more likely to close in less time and invest in a higher-priced package. They won’t bog down your sales cycle trying to get the lowest-possible price for your entry-level package. No, these companies are looking for a trusted partner that can help them solve a specific problem.
You know who probably doesn’t match this profile? The random lead from a recent webinar your sales team cajoled into taking a demo. When it comes time to negotiate a contract, you might find yourself fighting an uphill battle to establish a sense of urgency and build a mutually beneficial relationship.
Successful customers stick around longer. Unsuccessful customers don’t.
Successful customers = longer-term contracts = lower churn rates.
By focusing on companies that fit your ICP (and therefore are more likely to be successful with your product), you’re giving yourself a better chance of securing a long-term relationship with a customer and reducing churn.
More Upsells and Expansions
Successful customers don’t only renew more often, it is also easier to upsell and expand these accounts. Larger initial deal sizes plus more upsells and expansions times more years equals higher LTV.
It’s also much easier to upsell (or expand within) accounts that are achieving success with your solution.
Another quick math problem…
Larger deal sizes + additional upsell/expansion revenue + longer contract lengths = ???
Answer: Higher LTV.
Of course, ABM isn’t only for acquiring new customers.
Thomson Reuters was able to build a scalable account-based program targeting current customers which resulted in a 95% win rate — 80% of which were from renewal or expansion opportunities. Check out the case study here.
Your Company + ABM = 📈
The math isn’t hard.
When you’re more efficient with your marketing and sales resources, you reduce CAC.
When you pick and pursue the right accounts, you increase LTV.
When you put those together, you end up with industry best-in-class SaaS 2.0 metrics.