In his “Three SaaS Sales Model” blog post, Joel York mapped the three main SaaS sales models the following way:
- Self-service: a low priced product (tens of $ per month) with fully automated customer acquisition, onboarding and payment.
- Enterprise: a high priced product which requires a salesforce with, generally, long sales cycles.
- Transactional: a hybrid model with a higher price point compared to the self-service one (which ideally starts at around $5k of annual customer value), which works well in combination with an efficient automated lead generation strategy and a small inside sales team to convert them into paying customers.
And as Joel explains:
“Choosing the right go-to-market sales model for your SaaS startup can be a make it or break it decision”
But equally difficult can be the task of expanding or moving from one quadrant to the other later on. It’s a challenge that many SaaS startups face at one point in their life, and one that can be particularly tricky.
Most of the time, the choice of the quadrant in which a company starts to operate is dictated by the DNA of its funding team.
The co-founders are ex-sales people who just quit their jobs from a big company? Chances are high that they’ll use the nice contact book they’ve built over the years to fuel their acquisition strategy and start at the enterprise level. The co-founders are designers or product people? I bet that they’ll start in the self-service zone. Come on, selling a product through salespeople is too cumbersome (and not scalable anyway :-)).
Why you’ll need to make your sales model evolve
But there will probably be a time when the question of moving up or down the quadrants arises:
- “We’re successful enough with our current product and acquisition strategy so that we feel confident about adding another type of customer.” (the best situation)
- “We’ve developed a product but we struggle to find product-market fit. It probably comes from the misalignment between our product and the customers we’re targeting.”
- “We started with a very low price self-serve product but we now start to realize that our low ACV customers lead to a high churn and cost a lot in terms of support. How do we acquire larger accounts again?”
- “We started with a very expensive product for enterprise and we’ve already acquired some customers thanks to our connections. But damn, this 12 months long sales cycle is killing us…. Should we speed that up and target SMBs too?”
- “When we started to develop our product it only had few features and was not enterprise ready. Now it is. Let’s expand to transactional.”
- “We’re an agency and have developed an in-house product for our customers. Now that it works well we want to scale acquisition through ‘self-service’. ”
Challenges when expanding or changing your sales model
The challenges when moving from or expanding into another quadrant come from the fact that it’s not only about changing a pricing page, adding a couple of features and doing inbound marketing or hiring salespeople. It’s about taking into consideration all the components of your business and try to keep them aligned.
The obvious ones:
Product. The heart of your product might not change dramatically, but to appeal to bigger customers you’ll usually have to offer things like better user/permission management, admin features, more sophisticated analytics, reporting, data integration…
Pricing. This is an extremely well documented topic on the web. You’ll find plenty of articles explaining how to price your SaaS product for different targets and how to design your pricing page accordingly. Not easy to do (especially when your value proposition differs a bit from one target to the other) but you have a lot of interesting material available.
Marketing & Sales. Also well documented on the web, changing your quadrant means adopting a completely different sales and marketing playbook. From the way you speak to your customers to the content that you put out there and the communication channels you use. Refer to the awesome articles of Joel York, David Skok and Jason Lemkin.
Less obvious ones:
Company culture. The impact of such a change on your company culture shouldn’t be underestimated. The culture in a sales driven startup can be completely different from the culture in an inbound marketing driven or product driven company. Employees happiness and productivity will be challenged in the process and you’ll probably have to deal with many HR issues. It might even mean that a founder wants to leave, so a move like that obviously needs to be evaluated very carefully.
Learning velocity. Running a startup means learning and building knowledge along the way. The knowledge you build with time (industry knowledge but also operational knowledge) is a major asset in a startup and can give you a competitive edge. But since changing your sales model impacts many components of your business it can slow down your learning velocity tremendously. Your learning curve can be greatly impacted as you’ll have to forget some habits and build some new ones.
It’s very difficult to move from one quadrant to the other and getting it right can make or break your company. It shouldn’t be done solely from the pricing and sales process standpoints but also from the HR, learning and company culture ones.