You need to start somewhere when marketing your SaaS business. Here we explore industry benchmarks for key marketing channels; alongside the things you need to consider.
CAC (Customer acquisition cost)
- Not many are brave enough to suggest a ‘good’ CAC, simply because it varies from company to company, but many agree on the ratio LTV (Lifetime Value)/CAC to be 3:1 or higher. Simply, this means that for every pound you are putting into marketing new customers you want at least 3 pounds back on your investment
- Gekoboard also agrees with this 3:1 ratio regarding customer acquisition conversions in SaaS. Gekoboards suggest this is a good benchmark to aim for, although it goes further to suggest generally that 4:1 or higher indicates a great business model and if your ratio is 5:1 or higher, the research suggests you are growing faster and are likely under-investing in marketing
- Tomas Tunguz offers a different opinion that the CAC is roughly 11 months of revenue and that a middle sized startup usually spends about 92% of their first year contract value on CAC, a different point of view on how to tackle the CAC benchmark
Factors to consider?
- Patience! Your company could have just started investing in a new region, or increased spending on SEO and it will take a while for these processes to filter through and increase your customer acquisition numbers. Do not always expect to see results immediately
- The CAC metric is only helpful if you are comparing it with your lifetime customer value figures. You can have a £10 CAC and a new customer spends £25 which looks a healthy return initially, but if you cannot retain that customer there will be problems further down the line because it costs 6 to 7 times more to acquire a new customer than it does to keep a current client, all the more reason to reduce churn rates
- Ideally you want to know the CAC for each of your marketing channels so that you know where your costs are lowest, then you can allocate budgets accordingly
Website conversion rates
- Capterra suggests an average conversion benchmark of approximately 7% and suggests that anything between 5 and 10% should be considered to be performing well
- Marketing Sherpa’s average website conversion rates by industry study reflects Capterra’s findings and suggest that a 7% conversion rate in the SaaS industry is a good benchmark figure to aim for
- On the other hand Quora shows large discrepancies regarding B2B and SaaS conversion rates for websites. SaaS experts answered with figures ranging from 3-15% and one even claims that although very unusual they have seen conversion rates of over 70%
Factors to consider?
- What counts as a conversion? Someone starting a free trial or booking a demo is a better lead than a white paper download – both should be counted though
- You need to look at more than just conversions – things like bounce rates and time on site can also play a role
- The traffic you get to your website and relevance of that is also a factor. If you’re getting the wrong traffic you will have a lower conversion rate
- MailChimp’s 2016 figures suggest that industry standards for SaaS show an average of 20.95% for open rates and 2.29% for click through rates, further analysis shows the research is weighted towards smaller and midsize businesses and so this is a factor to consider
- Silverpop has collated data which applies to larger businesses and found open rates ranged from 7.5% to 39.8%, finding a lower average of 17.4% and a 1.0% click through rate when comparing figures to smaller companies
Factors to consider?
- Your open and click through rates are only as good as your email campaign, which should be targeted and of a high quality of content that will appeal to it’s audience. It’s no good meeting industry benchmarks if the email content does not enthuse potential clients
- Are you sending to opt-in data or not? If you’re sending cold emails these will likely have lower open and click through rates
- Responsive design is key to improving your click through rate, more than half of email opens now occur on mobile devices, so make sure the content is accessible on all devices
- Campaign size, a report from Constant Contact found that campaigns sent to 35 or fewer subscribers have a 55% open rate, which suggests that if you personalise content you are going to see some higher open rates. Constant Contact found that in contrast campaigns with more that 7,500 subscribers had a much lower open rate of around 14%
- Chris Leone suggests that for most businesses, a good benchmark to follow for pay per click (PPC) is “a 5:1 revenue-to-ad ratio.” Simply put for every pound spent on (PPC), ideally £5.00 of revenue should be produced
- Quora offers some interesting insight here with the question- “What conversion rate can be expected for a typical SaaS application using Google AdWords?” Answers show that many know just how unpredictable this benchmark is and are unwilling to make a commitment to a magic number, and instead discuss all the factors which affect the conversion rates. Those who are brave enough to suggest a conversion rate highlight again the unpredictable nature of this metric, answers range from 1% to 12%. Or one claim that their research shows that PPC accounts for an average of 20% of SaaS leads
- A Bizible study has focused solely on SaaS AdWords results and found that on average Google PPC drives 16% of leads, 14% of opportunities and 11% of revenue
Factors to consider?
- There are so many factors which affect the benchmark for PPC, be it the platform you are using to advertise, the type of advertising, the target audience, the competitive nature of the keywords, the product you are advertising or the bidding strategy you use. For example business products are typically more suited to LinkedIn, where as consumer products on Facebook
- Buying ad space for SaaS is expensive, some keywords are seeing prices as high as $100 and competition is fierce. AdWords can have high upfront costs and in the early days you may even lose money on each customer you acquire as you sort out how PPC works best for your company
- Long term or short term plan? Would you rather have a high PPC conversion rate of 15% but at the end of the year you find an exceptionally high churn rate of 80% or would you like to fine tune your PPC campaign to find high quality clients resulting in a lower conversion rate but with a lower churn rate? You need to focus on the type of customer you are acquiring through your PPC to make sure your spending is worth it
SEO organic conversions
- Marketing Sherpa’s data shows that the software industry benchmark for organic SEO conversions should be around 15% but warns that you should take these figures with a grain of salt, and recommends caution as the figures only give a general idea and it is in no way a magic number of conversions that your company should be meeting
Factors to consider?
- Keywords are key to driving organic traffic and conversion rates, long tail keywords may be better for your SEO rather than more obscure and general terms. Your conversion rates are only going to be as good as the data you put in
- Tim Dawes suggests that although organic results are more likely to be clicked than PPC results, PPC result showed much higher conversion rates, up to 1.5x better than organic results
- Propecta suggests that If you’re a B2B company, it’s likely that 10% of the organic searches you are trying to rank for are close to considering a purchase, so this is an area which needs your focus to increase revenue
The magic number for SaaS benchmarks is elusive and unique to your company
So yes, there are many benchmark figures which you can use to analyse your company’s performance against SaaS industry standards, and you definitely should be measuring all of the data from the processes discussed above to see how you are performing. But when drilling down around these benchmark figures we find that it’s not as straightforward as it first seems, there are so many factors which can influence your data and to consider benchmarks a magic number which you simply should meet is doing you an injustice. You need to look at the bigger picture when analysing data and comparing it with other’s performance and don’t just take figures on face value, question them. As you can see from our research, even the big players in SaaS are struggling to agree on industry standard benchmarks.
And how good is your product? How competitive is the industry? Is there a clear business case or is it a nice to have? Naturally a better product with a clear business case will get more conversions.
Marketing needs to work together and be integrated. To really succeed you need high converting traffic being driven to a high converting website and so on. Don’t be let down by a poor email or website where you can’t find a conversion button.
Whilst you can start with industry benchmarks there are no better results than actually doing and testing marketing – and then working to constantly improve your numbers.
Seeing through the numbers with Xander Marketing
Whether you need support with your marketing strategy, or improving your numbers Xander Marketing is here to help.
We work in partnership with SaaS businesses around the world to support growth through new customer acquisition, increasing leads, generating more website traffic and raising industry awareness. So if you lack the time, resource or know how to undertake marketing then get in touch and book your free one hour consultation.