Quite recently our Kraftblick team got an email from one CEO asking “how we can help them in the “promotion part.”
When I suggested scheduling a talk, he refused it and went straight to the pricing and guarantees finish line.
Guarantees? Seriously? After two 30-word emails?
It made me puzzled.
Why would anybody choose a marketing partner as if they shopped in Dollar Tree?
Marketing is the cornerstone of company’s growth. After all, it’s not data entry you delegate and forget.
Though, it’s not common knowledge. You probably know marketing directors and business owners who have unrealistic expectations of how much it costs to get leads.
We work primarily with software companies. Almost all software niches are highly competitive. As a result, leads may cost from a few dozens to a few hundred dollars.
There’s nothing but the math behind it.
Keep Reading Only If You Care about Lead Cost
(otherwise, skip my boring calculations)
For SaaS, it’s all about the lifetime value of a customer. If a product is good enough as founders say it is, they will have a paying customer for at least one year.
Say, the average monthly subscription is $100. Then, revenue per customer will be $1,200/year.
If you are ready to invest ⅓ of potential customer revenue into acquiring a new client ($400 in this case), $40 per lead resulting from 10% industry average trial-to-customer conversion rate will be the cost you can afford.
My drawings of LTV
For custom software development, average contract value is the king. Some firms are busy with making small WordPress $1,000 fixes, while other dev shops close $70K deals.
The logic of lead cost calculations is the same as with SaaS. The only big difference here is that in custom software development high-value contracts come at a price.
With company’s ability to sign $70K contacts, a customer worth $7K, or 1/10 of the revenue he brings, is a profitable one. $700 per lead is a justified price if you can convert one out of ten leads.
My drawings of average contract value
Yet, math isn’t always the foundation of someone’s expectations.
The fundamental problem of some CEOs and founders is that:
- They want to attract more enterprise clients AND
- They think four or five figure marketing investments are too high just because the number LOOKS high.
The mismatch between expectations and capabilities may be a sign that a company isn’t ready for enterprise customers.
Even if they get an enterprise lead, high chances are they will fail at closing it.
Due to their inability to appreciate the ‘give before you get’ principle (it works in finance too!), they won’t put a lot of efforts into the pre-sale stage. Enterprise leads will leave and give their enterprise contracts to someone else.
It’s sad, I know. But it’s true.
Now it’s time for a short story.
Reality Nobody Wants To Live In
Once I was approached by a firm of Salesforce consultants who wanted to get more clients from the UK.
Specialists of such a qualification are very demanded, and their hourly rates hit the sky. So does the competition between agencies offering Salesforce services in the UK.
Salesforce competition in the UK
Despite this, the firm had a ridiculously small marketing budget that correlated neither with the competition rate nor with the potential profit.
My hypothesis was that they were spoilt by referrals (word of mouth clients) coming at no cost. They felt sad about investing into something they usually obtained for free, even though referrals were hard to scale.
The only thing we were left to do it to discourage this firm from spending marketing dollars. Why waste money if it doesn’t do any good?
I have met a bunch of companies who entered bloody battle with their competitors with bare hands. Eventually, they gave up saying that [name any online marketing channel] is dead.
Do I Guarantee Success?
That was the second question this CEO asked.
My answer is simple,
I would love to guarantee success, but I can’t.
And no marketer can do that unless he or she is a fraud, a beginner or demands business share (which you will likely deny). Also, for some niches and traffic channels cost-per-acquisition (CPA) model is indeed working, but there are few of them.
Imagine that before applying to some university, a high school graduate asks a dean,
“Do you guarantee that after graduating from your university my life will be successful?”
University degree is a strong predictor of a life success. But high education doesn’t assume it by default.
My main point here is that marketing success is a result of many game players. We can make an impact on some of them (strategy, tactics, processes), while others are either controlled by a client (the quality of a product/service, a pricing model, a target audience, etc.) or by external forces (demand, competition, seasonality, etc.).
We work hard to help. In most cases, the best we can go with is historical data and educated guess. Experience in promoting software products and services is our backup.
At some point, we decided not to work with the prospects who refused to schedule a talk. This proved to be a hell of a strategy! I like to think that Kraftblick won’t be the one to disappoint them.
Need more leads for your software company?
We are here to help. Drop me a line at [email protected]