Making sense of the marketing automation software market

I recently spent some time researching marketing automation software and realized that before starting to assess specific software products I needed to gain a general understanding of the space and how certain players and verticals fit into an SMB's sales and marketing efforts. This is very basic stuff, but one needs to start somewhere. Here is a summary of what I learned. 

Marketing vs. sales vs. CRM

The full customer process from 'cradle to grave' is divided into marketing, sales and customer relationship management. The responsibility of marketing is to reach an audience, create interest in the product, and produce 'qualified leads', which are then handed over to sales. The responsibility of sales is to take qualified leads, and turn them into buying customers. Marketing activities have in the last years broken into inbound and outbound marketing. 

Software solutions on the market are typically following the this structure: Inbound marketing solutions, outbound marketing solutions, sales and CRM. While these solutions often have some overlap, they are all designed with one 'step' in the marketing and sales process in mind. 

Inbound vs. outbound marketing

There is a whole 'war' waged on inbound vs. outbound, with inbound being the hot new thing on the block. Inbound marketing is often defined as any activity that 'lets customers find you' (SEO, content marketing, social media, blogging, email), while outbound marketing can be summarized as all paid advertising plus outbound activities such as calling and emailing (SEM, tradeshows, advertising, cold calling, email).

Opponents of outbound marketing also call it 'interruption marketing' and argue their support of inbound marketing with 'the new customer' who is savvy, will pull quality info rapidly from multiple sources (on the web mainly) and who is more pro-active while less willing to respond to unsolicited approaches. 

I concur with the opinion that both should go together. Outbound marketing will help create awareness of the company, while inbound marketing seems very powerful to develop and nurture this interest. Every company will have to find the mix of both that works best for its business. 

Inbound marketing automation software

Inbound marketing automation software lets you create and publish content in the various channels, and provides a very close tracking of customer behavior (profiling) by measuring visits, pages viewed, content downloaded, sign ups, time spent on the website plus targeted emailings for lead nurturing that are based on this behavior.

What I believe makes this approach very interesting is that it provides the tools to achieve the following things:

• Create visibility on the web by blogging, SEO, social media publishing -> Demand/lead generation
• Measure and analyse prospect behavior; identify prospect interest and stage in the buying cycle -> Lead management (lead -scoring, -intelligence, -tracking)
• 'Hit' customers with the right content at the right time. Right content = matching interest AND stage in the buying cycle) -> Lead nurturing 
• Measure and optimize your processes (which 'campaigns' work with which customer group, A/B testing, automated emailing, trigger actions for automated emailings etc.)  -> Analytics and optimization
• Automation of lead nurturing, analytics, workflow -> inbound marketing automation

Example: Once the particular interest and stage in the buying cycle of a website visitor is identified (based on behavior and often automated) the prospect will receive emailings tailored to his profile. What's more, emailings can be timed to optimize opening times (based on statistical evidence).

Email is used as a tool in inbound as well as outbound marketing, and software for both segments will have sound email capabilities.

I find particularly interesting the notion that not every prospect that engages you (or your website) is a buyer yet. In fact, most are not, and 'lead nurturing' is an activity aimed at turning these prospects into buyers over time. By providing the ability to identify, measure and track prospects a tailored follow-up for the particular prospect can be achieved, and to some extend automated. Turning this around, it enables me to avoid wasting time on low probability prospects, and to avoid annoying prospects that are not ready to buy with too much and the wrong type of communication. 

Prominent vendors: Hubspot, Silverpop, Marketo, Eloqua (from suitability for smallest to largest customer). Others include (Acton software, Exacttarget, SEOMoz)

Outbound marketing software

Outbound marketing includes email campaigns, calling, SEM, affiliate, offline advertising, trade-shows etc. In the case of calling, outbound marketing and inside sales largely overlap. I'll only mention calling and emailing as outbound channels here:  

• Calling: Inside sales/outbound telephone marketing ("telemarketing") software is designed squarely around maximum calling efficiency, accountability and scalability (of teams) and provides contact, list and lead management functionality. It covers outbound marketing and outbound sales requirements alike. 

Prominent vendors: Vanillasoft

• Mass emailing: Emailing software solutions seem to be mostly designed for mass emailing: List cleansing, list segmentation, message templates and layouting, email deliverability, analytics (delivery, opening and click rates), scalability are key features. Typically these solutions are rather suited for B2C and potentially large B2B vendors. 

Prominent vendors: There are hundreds of vendors to be found through google. 

• Email drip campaigns, newsletters. Similar to emailing software with an optimization towards newsletters and drip campaigns. 

Prominent vendors: Mailchimp

• 1:1 emailing: For companies wishing to increase the efficiency of 1:1 emailing (typically large enterprise B2B) there does not seem to be a dedicated software on the market. Some inbound marketing solutions as well as telemarketing solutions have emailing features that provide limited functionality that can be used for an efficient 'personal' emailing strategy.  Relevant features include templates, automatic personalization of the addressee, email preview and analytics (opening rates). Furthermore, some solutions provide the ability to create event driven 'drip campaigns', e.g. an automatic, personalized email based on customer behavior (opening of email, reply etc.). 

Vendors providing some capability: Hubspot, Silverpop  and  Vanillasoft. However it is seems apparent that they are not a dedicated solution for 1:1 email marketing. 

Integration

CRM: An important question is CRM integration, as all solutions mentioned work towards delivering a qualified lead to sales for further managment from within a CRM system. Some vendors can directly integrate with some of the largest CRM vendors. Other than that, contact export/import features seem to be provided by all vendors. 

For a start-up that is just building up a marketing and sales effort it is most likely not reasonable to run multiple solutions for a very small team. It has to make a difficult choice where to focus and enjoy a dedicated software, and where to cope with the limitations of the solution. It is particularly difficult to decide while it is still unclear which marketing efforts are the most profitable ones (partly because there is not software in place to track and measure campaing ROIs)

Creating a long-list of in- and outbound marketing tasks and features might be a good first step, and a subsequent prioritization according to the marketing and sales process that management has in mind will help determine the best solution for you business

Increase your conversion by nurturing trust

Sales cycles in business software can range from days to multiple month and even years. Both the complexity of the product itself, and the dependency of customer value on implementation and business context, will increase the average time required for a sale.

The number one challenge in this process is to not lose the prospect along the way. A key ingredient is the ability to create and maintaining the prospect’s trust in the value of your product. Expressed differently, the sales process is the exercise of creating and maintaining the client’s trust in a better return on investment compared to the alternatives, which include not buying at all. 

It is easy to underestimate the non-monetary cost for a prospect to go through an evaluation and purchasing process. In the earlier stages of a sales process the investment of time, effort and emotions as well as the risk of failure are often far more important considerations for a prospect than the price of the product or service. 

It is therefore key to nurture and maintain your prospect’s trust in a competitive return on investment throughout the sales process. 

1. Create trust it is a ‘cheap’ investment

Make it easy to understand what your product does, how it will solve your prospects problem, and how it can be evaluated. If this is not rapidly and easily understood, how much trust will your prospect have in a smooth and successful evaluation process?  

Be specific and direct in the description of company and products. Avoid corporate happy talk and generic messages. Switch on your ‘happy talk meter’ and read your own website. Beware if you come acrossed things like (real life example) “We provide IT solutions focused on the customer’s needs. We excel in the industry due to our large experience and wide business knowledge.”

Distill your message of all the things you would like to explain about the great functions, benefits and reasons to buy your product into the very essence to arrive at your core message. This is not always easy, but worthwhile the effort.

Create short loops of positive reinforcement. Guide your prospect through an evaluation process that is broken down into smaller pieces, and that ideally will provide several ‘intermdiate results’ that allow early feedback.  

2. Create trust you deliver what you promise

Make the credibility of your messaging a high priority. Avoid extraordinary claims that you cannot back up with case studies, examples or a trial. Avoid ‘sales speak’ that sounds cliché and overblown. And don’t take your prospect for a fool. Banging on about how your software is ‘free’ (real life example) when really this only concerns your super limited ‘basic basic’ plan is a sure way to annoy.

Be specific on where you excel and where the limits are of what you can provide. As I mentioned in an earlier post, the feature you don’t have might be one of your best sales arguments – for the simple fact that it boosts your credibility.

Know ‘where’ to sell and where to educated and inform. Of course you should toot your horn on your product, tour and homepage. Yet, in your educational and background materials, do not mix your content with blatant sales messages. Rather place a link to your product pages at the end of a piece of content.

3. Create trust you know what you do

It’s the content, again!. The materials you provide on your website will have a huge impact on the trust your prospects will put in your ability to deliver.

Work on quality over quantity. Information is available anywhere and in masses, high quality information is all the more scarce. The ‘depth’ and quality of the information concerning ‘your’ topic will directly reflect on your company and products. And the more trust will prospects put into you as the right place to spend time and money to solve ‘his’ problem. 

Educate your customers. Providing learning and educational materials covering the topics that are relevant to your prospects undertaking. Primers, how-to guides, white papers, FAQs etc. will have the double positive effect of creating trust as well as putting your prospects into a better position to determine the quality of your offering. The first quality info I ever read on lead nurturing was Marketo’s guide on lead nurturing. Where will I turn first if I need a lead nurturing software?

4. Create trust you are alive and kicking

The closer you are to your prospects, the more comfortable they will feel in investing in the evaluation process.

Make it easy for prospects to contact you by making phone numbers and email clearly and always visible. Get local phone numbers for your main markets. More resource intensive, but even better are life chat applications such as liveperson.com.

Surprise your prospects in the speed and quality of your follow-up. Use clear prioritization metrics and processes to insure your support focusses activity and provides quality where it matters.

Be proactive by monitoring client activity. For this purpose we have built an application at Lokad that provides sales with real time information on client actions. It allows us to contact the client and provide support right at the moment when the prospect is engaged and needing support.

There are many ways to nurture your client’s trust, which will vary according to your product and customers. Regardless, I believe it is a profitable undertaking to find and pursue the most efficient and powerful ones for your business. 

SaaS pricing: Getting your pricing plan right.

The other day I came across a SaaS pricing plan that stated for the most feature rich option: ‘Please contact us for a quote’. My buying momentum reduced instantly to something close to zero.

Public pricing today is the norm for SaaS offerings, and investigating the individual prospect’s willingness to pay is largely a thing of the past. In a public pricing model, the seller is trading in pricing flexibility for lower barriers to entry, increased ‘self-servability’ and transparency. All the more important is therefore the design of a sensible, and profitable, pricing plan.

1. Know your pricing criterion: Customer value

The single criterion you should use to model your pricing plan is customer value. Think through your main customer groups.  Segmentation might be by vertical application, size, or by type of use and application. Identify your customers’ primary motivation to use the product. If you are unsure, it is time you speak to prospects and customers. The reason customers bought in the first place will give it away. Ask prospective customers what main characteristic(s) would make them buy and/or switch vendors. 

2. Find the ‘best’ proxy for customer value

The challenge is to identify the pricing criteria that most closely tracks customer value. 'Features' and 'seats' are the usual suspects in software price lists. Yet, Software provides a lot more pricing possibilities, given the high contribution margin of each sale. Performance, throughput, number of projects, storage space, resilience and availability are a few ideas. A combination of several characteristics bundled in a subscription plan can help to more closely track different customer groups. 

3. Resist the temptation: Don’t think customer profitability

Customer acquisition and customer service cost can be high. It is therefore tempting to think bottom up and price ‘cost plus’. Yet, ultimately your customers decide what they are willing to pay. Focus therefore first on approximating customer value, and work to control cost. Disregard the customer groups that will not be profitable anyway.

4. Calibrate to reflect your market strategy

Once you have identified your pricing criteria, you need to calibrate. Model the price for your different customer groups and then play with scenarios. Benchmark the outcome against alternative options in the market and calibrate according to your own competitive strategy.

5. Don’t lose any sleep: Once size will not fit all

Finding a pricing plan that fits all potential customer groups is most likely unrealistic. Know your core target customer groups and get it right for them, and don’t lose any sleep over the rest.

6. Let your customers self-select

Your client is the best positioned to approximate willingness to pay. A good way for you to capitalize on this is by providing to your clients with the opportunity to trade convenience against cost. The cost insensitive clients will naturally go for the “full package” deal, the cost sensitive clients will gravitate towards painstakingly optimizing their cost, while you avoid diluting you product’s core performance. 

7. Give your customer a chance to grow

A friend recently commented: “Salesforce.com seems cheap in the beginning, but you always end up  adding on more features until it ends up being very expensive”. Growing with and within your existing clients is a great way of growing your own business. Customers will be more likely to increase their spending with you once they are satisfied with your product and trust has been established. You should give them the chance!

In addition to any amount of analysis and thought you put into devising your payment plan, it is always recommendable to take a look at the pricing of competing as well as unrelated SaaS businesses for ideas and to get a feel for the market—even if it is only to identify what you don’t want to do.  

A strong sales argument: The features I don't have.

It’s obvious: The better your product, the easier the sale. If you have ever sold anything, you acted accordingly. You polished, presented, explained, praised. Talking about all the beautiful things your product can do comes naturally to most sellers. What is far more difficult is talking about what your product cannot do. 

Saying NO to prospects when you want to just say YES

I explain product and features, quantify business value, highlight competitive advantages, and demonstrate how wonderfully my product will satisfy my prospect’s needs. It seems to go well. Then my prospect thinks, pauses, and says: “Ok, but it is important to me that your product  also does xyz, can you do that?” or “Other companies we are considering can do xyz, what about you?”. And I know we can’t. It usually feels awful. Everything inside me wants to SAY YES. Or at least something mushy like “I am sure we can make that work”. Or “I will have to check but I am confident that it can be done”. Or another of the hundreds of things I can say that are not a a no. Yet, I believe usually the best thing to say is ‘no, we cannot!’.

Why it is good to explain what you can’t do.

It builds trust. I believe that in making a sale, particularly a more complex sale as is typically the case in software, at least as important as features and performance or price is trust. Making a purchasing decision is always a risk, even when the price is low or zero. The buyer risks losing time, nerves, reputation, goodwill…  and often money. Therefore building trust is a key element of the sale. Brand name, references, testimonials, free trials are all typical elements that help in this regard. I find that explaining clearly the limitations of my product is another great way of building trust.

It calibrates what you say about your product, and makes your positive claims much more credible. Imagine a sales meeting or call where all you do is talk about the brilliant properties of your product, and in which you say yes to all requests and questions. Your prospect has no way of knowing if you always say yes, or whether you just happen to have the ‘perfectly suited’ product. 

It portrays your honesty and respect for your prospect. What is more honest than saying ‘I cannot provide or do this’? I believe that saying honestly and clearly where the limits of my products lie has often pleasantly surprised my prospects and helped me to build relationships with prospects. 

It sets you apart from many competitiors (at least in software). Particularly in enterprise software claiming too much and agreeing to every client request has been commonplace. This phenomenon has even produced terms like ‘Vaporware’ or ‘Shelfware’. Vaporware is software (features) that is sold despite the fact that it only exist in the minds of, errr, software salespeople for example. Shelfware is the result of projects that never made it into production. Yesterday I was on the website of a sales forecasting provider that claims 99% forecasting accuracy. Sure. That reads like “I take my customers for stupid but I take them for a ride”.

It gives you a great opportunity to educate your customer. Especially in cases where the requested capability is unrealistic, and competitor claims are sales BS, explaining the reasons behind the limits of your products is a great way of educating your prospect at the same time as debunking your competition without sounding aggressive or defensive. By giving your prospect more relevant concepts to understand, and questions to ask, you will make it more difficult for your competition to sell to this prospect. 

If you lose them, better lose them now... Unless you can and want to engage in selling Vaporware, it is in your interest to not waste time on a prospect that either has legitimate requirements or unwaveringly unrealistic expectations that your product does not meet. Particularly in SaaS where trials are the typical way customers evaluate a product, there is no hiding from the facts of what your product can deliver, even if you wanted to. It is better to bow out in a positive and constructive manner than spend your time on a low probability case.

....and they might just come back. It might just happen that reality hits your prospect and competition sooner or later.In this case, a vendor that has truthfully outlined the scope and limitations of his product might just become much more attractive.

Understanding a business better by asking simple questions

I love reading about and trying to understand new businesses. The fast pace of technology innovation especially in internet, cloud, SaaS and social media technologies has provided the basis from which a large number of new businesses and business models are emerging. Vente Privee and Groupon come to mind when thinking about successful European and US examples.

Understanding these businesses and their business models is not always easy. Start-ups tend to be protective of IP and key figures for obvious reasons. For example, one of the best kept secrets in European eCommerce is Vente Privee’s profit margin, and Groupon only recently let down the pants on profit, cash flow and other KPIs in the run-up to the IPO. Yet, even when transparency is given, it is easy to get caught up in thinking about market, strategy, competition and other contextual business elements without ever fully understanding the core workings and quality of the business model. A similar situation can occur in a young company that is still working on finding the right business model and in the process pursues and tests several distribution channels, products, client segments, etc. During this process, such companies can similarly miss the important and basic economics related to their choices, while focusing only on high-level strategies. I suggest approaching the analysis of a business and business model by asking the simple questions.

Asking simple questions

What works well for me is to understand in detail how a business makes money (not including internet start-ups that defy profit and cash logic in their early years). Essentially, I ‘follow a Euro’ in accounting and cash terms from start-to-finish.  A good way of doing this is by looking at the ‘client economics’ of an average customer from the time of acquisition to end of the customer lifetime and figuring out the

• step-by-step process
• profitability and 
• cash flow. 

This process is the backbone of any business, and by dissecting it I get to the core of how a business (model) works. It also provides a good basis from which to derive further analysis. A former investment colleague gave this piece of advice to me, and it can be applied to almost any business. Here is an example of an analysis made by asking the simple questions using a fictional, simplified eCommerce.

Step-by-step process

The typical new customer starts as a visitor in the eCommerce's webshop. This website traffic is ‘acquired’ exclusively via Google Adwords and a fraction of this traffic is converted into paying customers. Once a customer purchases a product, eCommerce fulfils the order completely in-house. This means that order handling, product inventory, packaging and dispatch, as well as service and support are handled in-house. Product is kept in stock for fast delivery. Customers can only pay by credit card, and returns are handled in-house.

Profits (and losses)

The contribution margin (revenue minus variable cost directly attributed to the purchase) of a purchase minus the customer acquisition cost is the profitability of the first purchase; if a certain average number of repeat purchases is given their contribution margins are added to result in the customer life time value. My average order size is 50€ at 20% contribution margin and the customer acquisition cost is 20€ (0.2€ per hit on Adwords, traffic conversion 1%). As a result, eCommerce looses 10€ (50*20% - 20) on the first purchase of a new customer, which would be a terrible business, were it not for repeat purchases. The average customer of eCommerce makes 2.5 purchases, breaks even on the second purchase (50*20% - 20 + 50*20%), and has a ‘life time value’ of 10€. Now these 10€ contribute to covering the fixed cost such as running the website, leasing the warehouse and machines, general marketing, company overhead, etc.

Cash cycle

This is arguably the most relevant view on the business, especially for young companies. Businesses die because they are out of cash, not profits.

eCommerce’s product is purchased for cash from a supplier (cash out), the customer is acquired on Google (cash out) and pays for the item with credit card (cash in). All the while eCommerce is paying fix costs for warehousing, operations (incl. order fulfilment), overhead, financing, marketing, etc. All these costs are assumed in this example as fixed, but might also be (partly) variable in practice. By placing this sequence on a timeline we can understand the cash profile of a customer. It becomes clear that we first have to invest cash in products and customer acquisition before we see the first Euro back from the customer, and need to wait for repeat purchases to recoup the cash invested. The result of this analysis is the cash cycle, i.e. the time it takes to recoup a Euro that can then be reinvested. It becomes clear that even if a new customer is profitable over its lifetime, eCommerce will need cash to invest in products and customer acquisition as it grows.

Using this framework to assess a business will point to, and answer some important questions, including: 

• Cash need (to grow)
• Vulnerabilities/defensibility
• Core skills and assets (e.g. very low customer acquisition cost, efficient order fulfilment, high contribution margins etc.)
• Sustainability
• Margin potential
• KPIs that can be benchmarked against the industry (e.g.  customer acquisition cost, inventory turns, customer profitability, gross margins, cash cycle. 
• Competitive advantages

While by far not covering all aspects relevant to the business, knowing the answers to such questions can help you when making important decisions related to a company, such as whether to 'back' a business with your money, time or even name. Groupon is a good example of a business where a close look at the economics of a single deal along the lines outlined above is extremely revealing. It is particularly interesting to do this from Groupon’s perspective (the client is the merchant) and from the perspective of the merchant (Groupon is the supplier, the consumer is the client) - especially when thinking of buying stock as an investor, or when considering selling a deal for one’s own business on Groupon.