Getting to Initial Traction

How to Sell to SMBs And Still Get to $100m in ARR

echojason@gmail.com'

Jason Lemkin

There’s a certain type of SaaS company I run from.

This type of company has great customers, a great product, and decent customer acquisition costs, in an interesting space.  A true winner if you stop there.

But …

It sells to SMBs for anywhere from $5 to $199 a month.

I sort of run at those price points.  Even though all the other boxes are checked.

Why?  It’s just too hard.

If you are doing true self-service freemium at say $5 a month, that can work at DropBox scale.  But you’ll need over 1,000,000 paying customers just to get to $60m in ARR.  One.  Million.  Paying.  Customers.  Salesforce doesn’t have 1 million.  Very few do.  More on that here.

And if you have a sales-driven model, selling to SMBs, at $199 or $299 a month … well … if you really work hard, you can still make the math work even with an inside sales team.  But still … the math barely works if you have to have sales folks making $80k or $100k OTE, leaving you little room for marketing spend or really much of anything.  More on that math here.

So what do you if you find yourself in either of these scenarios?

You just gotta raise prices.  Even if the competition is cheaper.  Even if your customers say they can’t afford it.

  • First,  Just do it.  Figure out how to 2x your pricing per seat.  Even if your conversion rates plummet until you roll back, you’ll learn, especially if you ask, what would you need to do to earn this.  See, e.g., SurveyMonkey did this well, moving up from a $19 / month product long ago.  It’s still pretty cheap, but it ain’t as cheap anymore.  My guess is the average price per seat has about doubled.  The After and Before:
  • Screen Shot 2015-06-23 at 12.56.32 PM
    SurveryMoney Pricing – Now
    Screen Shot 2015-07-05 at 3.31.03 PM
    SurveryMoney Pricing — Few Years Back

     

  • Sell team-based and larger deals.  Selling 20 seats at $20 / month in revenue is worth far, far more than 1 seat at $5 / month.  Maybe 50x more.  And these customers churn less.  More on that here.
  • Go upmarket if you can.  This is one step beyond the prior point.  If you can built an “enterprise” package for say $10k or $20k or more a year, do it.  Even if it’s just one customer than wants it.  Because if you can get 1 customer that wants it, you can get 10.  And it can become at least a material percent of your revenues if the ACV is > 5-10x you average ACV.  You can keep selling tons of deals at $299 a month and scale nicely if you can also mix in a bunch at $2999 a month.
  • Localize.  I.e., translate your product and ultimately, support and service.  This always seems to pay off.
  • Add a second product. We all want to get to $100m ARR with just one product, if we can.  But sometimes it takes a bunch.  See, e.g., Atlassian.

Screen Shot 2015-06-23 at 1.06.13 PM

  • Upgrade the team.  Do you have an incredible VP of Marketing / Demand Gen?  The world’s best customer success team?  You need folks that have done this before.  They do the above and other creative things when you give them a number to hit.  Let them run with it and figure it out with you.

Anyhow $5-$10 a month for self-service and $199-$299 a month for inside sales to SMBs may be a fine place to start.  A great place to start, potentially.

But after just a few million in ARR, you’re probably gonna need a new longer term plan.  You may even get to $8-$10m in ARR with this sort of pricing.  But after that, one way or another … you’re gonna have to raise prices unless organic demand is simply epic.

So at least try some things right now.  If you can at least test a few ways to raise prices and learn as early as possible, you can make better roadmap and human capital investments, and grow faster as you turn the corner toward $10m ARR and Initial Scale.

Published on June 24, 2015
  • Any article about SMB revenue of > $100m should have Xero mentioned. And probably Intuit too. Both have mastered the art of channel sales via accountants and small business consultants in their respective strong markets. Both have created strong eco-systems where vendors can distribute to similar customer base. No new started in the SMB market should contemplate a market entry without making a strong contribution to those eco-systems.

  • This was interesting – we serve SMB at $49/mo with a truly self-serve model, with no sales team and hit 1m ARR at 9 months which is pretty awesome but I see you’re talking much bigger numbers here.

    • Jason Lemkin

      Exactly. Totally awesome for today. May not get you to 100m however.

  • Would love to learn more about the localization piece. Any good examples to look into?

    • I’m with Cyrus. Jason, do you have any examples of really great localization?

      • Jason Lemkin

        SurveyMonkey as referenced above is a good one. They attribute a huge % of their growth over the past years to localizing the product and going truly global. Also worked well for me.

  • Good read!
    We experimented (successfully) with raising prices by segmenting our customer base and launching a specialized product with higher pricing. So ‘Add a Second Product’ can be a good strategy when attempting to experiment with pricing when trying not to rock the boat too much on the main product

  • I know the article’s focus is quite specifically on making inside sales reps profitable, but there’s a second factor to consider, which is can you realistically support a $1k ACV customer. How many times will they ask for help, and what level of help would they want each time. We have doubled our ACV in the past few months, and have started saying no to smaller customers, because we find that ongoing support is almost the same for the smaller ones as it is for the bigger ones. At mass scale, we may have to reconsider this decision, once we run out of market, but for the moment, your “Go upmarket if you can” point is demonstrating strong results!

    • Jason Lemkin

      You think you can’t, but that’s because you haven’t invested there. If GoDaddy can pick up the phone and solve my problem (which believe it or not they did they week) when I spend $800 a year with them … so can you 🙂

  • Great article! Quick question, if small ticket SMB is such a great place to start (potentially), why do you run from it?

  • Great article.

    We’ve just been discussing Pipedrive here in the office, specifically that it’s great value at $10-per-user-per-month. They’re getting $600 a *year* from us, and we’re happier with their product than when we were paying $500 a *month* for another CRM.

    But, where does this fit into your thesis above? Great product, but too low-priced, isn’t it?

    • Jason Lemkin

      I’m a (small) investor. And I agree. Let’s see what Pipedrive looks like as it scales from low eight digits in ARR to $100m.

      • Funny to see that on year later they now have 3 plans at $12, $25 and $75 instead of one at $9

  • Great article Jason. Thanks for sharing
    One more way which may work is to find aggregators, channels, service providers, OEMs who can get you multiple clients in one deal. It is hard at initial stage, but worth giving try by talking few of the players and see their interest in reselling or OEM your product.

  • Jason – great article.
    I was wondering what your thoughts were on a SaaS provider that sells to SMBs but also has partner and consumer revenue streams that come along for the ride? For example, we sell an app service to vets but can also generate revenue from the app users themselves. Do you see this as a viable approach (possibly our version of another product) or would you also run from this as a hybrid approach that lacks focus?
    Thanks!

    • Jason Lemkin

      I think if net net it drives up your effect ACV it’s great.

  • Jason —

    Great article. We have soft launched a new company specific to the SMB space 5-250 in size — our support packages are bundles of various SaaS services and professional services that we have developed as products. For instance, RMM, AV, MW 8×5 Support and MSFT 365 plus a one time sprint of $3,995 for SharePoint development. We analyze the customers environment and then work to create new products based upon the ever evolving SaaS ecosystems. Thus far we have increased our existing customer sales — as proof of concept by 1200%. The more we provide and the more we remove friction from the consumption of said services, the more they consume. Your thoughts on this would be interesting to me and perhaps others who are going this route. So glad to have found you. Cloud = Consumption economics.

  • Salesforce.com offers a $5/month plan. Thoughts?

    • Jason Lemkin

      it is a trivial amount of revenue. Its just for marketing and to expose the brand to some folks.

  • Survey Monkey is not charging $300 and $780 per month, it is per year.. This means that they are only charging $25 per month and about $65 per month and they are worth billions now.

    The way the article is written makes it sound like SurveyMonkey is charging hundreds per month.

  • But the 100m AAR target is not the target for many tech start-up servicing a small markets. Many companies charging $5-$10/mo are happy to sit at $1m AAR.

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