Which successful SaaS companies grow mainly through paid-ads?

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JASON LEMKIN

I’m sure there are some, but to save your sanity, I’d suggest that 95%+ of the SaaS companies I work with find that paid ads “perform” in SaaS (i.e., they deliver customers), but:

(x) they are very expensive, because the categories are so competitive and the CPC/CPA is so high because the deal sizes are relatively high (vs. consumer products); and

(y) they are capacity / inventory limited. Even if you can pay up, there is a ceiling to how may leads you can get from paid channels.

So net net, my advice is to assume paid advertising should work, but it will be expensive and, ultimately, will struggle to produce more than 10–20% of your customers. Certainly, almost never a majority.

The handful of exceptions I can think of are apps that sell to lots of SMBs—basically consumers—that can cost effectively leverage Facebook ads. Even there, though, this paid channel is only a minority of total customer acquisition.

And lastly, it’s “OK” if paid ads are expensive. If your other channels are cheaper (e.g., word-of-mouth, content marketing, events), then worry most about the blended acquisition costs. Or put differently, I’d put money into any channel that makes you more than $1 for $1 spent in the early and middle days. You can’t do this for all your spend, and you can’t do it forever. But it’s OK for some of your customers. Especially before you are big enough to get a brand and word-of-mouth lift.

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Published on August 1, 2017
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