Why We Had to Let Our Smallest Customers Go at SaaStr (But Why You Probably Shouldn’t)

So, in many ways, we use SaaStr itself as sort of a lab to try sales and marketing experiments.  I have my own experience as a SaaS CEO to draw on, for a product now doing hundreds of millions in ARR a year.  And I have the experience of investing in 5 SaaS unicorns and decacorns.  But you need to keep it fresh.

Running SaaStr itself definitely helps.  We have a world-class sales team now that does $20m a year, with just 6 sales execs, so I’ve learned a lot about efficiency there.

And one experiment we finally ran this past year was to drop our smallest customers.  It’s something at SaaStr I generally strongly recommend against.  The team often wants to do this, at least part of the team, because your smallest customers consume so many resources in support, success, etc.  They churn at the highest rate.  They often complain the most, especially because there are often a lot of them in aggregate.  And they often distract the sales team from bigger deals.  So in many cases, most of your team will vote to move on from the smallest customers as you scale.

But we really didn’t want to.  We offered two SaaStr sponsorship products for smaller SaaS companies, including a “Bronze” sponsorship that, while it had a tiny booth, basically offered all the benefits of more expensive SaaStr Annual sponsorships to SaaS companies at < $2m ARR.  For 40% of the price.

 

Ok, what did the data show?  We finally have it, because with SaaStr Annual taking place … well, only annually … the data takes rather a while to get:

  • Of the 37 Bronzes Sponsors in 2020 and 2021, only 9 renewed, our lowest renewal rate of all categories, by far
  • The ones that did renew, though, did upgrade, leading to 86% NDR (much better, but our total NDR is about 130%)
  • 8 of the 9 that did renew, renewed for a higher-priced sponsorship
  • They represented about 5% of total revenue in total

So in the end, these very small customers were just 5% of total revenue, consumed a lot of our support resources, complained the most … and most importantly, most didn’t renew.

Now data is great, but it has its limits.  By removing the Bronze sponsorship, folks had to buy a standard priced Gold sponsorship in 2022.  How much additional revenue did we gain in 2022 by, in essence, forcing folks into a high pricing tier?  Unfortunately, we’ll never know.  That’s where you have to try to comb through more qualitative data.

Having said that, was it the right decision, to remove the entry-level sponsorship?

  • These smallest, Bronze sponsors had terrible logo churn — but did in the aggregate return with 86% NDR.  That’s not bad for your smallest customers.  You can’t expect the smallest customers to have the same NDR as your largest.  And that’s still a decent amount of retained revenue.
  • And we’d also love to have our SaaStr Annual and Europa events, in particular, highlight up-and-coming SaaS companies that aren’t well funded yet or are bootstrapped.  So there is real value in retaining these entry-level sponsors beyond the revenue.
  • So perhaps the bigger problem was we just also didn’t have enough demand for our lowest-end product.  This is the point we knew, but keep missing when we only talked about individual deals.  We only had 37 of these Bronze sponsors over 2 years.  We had far more capacity for low-end Bronze sponsors than we sold — versus all our other sponsor offerings all sold out.  The bottom of the market just didn’t value the product offering enough.  At least, not how we are currently marketing and selling it.  If we had 5x as many of these smallest sponsors, the math would have penciled out better as an entry-level option with that NDR.

Having said all that, in the end, for us, though, the real issue was resources — always the challenge here.  These smallest sponsors took the same or more resources than the larger sponsors, yet only made up 5% of the revenue, and burned out a lot of the team with more complaints and demands than the bigger sponsors.  And that 5% is declining.  It was 10% a few years back. So like many SaaS companies going a bit upmarket, the smaller customers become a smaller and smaller portion of your revenue base.

But if we’d just had a bit more organic demand for our cheapest product, we would have kept it.  No matter what the data said, most likely.  And hired them their own team to deal with their issues and needs.

We also ran a second experiment with our digital media assets — ads in our podcasts, newsletters, and digital events.  We allowed some companies that didn’t have an existing relationship with us to buy these assets with a one-off spot purchase.  It turns out so many marketers have extra budget at the end of each quarter, this was a very easy sale.  But this easy sale also turned out to be a bad sale.

What happened?  Almost none of the one-off digital media sponsors renewed.  Not only is that pretty bad, it’s actually worse because these assets are capacity constrained.  Our podcast and newsletter ads sell out 100% for the year, well in advance.  So by selling them to sponsors that didn’t really know us or have a relationship, and didn’t come back, we took away opportunities from our more valued sponsors.  So net net, we no longer sell these assets as one-offs to anyone.  Even when a top public SaaS company offered us $1m to pre-buy sponsorships in a big chunk of these media assets, we said No.  That $1m sounded great, but it was better to hold it back for long-term partners.  We’d sell it all out anyway.

In the end, the real learning was (1) run experiments and (2) speak from data:

  • I didn’t want to leave the smallest sponsors behind, but in the end the learning was no so much leave them behind as just wait for them to get a bit bigger before they sponsor SaaStr events.  They are happier then, when they have bigger marketing budgets, and less stress around any individual buy.  Now we just tell them to wait until next year — for their benefit.
  • And the second learning, which we have all really learned by studying the leaders from Box to Datadog and more in our 5 Interesting Learning series, is really lean into your existing customers and give them more products to buy from you.  Once they trust your brand, if you have more good products to sell them, they’ll buy them.  More on going multiproduct here.  We don’t have that many products at SaaStr to sell — 99% of SaaStr is free content, really.  But we will try to concentrate our efforts on sponsors that buy more than 1 product.  They renew more, and buy more. Just like at Datadog and Box and more.

 

 

Published on August 28, 2022

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