July 28, 2015
Everyone In SaaS Is Using Buyer Personas Incorrectly

Starting a SaaS company is 10x easier than starting an ecommerce or on-premise software company. The rise of IBM, AWS, Microsoft, and others paved the way for our startup nation to the point where if we all wanted to start brand new companies, we could have them up, running, and monetizing users by the end of the day.

What’s fascinating though is building a business in SaaS should be 10x easier, as well. Yet, we’ve found that most SaaS companies we run into are making the process 10x harder than necessary.

This is because we are absolutely awful….capital “G” gawd awful….at understanding our buyer personas and using them to “moneyball” our SaaS growth.


"Without quantified buyer personas you may as well set your revenue on fire"

mrr-calculation

(You Can Edit Before Tweeting)


Most of us don’t even have buyer personas, let alone quantified ones, which leads to haphazardly testing; politiking with data instead of being data driven; and failing to identify where actual problems in monetization exist. All this turns one of the most elegant business models that when used properly can formulaically grow phenomenal businesses, into limping masses lurking along under crippling customer acquisition costs (CAC).

Don’t be a lurking mass. Let’s walk through the steps necessary to quantify your buyer personas to use them to compound your growth.  

Step One: Quantify Your Buyer Personas

Sure, you think you’ve developed your buyer personas. You may even have a pretty powerpoint deck with some cute names (“Startup Steve”, “Enterprise Eddy”, etc.) and some avatars your designer put together.

Do you know those buyer personas’ willingness to pay? Or do you know what features they find important? Not important? Where you can find them? Their estimated LTV? Who they report to and their favorite color?

If not, you’re wasting time through "guess and check" marketing and product. Even if you think you know the answers, chances are you are probably still in the dark. At Price Intelligently, we’ve seen inside more SaaS companies than anyone else out there and 99% of them are unable to tell you their buyer personas beyond generalities.

Unless your buyer personas are quantified and developed with data, you cannot succeed as a SaaS business.

Camerons_Graph-1

Now of course this takes time and money to develop, but you don’t need to have all of those answers down to an exact science right away.

Take some time right now to look through the quantified buyer persona example above and your past research, and try to write down answers to the following questions:

  • What is the price each buyer is willing to pay?

  • What is the estimated Lifetime Value (LTV) of that customer?

  • What is the estimated Customer acquisition cost (CAC) of that customer?

  • What are the top three marketing channels you’re finding this buyer in currently?

  • Who does this buyer report to? Who reports to them?

  • Which three features do they care about most? The least?

  • Which value proposition do they care about most? The least?

  • Who else needs to approve a purchase (if anyone)?

Again, you likely won't have answers to all of these right away. It’s exceptionally important that you don’t devolve into simply having thought exercises about each of these. Try to justify anything you write down with some sort of data point. If you don’t have a data point, then hunt the answer down using price sensitivity studies, customer surveys, or feature value studies.

This isn’t going to be perfect, but you should be constantly trying to pursue buyer persona perfection. You’ll align your team and easily make adjustments in strategic direction when necessary.

Put another way: if you were building a shed, these buyer personas aren’t the materials or even the blueprints - they’re the handyman guide you’re reading to align where you’re going, what you’re missing, and ultimately how you’re not going to screw up.

Step Two: Deepen those buyer personas even further in your problem areas

Time to go even deeper. The above is an absolute foundation and you need all of those questions answered at some level, but remember that you’ll have some holes based on your need for speed. As such, we need to figure out what’s going to have the most impact on your business and explore that area much more deeply through quantifiable data.

To help you with this, here’s a handy chart we’ve put together based on walking through the funnels of about 200 SaaS companies:

Screen_Shot_2015-07-27_at_5.36.19_PM

Your problem(s) likely fall into one of the five above buckets. In many cases, you may be facing more than one problem at a time. There is a ton of value in getting the data necessary to focus on one problem first before expanding to other problems.

Keep in mind you’re racing against time and burn. To make sure you don’t flame out, spend your resources wisely and expand from the area where you have the biggest problems and holes in understanding.

(Steps One and Two should take about two weeks. If it takes longer, you’re getting too bogged down in your company's dogma or thought exercises. Remember that you can’t solve all of your problems at once and time is an enemy, so chunk things down and attack.)


"Buyer persona problems = a ticking time bomb"
mrr-calculation
(You Can Edit Before Tweeting)

Step Three: Determine the best fix and plan implementation

While the different problems above have different solutions based on the data you find, you’ll need a framework for brainstorming ideas and planning minimum viable tests (MVTs) to validate or invalidate if those solutions work.

We’ve found the concept of “problem - cause - solution” really helps us think through viable MVTs extremely quickly. The methodology isn’t complicated, but works something like this:

  • Step One: Determine which problem you’re attacking and quantify that problem with a goal.

    • Example: Our LTV/CAC ratio is declining and we want to work to improve our LTV while keeping CAC constant. Let’s shoot for increasing LTV by 10%.

  • Step Two: Determine the cause(s) through the data you’re collecting. You’ll likely find more questions than answers, but you absolutely will find the axes on which the metric you’re trying to improve that are problem areas.

    • Example: We found that one target buyer persona is willing to pay much more for their target plan, and another is willing to pay much less for their target plan. Also, we’re giving away too much of our value metric, since no one is hitting their limits and needing to upgrade.

  • Step Three: Design MVTs that work to solve the cause of those problems. Logically you can’t solve a problem; you have to solve a cause. Your MVTs should work to attack the data surrounding your causes, as much as possible.

    • Example: Here are the MVTs we can run in 2-4 week sprints

      • Replace our highest plan with “Contact Us” and pitch those folks higher priced plans

      • Change our prices up or down to impact conversion and monetization

      • Lower the value metric thresholds

      • Let’s curb all discounts by 10%

The important thing to keep in mind here is that the different aspects of your pricing strategy — positioning, packaging, and the number on the page, all need constant diligence, but must follow a process to be successful.

Step Four: Iterate, iterate, and iterate

Pricing is a process. SaaS success is a process. Everything should be a process.

If you find yourself sitting in a room with members of your company pontificating about ideas without a plan to gather data, you’re the enemy of process.

If you find yourself haphazardly launching something without a goal or clear justification, you’re the enemy of process.

If you’re politicking data and denying the data if it doesn’t agree with you or not seeing the holes in data if it does agree with your preconceived notions, you’re an enemy of process.

Don’t be an enemy of process. Always be iterating and deepening the above buyer persona framework, as well as exploring the problems in your business as axes that need improvement. Even if you constantly keep iteration in mind, you’ll at the very least not be afraid to make changes, which is crucial in getting SaaS right. 

Don’t confuse hard work with wasting time

This isn’t going to be an overnight project that leads to an overnight success. Understanding your customer and your business will take work. Doing the work upfront means you will avoid problems and wasting your time and money.

Pricing and SaaS are ultimately processes that need constant diligence and focus. Too often companies waste time focusing too much on solutions without properly identifying causes or actual problems. This results in little traction in actually growing, and ultimately failure.

Don’t be like these companies. Be the process driven success that utilizes understanding your customer better than anyone else to grow, grow, and grow.

profitwell-saas-metrics


comments powered by Disqus