The success of many of Software as a Service (SaaS) businesses can be driven by a variety of factors that ultimately come down to two: product and sales and marketing. It becomes a product manager’s challenge to allocate resources effectively between product development and sales and marketing activities. Having a good analytics framework is indispensable in this situation.
In this article I will present a simple framework for marketing analytics and show how you can use it to link marketing KPIs to revenue goals. You will also see how this framework can help you make smart trade-offs between investments in product development and sales and marketing activities and their impact on what you ultimately want to achieve. This will be demonstrated with an Excel-based model that you can download and adapt for your own use.
A Quick Look at Some of the Existing Frameworks
Let’s start with REAN: Reach – Engage – Activate – Nurture. It was developed by Xavier Blanc and refined by Steve Jackson. For more detail, see an excellent discussion on the BlackBeak blog. As the following picture is showing, the REAN framework covers both online and offline activities and has a suggested set of KPIs for these activities (click image for a larger version):
John Longden has developed a framework based on a brand funnel with six steps: Awareness – Familiarity – Likeability – Consideration – Purchase – Ownership:
(click image for a larger version)
Introducing the Awareness – Conversion – Retention Framework
I won’t speak for everyone, but I experienced a challenge with these frameworks: how to choose a small number of KPIs (note the word small!) that would satisfy these criteria:
- The results of any product development and sales and marketing activity can be expressed as changes in these KPIs
- There is a quantitative model linking all of the KPIs to revenue goals (the word all is important!)
Standing on the shoulders of the giants, this is how I proposed to solve this challenge for the specific circumstances of the business that needed it (it was not a SaaS business but the principles are the same). Firstly, we simply presented the customer lifecycle as just three steps: Awareness, Conversion and Retention defined as follows:
- Awareness: making people aware of the Company and giving them an opportunity to buy
- Conversion: compelling people to buy for the first time and to become paying customers
- Retention: compelling existing customers to continue buying
Please note, this may look similar to Irizawa’s Acquire – Convert- Retain framework, but there is a fundamental difference that you will easily see when you look at his framework again.
Secondly, for each of the three steps we found a small number of KPIs that we could easily and reliably measure.
And thirdly, we built a model that took all of the KPIs as inputs and generated changes in revenue goals as outputs. We only needed five KPIs across all three steps of Awareness – Conversion – Retention:
- Awareness: last 90 days’ visits to the site by new visitors
- Conversion: last 90 days’ unit sales per visit from new visitors
- First to second order retention (i.e. the percentage of first time buyers who make their second purchase)
- Second to third order retention (i.e. the percentage of second time buyers who make their third purchase)
- Third to fourth order retention (i.e. the percentage of third time buyers who make their fourth purchase)
To show how the changes in the above five KPIs help achieve the revenue goals (expressed in monthly growth of unit sales), we created a model (see this spreadsheet) that allows one to look at different scenarios. Below is a snapshot (click image for a larger version):
As you can see, the combined effect of the traffic increase and improvements in conversion and retention rates has generated a 2.2% average monthly growth rate (in the case of a SaaS product, you would have subscription renewals rather than unit sales).
Creating such a model takes time (and you need to have the right data) but it becomes a very powerful planning tool when you have it. You can create several scenarios of allocation of efforts between different product development and sales and marketing activities, estimate the impact of these efforts on the five KPIs and immediately see how each scenario helps you achieve your ultimate goal – revenue growth.