The internet is an ever-evolving digital organism that allows complex breeding grounds for unparalleled and unimaginable opportunities. 21st-century capitalism plays out on the internet and in a capitalist market, the winner is who captures the attention of its patrons better.
SaaS, or Software as a Service products need marketing, in ways true to themselves, largely using digital channels to garner awareness, position the product, and bring it to the market.
Customers won’t care about any particular technology unless it solves a particular problem in a superior way. ~ Peter Thiel, co-founder – PayPal
Far too many nifty digital solutions slip through the market every year because they either weren’t marketed to the right audience or not marketed in the right way using the right tools. But how do you figure out if your marketing strategies are working before it’s too late?
That’s when we talk about ROI in Digital Marketing for SaaS.
This guide will teach you about ROI (Return On Investment) in SaaS, the metrics to focus on, and ways to boost your returns. Let’s dig in, shall we?
Returns On Investment in SaaS Marketing
ROI refers to the profitability ratio to evaluate the quality of fruits your marketing labours bear. When it comes to SaaS, marketing profitability is key because of the saturation of the market, and the increased competitiveness it fosters. 92% of year-one revenue of SaaS-based businesses is spent on client acquisition through marketing.
Suffice it to say it is imperative that every rupee is spent in the right place if you want your service to fare well. ROI assists you in doing just that, by gauging the viability of your marketing campaigns and channels, what is working well, what isn’t, and where the room for improvement lies.
Let’s begin with a very fundamental metric: overall growth or profit. It is the ratio of the difference between returns and investment in a particular period of time, to the investment.
Here’s the formula for overall ROI for a set period of time:
(Total return – Total investment)Total Investment=ROI
This is helpful for understanding the extent of profitability of your marketing efforts. However, not so when it comes to understanding which marketing efforts are doing the heavy lifting and which ones are being carried.
To gain that knowledge, we need to look at more specific metrics.
Calculation of ROI by Channel:
A marketing campaign has multiple components running together to generate leads that eventually convert into sales. Naturally, you want to magnify the marketing channels that promise the most potential and discard or modify the ones that underperform.
Tracking the leads generated is essential for this pursuit. There are certain CRM softwares that provide this particular service. It is important to track the leads generated from individual channels such as email marketing, newsletters, content marketing, social media marketing, and the rest.
Let’s take the example of Email Marketing ROI:
The crux of the concept for calculating the ROI remains the same as above. To begin with, you want the number for total investment (costs) towards email marketing.
Total marketing costs = X (Email marketing team allowance) + Y (Email Marketing software). So X + Y is total investment.
Next is the calculation of revenue generated.
Revenue = Leads generated through email marketing x lead conversion rate x average sales value = Z
Now, let’s use these values to find email marketing ROI:
ROI = Z – (X+Y)(X+Y)
There you go! We’ve just calculated the return on investment for the email marketing channel for your company. Use this same formula to calculate the ROI for other channels and equip yourself with the knowledge you need to take the next step: improve your ROI.
Get to the Heart of the Matter
Getting all the numbers on spreadsheets is well and good, but if you don’t know what to do with them, it’s akin to trash.
The entire point of this exercise is to ultimately increase your sales and profits, and grow your company. Calculation of returns provides you with insights about which channels are more fruitful than others, but you need more than that.
You need to possess answers to two key questions: ‘’why?” and “how?”
- Why do certain channels work and certain do not?
- How to improvise key factors that can boost the ROI, and by extension, your company’s growth?
To answer these questions, you first need to learn more about said key factors that determine the success of your marketing channels.
The number of people visiting your website/app/blog. These numbers also provide insight into which channels are bringing the traffic to help you analyze trends and patterns.
MQLs and SQLs
MQLs and SQLs, or Marketing Qualified Leads and Sales Qualified Leads, respectively. The former refers to a potential lead who is likely to show interest in your product or service, and the latter is a candidate with tangible potential to turn into a customer.
These metrics are key because they inform you about the trends in conversion rates of MQLs to SQLs for particular channels and campaigns, and further gauge their effectiveness.
Customer Acquisition Costs
CAC is a fairly straightforward metric, all things considered. As the name suggests, it is the overall cost of acquiring a new customer. The calculation is simple enough, with the ratio of total marketing costs endured to the total number of customers acquired.
Calculate the CAC for your overall marketing efforts as well as individual channels, to dig deeper into the efficiencies of each channel and campaign.
Lead Quality with BANT
It’s no good if you only convert one sale from a thousand leads. You need to define and regulate the quality of leads acquired, and a BANT rating is an effective way to do it.
Budget – The prospect’s willingness and ability to spend on your solution.
Authority – Are they the authority figure to make the ultimate decision on the sale?
Need – Does the prospect have a need for your solution?
Timeline – How long would the prospect need for a purchasing decision?
Rate each of these factors on a scale of 1 to 5, add all of them, and multiply the sum by 5. This will give you the score on a scale of 0 to 100, with 0 having no chance of being a customer and 100 being the best possible chance.
Data ⇒ Insights
The pile of spreadsheets on your desk, or the excel sheets on your computer (it’s 2021, after all) are just a means to an end. The end being increased leads, sales, and profits, and probably a Forbes magazine feature.
From all the metrics we discussed today, a plethora of actionable insights and plans of action can be derived.
For example, if your email newsletter campaign turns out a roaring success, you can pinpoint the reasons by using the metrics. Information about targeted keywords, audience demographics, content quality, all those inputs may be used for another campaign like social media ads to attract more and more leads for that channel.
All that to say all the information in the world is redundant, if you do not understand how to leverage it properly.
The idea is to be aware of the right performance indicators to track, and then implement accurate tracking systems for them.
After you have the data, it is incumbent upon you and your marketing team to derive actionable insights to grow your SaaS business.
But if you’re not tech-savvy enough to understand these numbers, don’t worry! All is not lost yet. We, at Alter Marketing Solutions, employ a marketing team of highly proficient number-crunchers that come up with the best, personalized marketing strategies for your company.
Want to learn more about creating the perfect growth plan for your SaaS product?
Get Free Access To Our SaaS Growth Plan EBook.
An experienced Marketer with a demonstrated history of working in the digital marketing and advertising industry. Aravind is skilled in building ROI driven marketing strategy, digital strategy planning, Search Engine Optimization (SEO), Social media marketing, Search engine marketing, Landing Page Optimization, Web development, Media planning Google certified analytics and PPC expert.