The Old Funnel is Broken. Here’s how you can fix it.
Let’s stop for a second and get real. The days of customer acquisition at any cost are over.
As long as VC and PE money flowed freely with sky-high valuations, technology companies were able to generate growth by throwing money at the problem. With funding and valuations dramatically down this year, revenue leaders are pressed to come up with new operating models that deliver efficient growth.
In this new environment, retaining and expanding revenues from existing customers is now a top priority for the revenue leader and a closely tracked KPI for the board at every stage of the company’s growth, as reflected in the KPIs shared by Insight Partners.
It’s not surprising that a recent survey of revenue leaders published by DemandBase showed “acquiring new customers” and “expanding our customer base and improving retention” in a tie for the top priority with 41% of the votes each.
There are good reasons for the increased focus on growing existing customer relationships. While these reasons hold true in any economic environment, they are magnified by the headwinds we are currently experiencing.
The impact of customer retention on growth is hard to ignore. If you have $50m in ARR and you are losing 10% of your customers in a year, you are starting the next year with a $5m hole you have to make up in new sales just to keep your ARR even.
Data from SaaS Capital’s 2022 SaaS Growth Benchmarks provides further evidence, showing that growth rates for SaaS companies are directly and exponentially correlated with higher Net Revenue Retention (NRR).
Retention also impacts unit economics and profitability. It is well documented that acquiring a new customer is 5-7 times more expensive than retaining an existing one. And as much as a leaky sales funnel will run up the cost of customer acquisition, post sales leaks are even more costly.
By the time you’ve closed the deal and helped a customer with implementation, onboarding, and training, you’ve invested substantial resources. In many cases, the investment you make in the first year outpaces the revenues you generate, so you are really counting on the customer to stay with you for at least a few years to recoup your investment and generate positive lifetime value.
All these data points add up to a clear conclusion: to achieve efficient growth, revenue organizations need to find and engage prospects that will not only convert to customers, but also stick around and grow over time.
A new operating model: the customer lifecycle funnel
To drive sustainable growth, SaaS companies need to organize their marketing and sales around a funnel that reflects the entire customer lifecycle – from engagement and acquisition to retention and growth through expansion.
If in the past we could say “don’t confuse selling with installing”, today it’s the revenue leader that must ensure that value is not only promised, but actually delivered by making an impact on the customer’s business KPIs.
What does this funnel look like? And what does it mean for the marketing and sales organizations?
It starts at the top of the funnel with the Ideal Customer Profile, or ICP.
For most companies, today’s Ideal Customer Profile is far from ideal. It is typically defined by limited data points based on the dropdowns available in their current data tool – such as industry segment, funding, revenue, technographic, and firmographic information – broad brush definitions that are largely dictated by the data available. And here lies the problem, since these limited data points fail to accurately capture the reasons a customer would in fact realize value from your solution.
What you end up with is a pool of so-called “ICP accounts” that is typically both smaller and less on-target than your real ideal customer universe. And what we see time and again when we dive into the data of the companies we engage with is that they miss the mark by a wide margin, often failing to capture as much as 70-80% of their Total Addressable Market (TAM).
Missing their ICP targets is also costly. XDRs (at least the good ones…) spend considerable time gathering information from various sources before they reach out to a prospect. Sales execs then have to gather additional data points through conversations with the prospect in order to qualify them in or out. All this time and effort is better spent focused on engaging the right prospects who, given your ICP-based criteria of key insights, are already a good fit for your solution.
The new revenue data paradigm
Identifying the organizations and personas that can benefit from the value you deliver with a high degree of confidence requires a new data paradigm. One that goes beyond the standard-definition fields (industry, size, geography, etc.) to create high-definition profiles that accurately reflect the problems you can solve and the outcomes you can deliver for these customers.
Starting with the right ICP and buyer personas at the top of the funnel gives you a headstart in driving sustainable growth, often revealing a TAM that is 4-5 times larger than your current sales and marketing database.
Converting these prospects throughout the funnel is also easier now that you have correctly identified the right accounts and buying teams to start with. These highly granular data points used to define your ideal customers provide you with rich insights that you can use to accurately personalize your messages for each customer at every stage of the funnel.
They allow you to be super specific about the problems you solve and the outcomes you can deliver so you can rise above the noise when creating awareness and educating prospects about your solution. And being able to commit and document specific measurable outcomes you can deliver for each customer gives you the edge you need to separate yourself from the competition as you get to the selection stage.
The bright side of the funnel
But as we said upfront, this is not only about the initial sale. Since you’ve selected the right prospects to begin with and you have a deep understanding of the problem you solve for them, you are now in a great position to deliver the promised outcomes and accelerate deployment, adoption, and customer success.
And as you move across the funnel towards retention and expansion, this deep level of understanding allows you to quantify and document the impact your solution delivers in terms that are relevant to the buyer, so renewal and upsell conversations become much easier.
What can high-impact revenue data do for you?
In the short time we have been at it, I’m already seeing evidence of our impact at the companies we work with:
- They have been able to uncover opportunities to expand and refine their TAM based on highly granular data points that accurately reflect the problems they solve and the outcomes they deliver for their ideal customers.
- They are able to personalize engagement across the buying team and increase response rates from prospects.
- Most importantly, they are increasing conversion rates from the top of the funnel to the closed won deal.
- They are well-positioned to deliver on the promised value to increase customer retention and expansion rates moving forward.
- They have aligned the entire organization around the same target customers and increased the productivity and efficiency of marketing, sales, and customer success teams.
That’s the reason I joined RevenueBase. We deliver your entire revenue database as a service (building, maintaining, and flagging changes to it) that enables you to identify, engage, and get a response from companies and personas that meet your high-definition ICP criteria. By increasing top-of-funnel volume that converts at a higher rate, our customers are meeting revenue goals – and I’d bet they will see higher retention and expansion rates in the upcoming months and years. Our focus is on our impact and outcomes we deliver across your pipeline – not simply the quality of data.
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