Acquiring customers is the biggest challenge any B2B software company has.  Unless you are lucky enough to have an award winning solution that sells itself like the mythical product led growth  companies (Slack, Dropbox, and Expensify), you have to grind it out like everyone else.  Display advertising, landing pages, sales development reps, content marketing, marketing automation, sales automation, and CRM systems are the basic table stakes in today’s B2B software sales game.

Have you ever done the math about how big a sales funnel you need to build to hit a new customer revenue growth target?  It is not a pretty process.  Consider the following table.  To generate an incremental $25M with an average deal size of $50K you would need:

The funnel conversion rates are typical for B2B software sales.  Check out these research pieces:

Every company’s funnel structure and conversion rates are unique.  When was the last time you modeled your firm’s funnel conversion rates?

If you rely solely on display ads, you would need over 650M impressions to hit your numbers.  Relying on landing pages from either organic search or paid keyword search is still a tough hill to climb, with a need of over 3 million hits.  Average keywords are about $3/click.  Some companies, however, will pay $50 or $70 for a single click.  Assuming that half of your landing page traffic is being driven by paid search at $3/search, that would be a $9M advertising bill.  Spend at that scale is not realistic for a company generating $25M in net new sales

Customer Acquisition Cost is a common metric used to assess B2B sales efficiency.  CAC is the total costs associated with acquiring a new customer divided by the number of net new customers.  CAC is more than pay-per-click costs.  You also need to include other marketing expenses (branding, press, analysts relations, etc.) and sales expenses like sales compensation, travel, etc.  CAC is difficult to calculate, isolating costs solely associated with new customers is difficult.   A more effective metric is what I call revenue efficiency.  Revenue efficiency is how many revenue dollars are generated for each dollar of sales and marketing expense.  Consider the following table that shows revenue efficiency for a number of public software companies:

sales marketing spend analysis

For a mythical $50,000 deal, these companies would spend on average of $12,994.  That sounds reasonable when you consider marketing costs, sales salaries, and commissions.  I have spent the majority of my career in companies with annual revenues between $15M and $350M.  It would be great to be able to spend $70M in a quarter on sales and marketing.  Unfortunately that is simply not a reality for most software companies.

There are some things you can do to lessen the horror.  Improving your sales funnel conversion rates would have a huge impact.  Consider the following table:

sales funnel conversion rates

There are a number of tactics you could adopt.  There is one tactic that will produce outsized results – customer referrals.  Consider the following:

It is no surprise that customer referrals have such a big impact.  They are perhaps the most credible source of information for potential buyers.  One strategy you should seriously consider is sponsoring local functional conferences for customers.  If you are in the logistics industry, sponsor a conference for logistics professionals.  Let your customers talk about how their business had found success or failure with the adoption of contemporary logistics research.  Do not make the focus about your technology.  Your real goal is to get your customers in the room with their peers from local companies.  The referrals will come naturally.  Repeat the conference in multiple cities where you have some critical mass of existing customers.

Instead of investing in another sales development rep and the associated technology required to support him/her, invest in sponsoring a series of conferences where your customers can highlight their own success.

By John Mecke

John is a 25 year veteran of the enterprise technology market. He has led six global product management organizations for three public companies and three private equity-backed firms. He played a key role in delivering a $115 million dividend for his private equity backers – a 2.8x return in less than three years. He has led five acquisitions for a total consideration of over $175 million. He has led eight divestitures for a total consideration of $24.5 million in cash. John regularly blogs about product management and mergers/acquisitions.