Sramana Mitra: What is your conclusion about where you wanted to pin your customer acquisition cost? How does that correlate to your lifetime value for your SaaS business?
Josh McCarter: All of the benchmark studies say that you need to be north of three times LTV. That seems to be the number where people feel like you’ve got your acquisition cost in line. Obviously, when you’re in enterprise sales, your months-to-payback are sub-12 months. When you’re in SMB SaaS, they’re usually sub-20 months. One of the things that we’ve really focused on is how to change some of our go-to market strategies so that we are less reliant on direct sales and more reliant on channel partners.
That’s been the morphing essence of the business over the last 12 months – building up a larger network of referral partners. In our Series C round, we had First Data. They’re a channel partner that are referring deals to us. When you look at your overall sales and marketing strategy, the more that you have that can be done through other people’s sales teams and be based on a revenue share over time versus upfront acquisition cost, the better it helps you manage your acquisition cost. That’s one of the things that we’ve done successfully in the last 12 months.
Sramana Mitra: In terms of recruiting these channel partners, what have you learned? What are the parameters that make a good channel partner for you?
Josh McCarter: It starts out with somebody who’s already selling a relevant product or service to the target customers that we’re going after. They already have the relationships. Hopefully, they’re in somewhat of a trusted advisor situation. When they come in and have a new partner to announce, they have a relationship and more credibility than one of my sales guys does by just calling out of the blue or over the phone. That’s the first thing.
The second thing is trying to figure out who the different partners are where your product enhances their product. It could be because it enhances their product from a feature function standpoint. Or it makes their product stickier so their customers are less likely to churn when they have their product and your product together.
Also looking at how some of the technology and data on the backend can be leveraged to either create a new product or enhance information that is being shared with the business about their performance, customers, and sales. That’s what we’ve looked at in terms of the different partners that we’ve gone after. We’ve had an approach of pursuing small partners like local marketing agencies all the way up to the biggest partners like First Data.
Sramana Mitra: At what point do they recommend you? I can understand marketing agencies are actually knocking on doors and actually selling marketing services. In First Data’s workflow, at what point does a customer get recommended your product?
Josh McCarter: First Data has got 20 different divisions. If you think about the merchant processing, customer acquisition, and support, they have a thousand sales reps that are out in the field and a couple hundred who are in call centres. They’re working with a variety of partners. It could be Sam’s Club. It could be SunTrust bank. It could be the local community bank or other organizations that they have partnerships with. They get referrals from those businesses.
If you go in and you want to open up a business banking account at your local community bank or credit union, you go in and you talk with the bank rep. The bank rep will ask you, “Do you want to be able to process credit cards? What kind of business are you?” Then you’ll say, “I’m a retail business.” They’ll ask you, “Do you have a point of sale system that will help you manage everything?” Maybe you do. Maybe you don’t.
If you don’t have something, that becomes an opportunity for the merchant processing sales rep who is usually a First Data sales rep to introduce something beyond just merchant processing. They’re introducing a system like Clover or they’re introducing a product that can take mobile payments. During that conversation is when the business consultant learns more about the business, and can identify if there’s an opportunity for them to sell other products that they offer..