Software as a Service (SaaS) marketing has had an explosion in the past year. With the COVID-19 pandemic, the entire world has suddenly had to switch to a digital format. Jobs have largely moved online, and there is a greater need for SaaS companies than ever before.
Whether it be the growth of video calling software like Microsoft Teams, fun ways to watch movies with friends like Teleparty (formerly Netflix Party) or even dating apps like Bumble, there is a greater demand for SaaS companies than at any other point in history.
So as a marketer, how do you approach SaaS marketing? At first glance, the world of SaaS marketing is off-putting. There are a lot of terms that are used within the SaaS marketing community that aren’t common elsewhere.
This can make SaaS marketing seem intimidating at first but fear not, our team of Fractional CMO’s and other marketing experts have come to help you become a champion of SaaS marketing by putting together this guide of the most important terms for your SaaS business.
- Total Addressable Market (TAM)
TAM is one of the simplest yet also one of the most important terms in SaaS marketing. In short, TAM is the total market demand for a product or service. This is the largest possible market that a product can reach.
For example, if you are Coca-Cola, your TAM is every person in the world who drinks soda. Chances are not everyone in your TAM is going to buy your product, but it helps you narrow down your focus in your marketing strategy. The next step is to specify more and narrow your scope further.
- Serviceable Available Market (SAM)
SAM is the next step after you have worked out your TAM. Your SAM is the segment of your TAM that is within your feasible reach, whether that be limited by geographic limitations or other reasons. For example, if you are a plumber in London, your TAM might be anybody with plumbing in the world.
However, that is a wildly unrealistic target market. That’s why your SAM would be the people who need assistance with plumbing within the city of London. You still aren’t likely to capture your entire SAM, but it gives you a much more realistic look at your market size.
- Serviceable Obtainable Market (SOM)
Your SOM is your most immediately important of the TAM SAM SOM combo. SOM is the market that your company is available to capture. These are the people who will be open to using your service or buying your product.
If you’re a burger restaurant, you aren’t going to immediately have the same access to the global market as someone like McDonald’s does, but you can start looking at the people in your neighbourhood as your SOM. The beauty of a SOM is it grows with your company. Your burger restaurant starts by having access to your immediate neighbourhood. As you grow, you can open more and more locations and, in turn, grow a larger and larger SOM.
SOM isn’t purely limited by geography. If you’re a freelance copywriter, then you have mobility upwards in terms of your SOM. You might start with small clients, but as your portfolio and network grow, you can get higher profile clients.
- Costs of Goods Sold (COGS)
COGS sounds like a counterintuitive metric for a SaaS business. How are you supposed to calculate the cost of your goods when your service doesn’t require physical products?
Well, what most people outside of the SaaS industry don’t see is all of the costs that come with offering Software as a Service. Sure, you don’t have a tangible product, but you do have hosting costs if your service requires a server. There are transaction fees, not to mention customer service and tech support fees. So, when looking at how to price your product to make a profit, make sure that you consider your COGS to ensure success for your SaaS business.
- Sales Qualified Lead (SQL)
An SQL is the cornerstone of your sales strategy. These are the people that your sales team will be talking to, day in and day out. A SQL is a lead that fits the criteria to buy your service.
Those criteria will depend on your service. They could be people who are willing to spend within your specific price range. They may be a company that needs your service for their day-to-day operations or any other number of specific criteria that fit your service.
- Sales Qualified Opportunity (SQO)
SQO is the next step in the sales funnel after an SQL. These are the people that are now beyond just a regular lead but have gone so far as to have directly interacted with your company.
Either people who you have led through a software demo or people who have given a free trial of your software a go. These are people who have expressed interest in your software and either need or want your sales team to close the deal and get them started with your software.
- Marketing Qualified Lead (MQL)
An MQL and SQL may seem identical at first glance. They are both sales leads that haven’t bought into your software yet, so what is the differentiating factor between SQL vs an MQL?
The difference between the two leads is the approach towards bringing them to your company. An SQL has been researched and vetted by your sales team. They have been purposefully chosen for your company, and they’re directly reached out to by your sales team.
An MQL is someone whose attention is brought to your firm by your marketing communications. They might have shown interest in your firm by answering a questionnaire or participating in a contest run by your company, but the main difference still stands. These leads come to you rather than you going to them.
- Ideal Customer Profile (ICP)
Your ICP is what the ideal customer for your business looks like. Your ICP is made up of all the firmographic, environmental, and behaviours that exist within your ideal consumer.
Your ICP isn’t going to be every single customer. However, making your marketing and sales teams aware of your ICP will help align them on who they should be targeting. Thus, allowing for a much smoother and more targeted sales funnel that will allow for your firm to maximise sales.
- Objective Key Results (OKR)
OKRs are the basis for every department in SaaS firms. Quite simply put, they are the framework for measuring objectives and tracking their results. They help to keep everyone in the organization focused on the larger company goal, as well as goals for individual departments. OKRs are a great tool to use internally as they allow your SaaS firm to run more smoothly and achieve goals with greater efficiency.
- Churn
Churn is an important metric for a business in any industry to keep track of. So, what is churn? Churn is effectively the number of customers who either stop using your service or fail to renew their subscriptions. As a marketer, this metric is invaluable as it gives you an idea as to how effective your marketing to existing customers is.
Now you probably want to know how to work out the churn rate for your business. The simple base formula for how to calculate churn rate is:
Customers lost in a period ÷ Customers at the beginning of a period = Churn rate.
Seems simple enough, right? Calculating churn rate will help you have a more exact idea of how many customers are staying with your business in comparison to how many are leaving it and if you need to take action on this front.
Working in the SaaS field can feel intimidating sometimes. There are so many new competitors popping up at an unprecedented rate and having greater rates of success compared to SaaS companies of the past. Arming yourself with the knowledge needed to succeed in the field is going to be the key to your success.
If you need help with marketing for your SaaS company, contact gigCMO today. Our team of fractional CMOs, CEO whisperers, and other marketing talent on demand are equipped with the knowledge and experience necessary to make sure your business succeeds in the competitive SaaS market.
