As Customer Acquisition Costs Rise, SMB SaaS Tech Providers Find Innovative Ways to Reduce Churn
April 30, 2019 | Contributed by: Courtney Dobson
With bountiful opportunities available, investors are allocating a great deal of money into SMB SaaS companies. According to SurePath Capital Partners, SMB-focused software companies raised roughly 1.3B in March and around 2.2B in February of this year. The investments ranged from restaurant management platforms to cloud-based HR software.
Despite all the capital, these SMB SaaS technology providers face a major problem: rising customer acquisition costs (CAC). CAC refers to the cost associated with gaining a new customer, and in the last five years, they have risen by over 50%.
CAC Growth over Five Year Period:
There are many potential reasons for this inflation. Among consumers, trust and loyalty have declined. According to a HubSpot survey, 55% of consumers don’t trust companies they buy from as much as they used to.
When it comes to SMB users, there are multiple factors involved. The market is highly competitive and many SMBs are on the receiving end of emails, digital advertisements, social media pitches and more. Many SaaS and marketing companies struggle to reach the right prospects. And when they do, they find it difficult to retain their customers following the initial purchase – because their customers are continuously bombarded with ‘new’ and ‘better’ products at every turn.
Churn remains high for most SaaS companies, which has a number of causes. They include over-promising and under-delivering results, uncertain ROI, associated costs and lack of adequate interaction and customer service post-onboarding. However, companies are finding ways to succeed within this ‘new normal’.
Research from Vendasta shows that the more services a company offers the SMB (website, reputation management, bookings, listings, CRM, etc.), the greater the account retention rate. When we look at companies like Hubspot, they are finding success through investment in top notch training and positive customer experiences.
Small businesses currently make up 98% of all businesses within the U.S. and are responsible for half of the $10T economy. The prosperity of the U.S. economy depends on the success of these SMBs, so the ability for them to run their businesses in the era of the “modern consumer” is vital. For SMB SaaS tech providers and their investors to succeed, companies need to get creative with ways to obtain new customers and hold onto the ones they have for the long-term.
Join us at LOCALOGY ENGAGE: SaaS/SMB where we’ll explore how SMB SaaS technology providers can drive CAC down, LTV up and drive engagement forward during our panel session ‘Getting CACky: Who has Mastered the Art of Efficient Selling?’ Badges are still on sale, don’t miss out on this revolutionary event that brings Local SMB users and SaaS technology providers together in the same room for open discussion, education, and networking. Visit www.localogy.com for more information.