“It’s not you, it’s me.” The line uttered in thousands (millions?) of breakups, both real and fictional.
If you’ve been on the receiving end it can sound like an excuse. If you’ve said it, you may have used it as an easy out or truly been trying to explain the other person wasn’t at fault.
In any type of relationship, whether personal or professional, finding the right fit is important. In the SaaS world the spotlight for growth often focuses on customer acquisition. But, it isn’t just about acquiring customers…you need to acquire the right customers.
Even if you’ve done your due diligence and created ideal buyer personas, you’re likely still making the mistake of selling to the wrong customers. It’s a mistake that is affecting your SaaS company’s growth.
Let’s fix it.
In today’s blog you’ll learn:
- The many ways selling to the wrong customers affects your business
- The difference between unhappy and wrong-fit customers
- How to identify bad-fit customers
- How to stop selling to the wrong customers in order to ramp up sales to the right ones
How does selling to the wrong customers affect your SaaS business?
Higher churn.
While you may not realize your product isn’t the right fit for specific customers, they eventually will. And when they do, they will churn.
Steli Efti goes into more detail:
“Those customers will leave sooner rather than later, which will lead to high churn. Churn will make it nearly impossible to hit revenue goals since you’ll constantly need to replace old customers. Plus, churn rate is one of the first things investors will ask about—if it’s too high, your company’s valuation prospects are doomed.”
Increased support costs.
Customers who have bought your product but are the wrong fit will not derive value from your product. But they want to. So they’ll reach out to support…OFTEN. The wrong customers aren’t simply unhappy. Their frequent complaints can’t be adequately solved by even the best support teams because your product/service isn’t designed for these users. Selling to the wrong customers increases support costs and drains internal resources.
Lowered employee morale.
This ties in with the point above. Your customer success and support staff will consistently be dealing with unhappy customers they can’t provide solutions for. Employee morale can take a hit from constantly hearing about “issues” or workarounds for your product. Left unchecked, low morale can turn into an unproductive and unmotivated staff.
Drag on growth.
Renewals and expansion are a result of customers being successful with your product/service. Customers who are the wrong fit for your SaaS do not experience success; instead, these customers drag down your growth rates.
Note: All points listed in this section can contribute to lower growth rates.
Damaged brand & reputation.
Pre-churn, when bad-fit customers contact support and their issues can’t be resolved, those customers can hurt the performance metrics of the support team.
Unhappy clients are complainers, and those who complain tend to tell their friends. And contacts. And total strangers. There are enough online forums discussing SaaS and online tools that an unhappy customer has plenty of outlets for venting, a frustrating fact when they weren’t the right fit for your product in the first place.
Richard Felix, Co-Founder, Sense Labs
Feedback provided that shouldn’t be included in product decisions.
You don’t want your product roadmap to be influenced by feedback from customers who aren’t your ideal customer or target market.
“Bad-fit customers can send product down the wrong path. Product teams shouldn’t spend time adding or fixing features for customers that shouldn’t be customers in the first place,” advises Lincoln Murphy.
Unhappy customers vs. wrong-fit customers
It is important to understand that customers who are unhappy or challenging aren’t necessarily the wrong fit for your SaaS. In fact, customers who are complaining about product issues to your team can actually be doing you a huge favor!
Research findings indicate for every customer who complains about an issue, there are 26 other customers having the same issue who aren’t talking to you about it.
So, what separates the unhappy customers from the wrong-fit customers?
“A customer should be considered a bad fit when you cannot deliver immediate value, nor can you – based on where you’re at today, your available resources, etc. – realistically deliver future value in the required timeframe for these customers,” explains Murphy.
Identifying the wrong customers for your SaaS
Who is the wrong customer? Here are a few clues:
- They need a lot of help or just don’t get your product.
- They don’t recognize the value of what you’re offering.
- They can’t really get to a point of realizing value by using your app.
- You simply didn’t build your feature set with this person in mind.
Carmen Apostu, Growth Marketing Manager at Koombea
Look at the demographics of your most successful customers. Look at the demographics of customers who have the most support requests and those that have churned.
You’ll probably begin to see some patterns, which will help you further refine the persona of your ideal customer in addition to the traits of customer types who are the wrong fit for your business.
As you identify the demographics of wrong-fit customers you can develop ways to make sure those personas aren’t being sold to. Here are some ideas:
How to stop selling to the wrong customers
Mindset change.
Throughout the organization, there needs to be a change in mentality from acquisition being a numbers game to focusing on identifying prospects who truly need your product:
“They need to migrate their thinking from one of ‘Let’s sell software to every potential customer we can,’ to one of ‘Let’s sell software to customers who truly need our product and will derive real value from actively using it’,” says Gareth Goh.
The mindset change should start at the top of your organization. Executives need to explain how selling to the right customer benefits the entire company’s health.
The sales team’s mindset should include a focus on the right customer relationships rather than seeing sales as simply transactions.
According to Efti, those relationships are “what really differentiates SaaS sales from sales in any other industry. Other businesses can thrive selling a product to someone just once—it’s a transactional sales process. But with SaaS, your customers have to continuously justify paying you each month, and can cancel their subscription at any time—in some ways, you’re reselling the product again and again. You need to build relationships with customers who will grow as you grow, and you can only do that if you’re reaching the right people.”
Interdepartmental collaboration.
Ideally, different teams within your SaaS company are already working well together. When you look at the collaboration as it applies to selling to the right customers, there may be additional ways teams can join forces to better ensure the wrong customers are not being sold to.
For instance, at Natero “new deals in the pipeline are reviewed by sales and customer success to evaluate fit and understand expectations. The team discusses any potential impact on the customer journey so that everyone is on the same page from the beginning. The goal is to align sales and customer success across all stages of a prospective customer’s lifecycle — from onboarding to adoption and beyond,” explains George Szundi.
Identify your ideal customers & educate your sales staff on what to look for.
Stop trying to appeal to everyone.
Szundi suggests comparing sales’ buyer personas with customer success’ successful customer personas. The intersection of where those two personas overlap is key to your ideal customer persona.
Education is essential.
f a salesperson has not been explicitly told the characteristics of a bad fit customer, why they’re a bad fit, and what the negative consequences of doing business with that customer are, the fact that there is a possibility they might not be a great fit isn’t reason enough for the salesperson to give up that sale, miss their numbers, and take home less pay.
Lincoln Murphy
Incentivize sales staff accordingly.
Incentives for sales staff should focus on the quality of customers, not just the quantity. When your goal is to have sales selling to the best-fit customers, consider aligning sales commissions with customer LTV and churn rates.
A few years ago, when HubSpot’s VP of Sales created a goal of increasing the company’s run rate from $300K to $3MM in less than a year, there were some interesting results.
Customer count and ARR increased. Churn skyrocketed.
Initially, customer success was blamed, but after a closer analysis it was determined that the actual problem was sales. “In an effort to ramp from $300K to $3MM, the team had gone after prospects that were unlikely to have success with their product,” writes Sonja Jacob.
In the graph below, you can see two HubSpot salespeople’s account churn rates. Note that in one month, 35% of Eric’s accounts churned while Alex’s churn rate was approximately 7%.
The discovery led to additional education for the sales team and a new compensation structure.
Under the new commission plan “it takes a year of not churning for your rep to receive the full commission. This plan incentivized HubSpot’s sales team to think much harder about whether customers would be a good fit for the product, and whether they were likely to churn,” according to Jacob.
And as a result, HubSpot was able to turn the ship around.
Initially, customer success was blamed, but after a closer analysis it was determined that the actual problem was sales. “In an effort to ramp from $300K to $3MM, the team had gone after prospects that were unlikely to have success with their product,” writes Sonja Jacob.
In the graph below, you can see two HubSpot salespeople’s account churn rates. Note that in one month, 35% of Eric’s accounts churned while Alex’s churn rate was approximately 7%.
The discovery led to additional education for the sales team and a new compensation structure.
Under the new commission plan “it takes a year of not churning for your rep to receive the full commission. This plan incentivized HubSpot’s sales team to think much harder about whether customers would be a good fit for the product, and whether they were likely to churn,” according to Jacob.
And as a result, HubSpot was able to turn the ship around.
Be clear in your messaging.
According to Apostu, “your messaging should be explicitly clear from the second a prospect lands on your website. Remember that they usually want to know two things initially:
- What exactly is this?
- Is it for me?”
Social media campaign platform Heyo is a great example of this. After researching the large population of users who were churning, they discovered their ideal customer came to them with a large, actively engaged Facebook audience.
So, Heyo changed the language in their demos and even created a slide to be very specific about the type of user who is successful with their product:
“Did it keep some people from buying? Yes. Should those folks have bought? No. And what’s more, if someone did have these pieces in place, this slide gave them much more confidence in making a purchase,” says Christopher Riegger, former Heyo COO.
Wrap-up
Ultimately, customers who are the wrong fit for your SaaS are “the consumer equivalent of bad relationships – they’ll try to change you, complain about you, and never really love you,” says Nichole Elizabeth DeMeré.
It’s never too late to remedy the situation. Use the ideas above to help your own SaaS company stop selling to the wrong customers. Doing so will decrease churn and increase customer satisfaction, team morale, and help accelerate your business’ growth.
Now it’s your turn: what tactics has your company used to stop selling to the wrong customers? Let us know in the comments below.
