2018. A guy asks on Facebook: what are typical SaaS startup marketing costs? The commenters tell him to think about channels, target audience, write a business plan … Don’t be these guys, that was the bad advice I got 2009. You deserve better. We are living in the future, 2018. In this article I describe how using Google Ads & customer development, you can start marketing your startup in minutes and a few hundred Euros and gather your own facts. Because facts > theory.
So you want to know: how much will it cost to market and sell my SaaS product? Do you already have an idea for a product? Yes? Good! Continue.
Have you ever done marketing & sales for an SaaS before? No? Do you already have paying customers? No? Do you have a finished product? No? Then read on because my learnings may help.
I am using my failed Refinder startup as example case throughout the post. It’s the main source of my lessons learned.
When I did Refinder, I did it wrong. I did a prototype first, then a business plan, asked friends/advisors/my mother about their opinion, did a finished product, then a launch. I lost 10 years and spent > 100.000€ on the wrong product. More on my story below. I hope I have your attention now.
My recommendation is to work in these 3 phases:
- Phase 1: Google Ads within a week
- Phase 2: Do customer Development and write business plan
- Phase 3: Finish product and launch it
Phase 1: Google Ads within a week (and alternatives)
- Write a landing page announcing your product. If all you have is one sentence, use that. Example for Refinder: “Refinder lets you search all your cloud apps as one. We are currently developing it.”.
- Add a signup form: “Enter your email address here to get informed when we launch and about news before”. You may also ask them for their company name (if you are in B2B) and a key fact that helps you to estimate their need for your product (Refinder example: “Which of the following cloud apps do you use weekly, check each that applies: Dropbox, Google Drive, Google Calendar, Evernote, …”)
- Think what people would enter at Google Search to find your page. Example “search across apps”. Go to Google Ads. Look in the “keywords estimator tool” how many people actually do search each month for your phrase.
- Book a Google Ads campaign for your search phrase/terms. Configure it to spend 100€-500€.
- Wait.
- People who are aware that they have a problem, who are actively looking for a solution, will eventually go to Google and enter something like “searching across cloud apps” to find a solution. Some will click your ad.
- Some will click your “sign-up” button and leave their email address.
Once your money is gone, you will know for sure by having it measured it firsthand yourself: the costs of acquiring a lead. This will get better as you can now start improving your campaign. You used a landing page to measure if people are willing to give you something (their email address) in exchange for something (news about your idea). Later you will ask them to give you money for you product, so this first step in your business development is paving the way for later greatness. On top of these learnings, you have your first leads, which you will need in phase 2.
This whole exercise should be started and finished within a week.
Within 7 days, you must be able to: Find out how to do all of the above steps by googling them or asking a friend to help you; find finished SaaS services for each step; find and a lot of online articles.
If you are unable to complete above steps within a week, you are in the wrong career path. Did you fail at writing text? Did you fail at putting up a simple page with one HTML form box? Do you have no friends who can help you? Do you lack 100€? In any case, your lack of skills, funds, enterpreneurial spirit, friends are ingredients that will lead to #startup #fail.
There are alternatives to using Google Ads.
Valentin Scholz describes, that he built the landing page (step 1 and 2) and then shared it on social media (Twitter and Facebook), got 500 visitors, 93 clicks on a signup button, 10 people leaving their email address. But Valentin had a head start. He says he “started a couple of startups in the past“. So he had followers and epxerience. If you lack the followers, go for the Google Ads method and spend 100-500€.
Doing a Kickstarter campaign would also be the way to go 2019. But be aware: if you get funded, you must be able to deliver. To get funded in the first place, you need a working prototype, the resources to produce a great video, the marketing experience to run a successful Kickstarter campaign. In summary about 30-120 days of high-quality preparation and stress. Compare that to “one sentence, one ad, 100€, 7 days”, the minimum effort of Google Ads market research.
Pro tip: If you are not sure if the current idea is the final product, use a decoy name to “burn”. For example “Cluug” or “SuperCloudSearch2000”. This way, by “burning” a throwaway name, you can keep your “great name” for later, when you launch with the pivoted product.
Phase 2: Do customer development and write business plan
As you and I want you to be successful with your startup, you followed the above checklist. You now have your first leads signed up to your first product landing page.
Now do the following, in any order and as long as it takes you:
- Read theory texts and instructions on SEO and Customer Development and Lean Startup. You should apply the theory immediately in your campaign. By applying, you will get feedback from “the market” and your learning rate will be astonishing.
- Improve your positioning text. “Refinder lets you find documents, contacts, appointments from one place. It uses semantic web technology”. Use better keywords at Google Ads. “semantic web app” or “find my appointments and contacts in one place”. See what works and learn quickly, what definitely is a waste of time and money. Look on “keyword estimator” which of your ideas are actually needed.
- Do interviews with your leads using the “customer development” approach. You have the emails of the people who signed up to your page. Contact them to ask them questions. But what should you ask then? Buy and read the book “The Four Steps to the Epiphany: Successful Strategies for Products that Win” by Steve Blank. I admit, the book looks weird and cheap – this is because he has self-published it. It doesn’t have the Steve Jobsian slickness of “Lean Startup”. Don’t be fooled. Mr Blank has a clear message about what to ask leads. For example: ask one person “would you pay 20€/year for Refinder?”. Ask another person “Would you pay 100€ per year?”. Ask “Why?” and “Why not?”. Do not ask “How much would you want to pay?” – the answer is always “I like free services”. Ask “If you will not pay for it, for what similar product would you pay 100€/year?”. “Do you know anyone who would pay for my idea? Can you connect me?”. This is all in the Steve Blank book. Buy his book or try to find the questions online.
- Listen to your leads. Believe them – they do not lie to you. They want you to solve their problem. If they tell you they won’t pay 100€/year, but only 20€ – believe them. Use these facts in your business plan, and do not use made-up wishful thinking of yourself.
- Write a business plan. Paint some Osterwalder charts. Now, since you already know the lead acquisition costs from your Google Ads campaign and you know how much people would pay for your product based on your customer develoipment
- Talk with advisors, investors, your friends. Now, since you have gathered real feedback from “the market”, you will be able to distinguish wisdom from bullshit when talking with advisors.
- Think and decide if you want to take in investments or not. In my experience, a bootstrapped business is more sustainable than a business built on investments.
Phase 3: Finish product and launch it
Then, after some weeks of gathering facts and building your business by customer development, you are ready to go.
- Finishing your product design.
- Finish the implementation of your product.
- If you have gathered about 1.000-10.000 email addresses during your customer development / Google Adwords phase, your launch will rock. So if you can, wait until you have 1.000 signups on your signup page.
- Launch your product.
- Market and sell it further. Your primary channel in 2018 is Google Ads. Try that first. You already know the customer acquisition cost of Google Ads now, so you can compare all other marketing channels to that and see which channels work better/more cost effective. You may also try Facebook ads or Linkedin, depending on your target audience. All other channels (viral, print, ads, face to face) come after Google Ads.
What happens if you change the order of steps? Do you believe the Google Ads campaign is a waste of money? Do you think you are better off by not following my advice?
Fine. You don’t want to run the Google Ads campaign first. You want to do something else first. You know it better.
You want to first write a business plan and estimate your development cost vs your marketing costs before you run your first campaign? You will use overly optimistic values in your assumptions from the very start.
You think that you can estimate the market by assumptions. You believe that the market has a potential of 1.000.000 users and you will surely get 5%, resulting in 50.000 users. Well, this is all fantasy bullshit. I will only believe you once you spent 100€ and you can tell me how many leads you got with that amount.
You want to first pitch to incubators, public funding bodies, your family and friends to get support? They each have their own agenda and will be biased. They will be overly polite and positive or even deceptive. Or they will agree to whatever you say because they love you or you are a good speaker/rhetoric and you can win them over. All this will not help you on the long run.
You don’t believe these arguments? Fine.
Lets take this to a personal level.
It’s your believes against my experience now.
Me:
- I spent 2003-2009 to reasearch a product idea (the Semantic Desktop, NEPOMUK), I was involved in raising and spending 16.000.000 EUR on my idea (public research funding).
- In 2009 to 2013 I spend hundreds of thousands of Euro (mostly public funding I applied for) on building the startup Gnowsis/Refinder around the same idea.
- The public funding bodies who manage the grants asked me for my credentials (a PhD), saw my working prototype (4 mio installations of open source NEPOMUK back then), and asked me to calculate a proper marketing and sales and business plan.
- I thought I took it serious by presenting a lovely Osterwalder business plan of channel, market, sales, etc.
- My 2009 business plan included my cunning market analysis (“globally, huuuuge market”) and sales estimations (“we will get X percent of the market”).
- This was enough for me and the funding bodies and investors to agree: this may work, go for it.
- But we all knew that the business model is a theory. 9 out of 10 startups fail.
- I hoped that my idea would find a market. I hoped I would be the one who succeeds.
- I thought its best to “built it first” and “they will come”. I believed in my product idea, otherwise I wouldn’t have been able to motivate myself and partners, programmers, investors, funding bodies to join.
- I believed in the theory of “viral marketing”, because, Dropbox.
- A big ego and success in the past surely helped.
But I constantly feared: they may not buy it once we have built it. I did not know if they will buy it.
I did not run the bloody Google Campaign because I thought it is a waste of money (and I may have feared the results).
Now let me tell you about a waste of money that happened then:
- 2009-2013: We built it (Refinder).
- They didn’t buy it. I was wrong.
- I had to change the product. I pivoted. Twice.
- We ran out of money.
- It failed.
- My ego shrank to a healthy size.
- I invested 10 years and a lot of my and other people’s money to learn this lesson.
As enterpreneur, you always believe in your own ideas and your product, otherwise you would not start. But you may have the gnawing fear inside, like me, that it may fail. Focus on this fear. Sort it out. Exposing your idea to the market using Google Ads is also a reality check of “what I as inventor think is good for the world” versus “what people actually want and pay for”. Finding out you are wrong can hurt your ego. Seeing your fear come true is hurtful. It can make you change your business model. This is good. Your ego is standing in your way, anyway. Hurt it now safely while you can. Don’t let it be hurt by the market after you invested a lot.
I gain nothing by writing this. For me, I already learned my lesson and apply the learnings in my daily job of marketing and sales.
Summary
Summary for you, the enterpreneur: do not start with calculating your business plan. Start with testing out the core assumptions of your SaaS business plan by running a Google Adwords campaign. Then use these real-world numbers to calculate your business plan.
Lessons for funding bodies/investors: If you run a funding body giving away research grants, startup grants, or venture funding to SaaS companies: on the first date with SaaS enterpreneurs, don’t ask for a business plan and market estimations. We both know it’s wishful thinking. On the first date, ask: have you already started your Google Adwords campaign? Which keywords worked? What was the conversion rate? How many leads did sign up? What was the cost/lead? How many leads do you have as of today? How many interviews did you do? How many people said they would pay the amount X you are asking for your product? None? Nada? Nilch? Then please (fuck off and) and do your homework. Because your best competitors are currently doing exactly that. Once an enterpreneur has spent 7 days and 500€ to get actual numbers, then they can use the numbers to write and calculate a business plan that is more realistic than without this small but important exercise.
At the end of this post, I hope to give you something back / Karma: If you ever spent tax money in the EU, a few cents earned by YOU have found their way into the public funding of the EU NEPOMUK project and/or the national funds that helped the Refinder startup I helped build. The EU project had a lot of deliverables (documents) with scientific results, which still hold today. The source code is still out there for you to use. But now, this post about the business/marketing side is also here for you. So, you, I, us taxpayers already paid for this lesson learned, this deliverable. I have been giving this advice in the last 5 years in many personal conversations and it has helped some people. I think it’s better to write it up on my blog though, this is more long-lasting. It’s you now, who can learn from it and apply it. I can make the world a bit better by sharing this info.
I wish someone kicked my butt with this info in 2003.