Patrick McKenzie, founder of Kalzumeus Software, has been a happy SendGrid customer since 2010. We invited him to blog about some advanced techniques for using email, which he developed to sell his software and that of his consulting clients.
Newsletters get all the press in email marketing, but lifecycle emails are where much of the money gets made. Rather than blasting out an email to 50,000 people whose only commonality is that they are on your mailing list, lifecycle emails target individual customers with messages customized to exactly fit where they are in their relationship with you. Sadly, despite having oodles of engineering talent and copious data available about our customers to make decisions with, the SaaS industry largely misses opportunities to send high-converting customized messages. Let’s walk through a few types of lifecycle email and the business goals they can help your company achieve.
Inverting The SaaS Cash Flow Deficit
One common problem for SaaS companies, particularly for companies which employ sales teams, is that the cost of acquiring and onboarding a new customer (often called Cost of Customer Acquisition, CoCA) is a significant portion of their lifetime value (LTV). This results in the company being cash flow negative with regards to a particular customer for anything from 6 to 18 months of their commercial relationship, then reaching break-even, and then finally accumulating the positive cash flow and the high profit margins that make SaaS such a fun business to be in.
A SaaS company, particularly a SaaS company growing quickly, can be forced into a cash flow crisis due to the aggregate negative cash flow associated with new accounts being larger than the positive cash flow associated with seasoned accounts.
For example, let’s take a fairly typical SaaS company with a $200 plan, sold largely through low-touch processes. The company might spend an average of $2,000 (10 months of revenue) on advertising per new account signed up. If the company is growing at approximately 100 accounts per month, and we assume a fairly typical 3% monthly churn rate, the company will burn through over a million dollars in the 14 months it takes to acquire the 1,000 customers they will need to pay for their monthly advertising spend. The company only reaches positive aggregate cash flow in month 27. That’s a long time to wait for success from what is, fundamentally, a very sound business.
Here’s this company presented in graphical form. The left side shows the monthly cash flow (in this very, very simplified corporation which apparently has no rent or employees). The right side shows the aggregate of the cash flow over all months.
Now let’s make one tiny tweak to the business model: the business begins to offer annual billing. Specifically, they’re going to offer 12 months of service for the price of 11 months ($2,200), if you prepay for it. We’re going to assume the company gets a 4% uptake on this offer for accounts over 3 months old. (See why in a moment.)
What does this do to the economics of this company? Annual billing makes this company wildly more successful all by itself.
Annual billing a) shaved several months off the timeline to reach break even, b) shaved 6 months off the timeline to pay back the initial marketing spend, and c) decreased the capital required by about 20% (the monthly billing example burns through over a million at its peak, whereas the company with a few customers on annual billing burns through less than $800k). But that’s not all: in real life, though not accounted for in this simplistic model, a company with annual billing will see much lower month-to-month churn of revenue simply because a larger portion of their revenue doesn’t have the option to churn in any given month.
So what did email have to do with this?
Well, let’s return to that assumption that the company gets a 4% uptake on annual billing for all accounts over 3 months old. That’s extraordinarily aggressive if you just offer annual billing as an option on your pricing page. However, it is surprisingly achievable with a quick email to seasoned customers: ”Get One Free Month of $SERVICE_NAME By Switching To Annual Billing.”
The email is three lines long and writes itself. You simply pitch the annual billing as an incentive offered only to loyal customers, optionally with a time-bounded bit to motivate them into switching now. (My preferred language for this is ”P.S. Don’t worry, you can keep using monthly billing if you don’t want to switch to annual billing. We’ll only mail you this offer once.”) In terms of engineering, I think my most recent implementation was perhaps six lines of code total.
It is absolutely unreal how effective this technique is. (Don’t take my word for it: Jason Cohen, a friend (and sometimes consulting client), has talked about it publicly.)
Increasing Engagement (And Conversions) With The Free Trial
Here’s a stat you’re probably not measuring yet, but should: how many people, after their first exposure with your free trial / demo / etc, log into the software a second time? If you’re not measuring yet, I’ll answer this for you: between 40 and 60% depending on your sector, which means you’re essentially setting 40 ~ 60% of your marketing/advertising spend on fire. Plus, if your engineering team is like most, they’re developing features consumed primarily by people who are already happily paying for your software, rather than features which will meaningfully move that number up. (Give me your email address and I’ll give you a 45 minute video with some ideas on improving this.)
In addition to getting engineering to improve the first run experience of your software, you can send out targeted emails to customers who either a) haven’t logged in in a while or b) haven’t done the minimum thing required to get value out of your product (installed tracking codes on their site, invited colleagues, started their first $WHATEVER, or what have you). Failing the ability to write conditional logic, you can just send people timed messages throughout their trial. This works less well, but it still works rather well.
Appointment Reminder, which sends reminder phone calls / SMSes/ emails to the clients of professional services businesses, has a fairly simple sequence of emails which go out to free trial accounts during their first month, depending on their use of the software. For example, if a customer is already making heavy use of the software, the emails tell the customer they are successful and explicitly ask for the sale. Here’s just the introduction to one of them.
Thanks for using Appointment Reminder! We’re just checking to make sure you’re doing well.
Our computer says that you have scheduled 66 appointments and that we’ve already sent 40 reminders on your behalf. Appointment Reminder has probably saved your business about $75.15 in staff costs, if your business is similar to our average customer’s. In addition, you don’t have any more wasted time and aggravation sending reminders manually. Not bad for the first three weeks, eh?
That’s the happy case. The not-so-happy case is that a customer is 3 weeks into a 30 day trial but not successfully using the software much at all. In this case, the emails switch into rescue mode:
Thanks for signing up for the free trial of Appointment Reminder! We wanted to check in and see how things are going.
I run a small business myself, so I know things occasionally get busy. The computer says that you have scheduled less than a handful of appointments in Appointment Reminder so far. You’ve still got about 10 days left on your free trial, but we wanted to get in touch to see if we could help.
We’ve got two questions for you, if you’d care to answer:
1) Do you just need a bit more time? That is totally OK. We’re happy to extend your trial by another month. Send me an email and I can set this up for you.
2) Did you have any trouble getting started with Appointment Reminder? I’d love to hear what we could do to make that easier for you. I’m also happy to walk you through how to set up your reminders / settings / etc over email if you’d like me to.
These emails succeed in automatically reactivating many accounts. Just getting in touch with the customer reminds them that they were interested in the service a while ago, and pops it to the top of their mental queue of things to deal with today. In addition to scaling to the moon, this email (and the others we send over the course of the trial) often get us into one-on-one dialogue with customers, which helps to guide decisions on what to build (e.g. if their answer to #2 is gI wasnft willing to put my appointments in again. I need this to sync with Outlook.h, that is a useful data point for us) and gives us the opportunity to differentiate ourselves from Big Uncaring Enterprise Competitor who does not have the CEO personally respond to emails from people with $80 a month accounts.
You can continue monitoring customer engagement with the product for the entire customer lifecycle. HubSpot does a great job of this using an internal metric which predicts likelihood of cancellation in any given month. They use this to have the sales team proactively contact customers who might not be getting happy use out of their offering and attempt to salvage that relationship, but there’s virtually limitless tactical options here: send the customer customized educational content on how to get out of the rut they are in, put them in touch with an internal consultant, suggest a product offering which fits their needs better, etc etc.
The Weekly Report
SendGrid will, by default, mail you a weekly report telling you how many emails you sent, how many bounced, etc etc. Most software companies should implement something like this, constantly making the case for the value that your company is providing the customer. (You may think this will get annoying. Give people a one-click opt-out. The overwhelming majority won’t care, particularly if you’re providing them something of genuine value. I have had some products explicitly call out in reports that they should be shared with teams/bosses because they’re raise-worthy material. Opt-out rate: rather low.)
Also, having the expectation that you will regularly get in contact with a customer gives you an excellent opportunity to slide in the odd bit of marketing. You’re essentially creating an earned media channel, to only your paying customers, with no distractions, which will get consumed slavishly every week. Seriously, what would your marketing department pay for an ad in a publication that well-targeted? And you get it for free. It is a wonderful place to slide in product launch announcements, one-time offers to e.g. annual billing with a discount, the odd incentive to upgrade/upsell, etc etc.
Why SendGrid Is Great For Lifecycle Email
Generally, about 20% of the work for lifecycle email campaigns is figuring out the back-end logic of who gets what when, and 80% of it is iterating on messaging and offers such that the business gets what it needs to out of sending the email in the first place. However, neither of these can happen if the ($(g)h$ emails don’t reach the $(g($)h$ inboxes, and that is where SendGrid comes in. Delivery optimization is a full time gig for highly paid professionals who are very difficult to hire, and if you’re sending on a scale smaller than (say) Groupon, I wouldn’t make that a core competency for your organization. Just drop in SendGrid and youfre pretty much done. With just a wee bit of work over standard SMTP email in your application, you get per-campaign analytics and unsubscribe/bounce/etc tracking, for virtually no coding work. This lets your engineers/marketers concentrate on the more fun, challenging, and rewarding problems like ”How do we identify, among our users, whose behavior is most susceptible to being persuaded, and what persuasion will work effectively on them?”
Interested In Learning More About Lifecycle Email?
Lifecycle email can be an incredibly deep topic, since it involves product design, copywriting, pacing of marketing messages, tracking effectiveness of campaigns, and some significant engineering challenges. There’s a cottage industry of experts you can hire on this sort of thing, and if you’re in the Valley you probably already know that they’re difficult to find at any price. If you can find one of them to work with you, great. You could also try to figure it out for yourself, and will probably be executing fairly passably on it a few months from now.
If you’d like to shorten your learning curve a bit, I sell a five hour video course that teaches lifecycle emails, soup to nuts. Jason Cohen, one of my consulting clients, remarked, ”Patrick’s advice on starting a [particular type of lifecycle email] campaign for WPEngine was an epic win for WPEngine – it permanently moved the needle on signups after just a week of work.” (That was a drip marketing campaign – for more on them, see Chapter 2 of the course.)