Are Google Ads effective for SaaS businesses?
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For most businesses, Ads can be one of the fastest, most cost effective way of attracting prospects to your website. This is especially true for SaaS businesses. In my opinion, for most SaaS businesses, Google Ads should be one of the key staples of your marketing mix. I caveat this by stating that paid ads are only effective if the numbers stack up and there is enough margin to pay for traffic to your website.
Often it’s easier to market higher ticket products as there is usually more budget to play with and the conversion numbers can be much lower in order to achieve a positive return.
Let’s consider two SaaS businesses.
Business One offers a high ticket service that has an ARR (Annual Recurring Revenue) of £20,000. This business also has a profit margin of 30% - Thus making £6,000 profit per customer in the first year. If the average lifetime of a customer is 3 years, then they’ll pay £60,000 and give £18,000 profit.
Business Two offers a lower ticket service that has an ARR of £600. Given the same profit margin this company would generate £120 profit in year one and £360 over 3 years.
In order for paid traffic to be viable for Business Two, the conversion rates need to be a lot higher.
Clearly the second company needs to be a high volume based business, generating lots of customers in order to grow. In order for paid traffic to be viable for them, the conversion rates from click through to lead and then to customer needs to be a lot higher with business number two.
Understanding your numbers
The two scenarios explained above show why it’s vital to understand your numbers. Here’s a list of some key figures that a SaaS business that is running ads needs to know.
- Gross Profit per customer. Your gross profit is the profit left after delivery of your SaaS. This lets you know what you have to ‘play with’ in order to generate your customers.
- Cost per click - How much does it cost you every time someone clicks on your ads?
- Visitor to lead conversion rate & cost per lead - By knowing this, you can work out your cost per lead. I.e. If you are paying £2 per click and have a 5% conversion rate, then you are paying £40 per lead.
- Lead to Customer conversion rate which in turn gives you the cost per client acquisition. For example, if you’re paying £40 per lead, and your lead to customer conversion rate is 5%, then it’s costing you £800 to acquire a new customer.
Once you know these, you can make an informed decision as to whether there is sufficient ROI to make Google Ads a viable marketing channel for your SaaS. Following the numbers from above, if it costs you £800 to secure a new customer and your gross margin exceeds this, then it is worth using Google Ads, however, if it is less than this, without increasing conversion rates significantly, it’s probably a channel to avoid.
Any form of marketing is all about the numbers. Not just the figures coming from the advertising platform that you’re using, but in the post click marketing and sales activities as well.
A good CRM, such as HubSpot Free CRM will help you measure your sales activities.
If you’re having difficulties in finding out what your numbers are, then we’d be happy to help. Arrange a growth call where we can talk through your numbers in greater details.
Why use Google Ads for a SaaS business
Who shouldn’t use Google Ads?
The obvious one is if a positive ROI can’t be obtained because of the costs of acquisition compared to the profit margins within your business.
The other big no-no is if you haven’t got a suitably experienced person that is able to manage your Google Ads account for you, or can’t dedicate the resource to have someone manage your account.
As an agency, we’ve seen lots of examples of companies that set up ad accounts and because they didn’t have sufficient resources, they wasted a considerable amount of money and allowed the budget to be spent without getting the desired results.
Google Ads, along with any other medium that you are paying for traffic, should never be a set and forget activity. They need to be monitored, at least on a weekly basis to spot any issues and to optimise for increased performance.
In summary, Google Ads can be a fantastic platform to increase reach, drive qualified traffic to your SaaS website, Ensure that there’s a positive ROI and make sure that you’ve got someone appointed to actively manage your Google Ads account.