There are 30.7 million small and medium-sized businesses (SMBs) in the United States. Taken as a group, they account for 99.9 percent of all U.S. businesses. That’s a huge potential market, especially when you consider that SMBs are expected to spend more than $676 billion on tech in 2021. As a group, SMB sales revenue is too big to ignore, but how do you justify the cost of SMB sales against the ROI?
When you consider strategies to sell to SMBs, you have to apply a different approach. SMBs can be fiercely loyal customers and generate a great deal of repeat business over time. At the same time, their budgets are going to be smaller, and so sales revenue from individual contracts will be less. That’s the trade-off you have to consider—is pursuing SMB sales worth the investment in time and resources?
If you can adjust your sales strategy to lower customer acquisition costs (CAC) while increasing lifetime value (LTV), SMBs can become your most profitable customers.
Understanding the SMB Buyer
Building SMB sales requires an understanding of the SMB buyer. As with any business, SMBs are buying more technology to support operations and lay the foundation for growth. It’s how they go about selecting the right technology for their needs that is different. When you appreciate how SMBs approach technology purchases, you can adjust your sales tactics accordingly.
Traditionally, selling enterprise technology is a long, involved process that entails many meetings, presentations, and technical consultations. For large customer sales, the sales rep may have to meet multiple times with department heads and stakeholders before they can close a deal. This process can take months, but the size of the contract makes the time and effort worthwhile.
It doesn’t pay to invest the same time and resources to sell an SMB customer, but then again, you don’t have to. Unlike enterprise sales, in which there can be dozens of stakeholders, you usually only have one or two SMB decision makers. It’s often just the business owner, so you only have one buyer. However, it still doesn’t pay for highly paid sales reps to seek out SMB customers for various reasons:
- SMB decision makers don’t want to be sold. A Gartner survey shows that SMB buyers spend only 17 percent of their time talking to vendors. The rest of the time is spent researching technology solutions and talking to stakeholders.
- SMB owners are busy. SMB owners and senior managers are very busy. Fifty-five percent of those surveyed by Salesforce say lack of time places serious constraints on business activities, and 66 percent report wearing three or more hats, which may include responsibility for operations, finance, sales, marketing, HR, customer service, and other business functions.
- SMB owners tend to avoid taking risks. Any IT decision represents a big move for SMBs. Most smaller companies are operating on a shoestring and can’t afford to make the wrong technology choice. Many won’t buy anything unless they are positive it’s the right move.
- SMBs have smaller budgets. Naturally, SMBs have smaller operating budgets and have to be sure of ROI before they spend.
Trying to identify and sell SMB prospects can be an uphill struggle, which makes it expensive. Instead, try attracting SMBs and getting them ready to buy before you engage.
Lower CAC and Increase LTV
To make SMB sales more profitable you have to both lower CAC and increase LTV. The best way to do that is by letting the SMB buyer do most of the work.
With a successful SMB sales program, prospects become self-selecting. We already mentioned that SMB buyers spend only 17 percent of their time meeting with vendors. They also spend 45 percent of their time researching solutions online and offline. SMB buyers take time to identify the right solutions before they engage. Much of that educational information should be coming from your sales development reps (SDRs). Whether they are in-house or outsourced, SDRs are responsible for attracting and qualifying potential buyers, continually feeding new information to SMB leads until they are ready to talk to a sales rep. SDRs also use digital marketing strategies that are much more cost-effective than traditional sales prospecting.
To keep CAC low, you need better lead scoring as well. In addition to showing interest, SMB leads need to be qualified to ensure they have the necessary budget and are ready to buy. That’s also part of the SDR’s job.
When you attract SMB prospects and convert them to customers, you have to consider LTV. That it costs five times more to acquire a new customer than it does to keep an existing customer is common knowledge. What’s more, increasing customer retention by 5 percent can lead to a 25-95 percent increase in profits. When you increase LTV for SMBs, they become more profitable.
The basic formula for calculating LTV is:
(Average Revenue Per Account * Gross Margin %) / Customer Churn
The lower your churn rate, the higher the LTV. To reduce customer churn, customers need personalized Customer Success support that not only provides ongoing value, but also turns SMB customers into brand evangelists. Of course, you have to include the cost of Customer Success support when calculating LTV.
One way to reduce CAC and increase LTV is through outsourcing. Working with a Sales as a ServiceⓇ partner can help reduce costs for SMB customer acquisition and Customer Success. B2B marketing specialists can deliver qualified SMB leads for a fraction of the cost of scrupulous in-house lead qualification. Working with SMB customers to support changing needs and ensure ongoing success can also be readily outsourced. The best Sales as a Service providers make sure your B2B customers are happy and can also identify upsell and cross-sell opportunities.
SMB customers can bring more revenue to any B2B business if you know how to build SMB sales cost-effectively. Adapting your sales process to accommodate the unique needs of SMB buyers can help you lower customer acquisition costs and increase lifetime value to make SMB sales extremely profitable. If you want to learn more about SMB sales strategies, be sure to read our guide, Tapping into the Rich Market of Small and Medium-Sized Businesses.