customer service is one of the top reasons for customer churn, and it’s the first place you should look to solve any issues for future customers. When a customer leaves, you can send them an exit survey to find out what went wrong and what you can improve.
Ask customers what made them cancel, how satisfied they were with the product/how easy it was to learn and if they would use the product in the future or recommend it. By putting systems in place based on customer complaints, you can prevent any major hiccups from arising in the future and eliminate customer churn.
Give Customers What They Want
Pleasing your customers should be one of your biggest goals when it comes to your product. So why wouldn’t you give them the features they want and are asking for? If you can incorporate new features that your customers are asking for, you’ll minimize the risk of them leaving you for a competitor who does offer that feature. An effective strategy to manage this is to implement a good product roadmap that takes into account feature requests.
A product road map is a visual summary that maps out the vision and direction of your product offering over time. Having a product road map will help you decide what to build and when, in an organized way. First, define your strategic goals like what markets you want to enter, how much you want your business to grow and what new technologies you want to take advantage of. Then pull together all of your ideas for improvements and enhancements from your team and your customers and start mapping. You can use a tool like Aha! to easily create beautiful product road maps.
Engage Your Customers
Increasing your customer engagement is a highly effective way to keep your customers around for a long time. Not only do you have to provide your customers with a good onboarding experience so they can learn and understand your product, but you should continue educating your customers because they’ll have a reason to keep coming back.
Fifty-five percent of customers believe that effortless access to support and information can make them fall in love with a brand. Offer webinars, tutorials, how-to blog posts or a weekly newsletter with tips relating to your software. Engaging your customers will have them feeling comfortable and informed, and leaving you will be the last thing on their minds.
Offer Yearly Instead Of Monthly Contracts
Offering year-long contracts instead of monthly contracts is a great way to reduce Saas customer churn. Customers who are in a long-term contract will be more committed, more dedicated to the learning process and will stick around longer to see how they can benefit from the product.
Annual billing will create a more stable, predictable revenue for your business and can be more convenient for you and your customers. It might take a bit longer for users to decide to buy but when they do, they’ll be around for the long haul.
Conclusion
When your SaaS business hits a peak number of new customers and starts to plateau, which happens with many companies, it’s a good time to focus on reducing customer churn. These tips will certainly help you to keep your existing customers, but the most important thing to remember is that you have to know your customers and care for them. Providing the best experience you can for your valued customers is going to have the biggest impact on their love for your company -- and if they love you, chances are good they’ll never leave you.
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Software as a Service (SaaS), the best-known branch of cloud computing, is a delivery model in which applications are hosted and managed in a service provider's datacenter, paid for on a subscription basis and accessed via a browser over an internet connection. As a mainstream business option it's often seen as dating from the launch, in 2000, of the hosted Salesforce.com customer relationship management (CRM) service, which has become the 'poster-child' for SaaS. However, its roots lie in earlier developments in virtualisation, service-oriented architecture (SOA) and utility/grid computing.
As a term, 'Software as a Service' has been in common usage for nearly a decade, with its cloud-stack companions Platform as a Service (PaaS) and Infrastructure as a Service (IaaS) gaining currency more recently. (PaaS refers to the on-demand delivery of tools and services that allow SaaS applications to be coded and deployed, while IaaS covers the on-demand delivery of virtualised servers, storage, networking and operating systems):
Infrastructure hosted in a third-party service provider's datacenter is called 'public cloud' infrastructure, while similar technology hosted within an enterprise's network is called 'private cloud' infrastructure. So-called 'hybrid clouds' mix the two approaches, with certain workloads or business processes remaining in-house and others -- perhaps less mission-critical -- being outsourced to public cloud services. Public cloud services can also be brought into play on a temporary basis, to cope with peaks in demand that would otherwise overwhelm a business's private cloud infrastructure.
Before SaaS, you generally rented software via an 'Application Service Provider' or ASP:
The key differences are code ownership and tenancy. ASPs generally hosted multiple instances of third-party client-server applications, whereas SaaS providers tend to develop their own applications and operate a true 'multi-tenant' model: subscribers access the same code base, with their data and any customisations kept separate.
Pros and cons of SaaS
PROS
For businesses, there are many potential benefits to be had from adopting the SaaS model. These include:
PROS
For businesses, there are many potential benefits to be had from adopting the SaaS model. These include:
Cost savings Moving from the capital-heavy expense of installing, maintaining and upgrading on-premises IT infrastructure to the operational cost of a SaaS subscription is a tempting business proposition -- particularly in the short-to-medium term. It's important to be aware of potential hidden costs in SaaS adoption though.
Scalability As your business grows and you need to add more users, rather than investing in additional in-house server capacity and software licences you can adjust your monthly SaaS subscription as required.
Accessibility A browser and an internet connection is all that's usually required to access a SaaS application, which can therefore be made available on a wide range of desktop and mobile devices.
Upgradeability Your cloud service provider deals with hardware and software updates, removing a significant workload from your in-house IT department (whose extra human bandwidth can, in theory, be released for different tasks, such as integration with existing on-premise applications).
Resilience Because the IT infrastructure, and your data, resides in the cloud service provider's datacenter, if some form of disaster should strike your business premises, you can get back up and running relatively easily from any location with internet-connected computers.
CONS
Of course, there are also potential pitfalls associated with SaaS, which is why the world hasn't yet gone completely cloud-software-crazy. These include:
Of course, there are also potential pitfalls associated with SaaS, which is why the world hasn't yet gone completely cloud-software-crazy. These include:
Security The number-one concern for businesses considering SaaS is often security: if sensitive company data and business processes are to be entrusted to a third-party service provider, then issues such as identity and access management -- particularly from mobile devices -- need to be addressed. And if your company uses multiple cloud services, be aware that deprovisioning an ex-employee can become a security headache.
Outages Despite cloud providers' best-laid plans, outages do happen, with causes ranging from acts of God to human error and many points in between. Any downtime is irritating, but a lengthy outage of a mission-critical app could prove disastrous. You'll need to scrutinise your service provider's SLA (Service Level Agreement) and historical performance very carefully before outsourcing mission-critical applications to the public cloud. Tools such as Compuware's Outage Analyzer and Is It Down Right Now? let you monitor ongoing cloud outages.
Compliance When your business data resides in a service provider's datacenter, ensuring that you comply with the relevant government>
Leading SaaS providers
There is now a multitude of SaaS providers, covering all major categories of business software. The selections below are intended to give a flavour of the available variety rather than make any claim to comprehensiveness.
There is now a multitude of SaaS providers, covering all major categories of business software. The selections below are intended to give a flavour of the available variety rather than make any claim to comprehensiveness.
Business Intelligence & Analytics
Business Intelligence (BI) and Analytics software marshals disparate data on past and present business performance, delivers customisable reports and dashboards, and supports informed decision-making for the future. Traditionally deployed in-house (because that's where the relevant business data resided), BI is rapidly gaining a footprint in the cloud. Listed below is a selection of BI vendors. To find more, take a look at GetApp, which lists 83 SaaS BI & Analytics tools available on subscription at the time of writing.
Business Intelligence (BI) and Analytics software marshals disparate data on past and present business performance, delivers customisable reports and dashboards, and supports informed decision-making for the future. Traditionally deployed in-house (because that's where the relevant business data resided), BI is rapidly gaining a footprint in the cloud. Listed below is a selection of BI vendors. To find more, take a look at GetApp, which lists 83 SaaS BI & Analytics tools available on subscription at the time of writing.
Business intelligence
BIME, Birst, BIRT onDemand (Actuate), Cloud9 Analytics, EasyInsight, EdgeSpring, GoodData, Indicee, Information Builders, InsightSquared, Jaspersoft BI Professional for AWS Edition, Lattice, NetSuite (SuiteAnalytics), Pentaho, SAP BusinessObjects BI OnDemand, Sumall, Yellowfin, Yurbi, Zoho Reports
BIME, Birst, BIRT onDemand (Actuate), Cloud9 Analytics, EasyInsight, EdgeSpring, GoodData, Indicee, Information Builders, InsightSquared, Jaspersoft BI Professional for AWS Edition, Lattice, NetSuite (SuiteAnalytics), Pentaho, SAP BusinessObjects BI OnDemand, Sumall, Yellowfin, Yurbi, Zoho Reports
Analytics
1010 Data, Datameer, Google Analytics, Kognitio, Kontagent, Microstrategy Cloud Express, Mixpanel, PivotLink, Precog, Rosslyn Analytics, SAS (Solutions OnDemand), SpatialKey, Tableau Software, Tibco Spotfire, Trackerbird
1010 Data, Datameer, Google Analytics, Kognitio, Kontagent, Microstrategy Cloud Express, Mixpanel, PivotLink, Precog, Rosslyn Analytics, SAS (Solutions OnDemand), SpatialKey, Tableau Software, Tibco Spotfire, Trackerbird
Collaboration
There are many ways of collaborating -- ranging from asynchronous document storage and sharing to real-time online video meetings, with many variations in between. That's why collaboration is one of the most heavily populated and fastest-changing SaaS categories. Listed below is a selection of collaboration vendors. To find more, take a look at GetApp, which lists 212 SaaS collaboration tools available on subscription at the time of writing.
There are many ways of collaborating -- ranging from asynchronous document storage and sharing to real-time online video meetings, with many variations in between. That's why collaboration is one of the most heavily populated and fastest-changing SaaS categories. Listed below is a selection of collaboration vendors. To find more, take a look at GetApp, which lists 212 SaaS collaboration tools available on subscription at the time of writing.
Team collaboration
Campfire (37 Signals), Centroy, Confluence (Atlassian), Huddle, HyperOffice, IBM SmartCloud for Social Business, Jive, LogMeIn, Moxie, Podio (Citrix), Rebooth (formerly Teambox), SAP Jam (SuccessFactors), Zimbra (VMware), Zoho Collaboration Apps
Campfire (37 Signals), Centroy, Confluence (Atlassian), Huddle, HyperOffice, IBM SmartCloud for Social Business, Jive, LogMeIn, Moxie, Podio (Citrix), Rebooth (formerly Teambox), SAP Jam (SuccessFactors), Zimbra (VMware), Zoho Collaboration Apps
Project management
Basecamp (37 Signals), Binfire, Clarizen, Daptiv, Jira (Atlassian), Liquid Planner,Projectplace
Basecamp (37 Signals), Binfire, Clarizen, Daptiv, Jira (Atlassian), Liquid Planner,Projectplace
Web conferencing
AnyMeeting, Arkadin, Cisco WebEx, Citrix GoToMeeting, iMeet, Fuzebox, TeamViewer
AnyMeeting, Arkadin, Cisco WebEx, Citrix GoToMeeting, iMeet, Fuzebox, TeamViewer
Video conferencing
BlueJeans Network, Vidtel, Vidyo
BlueJeans Network, Vidtel, Vidyo
Content storage/sharing
Box, Dropbox, Egnyte
Box, Dropbox, Egnyte
Email/productivity
Google Apps, Microsoft Office 365
Google Apps, Microsoft Office 365
Miscellaneous
Acrobat.com (document/form sharing, signing, sending); Agreedo (meeting management); Asana (task management); Collabnet, Rally Software (agile software development); KnowledgeTree (sales document management); RunMyProcess (workflow)
Acrobat.com (document/form sharing, signing, sending); Agreedo (meeting management); Asana (task management); Collabnet, Rally Software (agile software development); KnowledgeTree (sales document management); RunMyProcess (workflow)
Customer Relationship Management
CRM software, once confined to orchestrating in-house customer information and automating salesforce operations, now encompasses a wide range of social media interactions and other external information sources that help to shape the relationship between businesses and their customers. Salesforce.com was the first big SaaS success story, and it continues to dominate its field. However, there are many other SaaS players in the CRM and related markets, and a lot of merger/acquisition activity. A selection is presented here. To find more, take a look at GetApp, which lists 273 SaaS Customer Management tools available on subscription at the time of writing (118 of which are defined as CRM).
CRM software, once confined to orchestrating in-house customer information and automating salesforce operations, now encompasses a wide range of social media interactions and other external information sources that help to shape the relationship between businesses and their customers. Salesforce.com was the first big SaaS success story, and it continues to dominate its field. However, there are many other SaaS players in the CRM and related markets, and a lot of merger/acquisition activity. A selection is presented here. To find more, take a look at GetApp, which lists 273 SaaS Customer Management tools available on subscription at the time of writing (118 of which are defined as CRM).
CRM
BPMOnline, ClearSlide, HighRise (37 Signals), Infor, Infusionsoft, InsideView, JobNimbus, KANA, LivePerson, Maximizer CRM Live, Medallia, NetSuite CRM+, Parature, Pegasystems (Pega Customer Service Cloud), Really Simple Systems, RightNow (Oracle), Sage CRM, Salesboom, Salesforce.com, SAP (Sales OnDemand), Thunderhead.com One, Workbooks, Zoho (CRM)
BPMOnline, ClearSlide, HighRise (37 Signals), Infor, Infusionsoft, InsideView, JobNimbus, KANA, LivePerson, Maximizer CRM Live, Medallia, NetSuite CRM+, Parature, Pegasystems (Pega Customer Service Cloud), Really Simple Systems, RightNow (Oracle), Sage CRM, Salesboom, Salesforce.com, SAP (Sales OnDemand), Thunderhead.com One, Workbooks, Zoho (CRM)
Hybrid (on-premise/cloud) CRM
Microsoft Dynamics CRM, Oracle CRM OnDemand, Oracle Fusion OnDemand, SugarCRM
Microsoft Dynamics CRM, Oracle CRM OnDemand, Oracle Fusion OnDemand, SugarCRM
Social CRM
Artesian Solutions, Coveo, Crowdtap, Get Satisfaction, Nimble
Artesian Solutions, Coveo, Crowdtap, Get Satisfaction, Nimble
Miscellaneous
Clarabridge (sentiment analysis), Convio (constituent engagement for nonprofits), LiveOps (customer service), Steelwedge (sales and operations planning), SurveyMonkey (customer surveys), UserVoice (customer feedback and helpdesk), Xactly (sales performance management), Zendesk (customer service)
Clarabridge (sentiment analysis), Convio (constituent engagement for nonprofits), LiveOps (customer service), Steelwedge (sales and operations planning), SurveyMonkey (customer surveys), UserVoice (customer feedback and helpdesk), Xactly (sales performance management), Zendesk (customer service)
Demand Generation
Many SaaS providers offer tools to maximise a company's visibility among its potential customers, retain their attention when noticed and help turn leads into sales. Social media naturally play a big part here, along with more traditional tools like email campaigns and landing page optimisation. Here's a selection. To find more, take a look at GetApp, which lists 184 SaaS Marketing tools available on subscription at the time of writing.
Many SaaS providers offer tools to maximise a company's visibility among its potential customers, retain their attention when noticed and help turn leads into sales. Social media naturally play a big part here, along with more traditional tools like email campaigns and landing page optimisation. Here's a selection. To find more, take a look at GetApp, which lists 184 SaaS Marketing tools available on subscription at the time of writing.
Bizo, Bronto, ConstantContact, Eloqua (Oracle), eTrigue, ExactTarget, Genoo, Hubspot, iContact (Vocus), Kenshoo, Marin Software, Marketo, Moz, Pardot, Publictrac, Responsys, Silverpop, VerticalResponse, Vocus
Specialist services
Campaign Monitor (email marketing), Gagein (sales intelligence tracking), Infusionsoft (SMB demand-gen/CRM/e-commerce suite), MailChimp (email marketing), Unbounce (landing page testing), XYDO (third-party marketing content curation)
Campaign Monitor (email marketing), Gagein (sales intelligence tracking), Infusionsoft (SMB demand-gen/CRM/e-commerce suite), MailChimp (email marketing), Unbounce (landing page testing), XYDO (third-party marketing content curation)
Document Management
The cloud is a natural place to store and track documents, and there are plenty of services available, offering traditional document management capabilities, as well as secure file sharing, file send, online backup and electronic signature functionality. Here's a selection.
The cloud is a natural place to store and track documents, and there are plenty of services available, offering traditional document management capabilities, as well as secure file sharing, file send, online backup and electronic signature functionality. Here's a selection.
Document management
Alfresco, Bitcasa, Box, CloudApp, Doctape, Documentree, Dropbox, Drupal, Netdocuments, OfficeDrop, SugarSync, Syncplicity (EMC), WordPress, Zoho Docs
Alfresco, Bitcasa, Box, CloudApp, Doctape, Documentree, Dropbox, Drupal, Netdocuments, OfficeDrop, SugarSync, Syncplicity (EMC), WordPress, Zoho Docs
Secure file sharing
ShareFile (Citrix), WatchDox
ShareFile (Citrix), WatchDox
Expansion Vs Upsell
File send
SendThisFile, Yousendit
SendThisFile, Yousendit
Yuri on ice ost download. Online backup
Backupify, Carbonite, Mozy (EMC)
Backupify, Carbonite, Mozy (EMC)
Electronic signature
DocuSign, EchoSign (Adobe)
DocuSign, EchoSign (Adobe)
Finance & Accounting
Finance and accounting are mainstays of the traditional enterprise software stack, and there are plenty of cloud-based offerings in these areas -- along with services that focus on particular areas such as revenue and expense management. A selection is presented here. To find more, take a look at GetApp, which lists 186 SaaS Finance & Accounting tools available on subscription at the time of writing.
Finance and accounting are mainstays of the traditional enterprise software stack, and there are plenty of cloud-based offerings in these areas -- along with services that focus on particular areas such as revenue and expense management. A selection is presented here. To find more, take a look at GetApp, which lists 186 SaaS Finance & Accounting tools available on subscription at the time of writing.
Financial management
Acumatica, Adaptive Planning, Ariba (SAP), Kyriba, NetSuite (SuiteCommerce), SAP Financials OnDemand, Workday
Acumatica, Adaptive Planning, Ariba (SAP), Kyriba, NetSuite (SuiteCommerce), SAP Financials OnDemand, Workday
Accounting
FinancialForce.com, FreshBooks, Intacct, Intuit (QuickBooks Online), KashFlow, OpenERP, Saasu, SageOne, VerticaLive, Wave, Xero
FinancialForce.com, FreshBooks, Intacct, Intuit (QuickBooks Online), KashFlow, OpenERP, Saasu, SageOne, VerticaLive, Wave, Xero
Revenue management
Aria Systems, Bill.com, Chargify, CheddarGetter, Metanga, Monexa, Recurly, Revstream, ServiceSource, Zuora
Aria Systems, Bill.com, Chargify, CheddarGetter, Metanga, Monexa, Recurly, Revstream, ServiceSource, Zuora
Expense management
Concur, Expensecloud, Expensify
Concur, Expensecloud, Expensify
Miscellaneous
Avalara (sales tax automation), Coupa (e-procurement), Statpro (portfolio analysis), Truaxis (loyalty reward services)
Avalara (sales tax automation), Coupa (e-procurement), Statpro (portfolio analysis), Truaxis (loyalty reward services)
Human Resources
HR software is a fertile area for SaaS providers, encompassing traditional HR functionality, talent management, recruitment tools, workforce analytics and other niches. A selection is presented here. To find more, take a look at GetApp, which lists 194 SaaS Human Resources tools available on subscription at the time of writing.
HR software is a fertile area for SaaS providers, encompassing traditional HR functionality, talent management, recruitment tools, workforce analytics and other niches. A selection is presented here. To find more, take a look at GetApp, which lists 194 SaaS Human Resources tools available on subscription at the time of writing.
HR
BambooHR, Epicor, Ultimate Software, SuccessFactors (SAP), SAP Business ByDesign, Kenexa (IBM), Silkroad, euHReka (Northgate Arinso), Workday
BambooHR, Epicor, Ultimate Software, SuccessFactors (SAP), SAP Business ByDesign, Kenexa (IBM), Silkroad, euHReka (Northgate Arinso), Workday
Talent management
Cornerstone, Saba, UpMo, Halogen, Taleo (Oracle), Talent, Lumesse, SumTotal
Cornerstone, Saba, UpMo, Halogen, Taleo (Oracle), Talent, Lumesse, SumTotal
Recruitment
Bullhorn, Wowzer, HireVue, Montage, Async Interview, Chequed.com, iMomentous, Entelo, TalentBin
Bullhorn, Wowzer, HireVue, Montage, Async Interview, Chequed.com, iMomentous, Entelo, TalentBin
Workforce analytics
Evolv, Talent Analytics, Talx (Equifax), Visier
Evolv, Talent Analytics, Talx (Equifax), Visier
Miscellaneous
RoundPegg (culture management), CloudPay (payroll), ZenPayroll (payroll), Echospan (performance management), Work.com (SAP/Rypple; performance management), SelectMinds (Oracle; social recruiting), Replicon (time & expense tracking), TeamSeer (holiday planning and absence management), WhosOff (staff leave planner)
RoundPegg (culture management), CloudPay (payroll), ZenPayroll (payroll), Echospan (performance management), Work.com (SAP/Rypple; performance management), SelectMinds (Oracle; social recruiting), Replicon (time & expense tracking), TeamSeer (holiday planning and absence management), WhosOff (staff leave planner)
Social Enterprise Tools
One of the buzziest of recent buzzwords, the 'social enterprise' has two major aspects: the use of Facebook-like tools within the enterprise for flexible knowledge sharing and collaboration (enterprise social networking); and the monitoring and management of customer interactions on a variety of public social networks (social media management). Leading examples of both types of service are presented below.
One of the buzziest of recent buzzwords, the 'social enterprise' has two major aspects: the use of Facebook-like tools within the enterprise for flexible knowledge sharing and collaboration (enterprise social networking); and the monitoring and management of customer interactions on a variety of public social networks (social media management). Leading examples of both types of service are presented below.
Enterprise social networking
BlueKiwi ZEN (Atos), Chatter (Salesforce), Sazneo (Access aCloud), Socialcast (VMware), Socialtext, Tibbr, Yammer (Microsoft)
BlueKiwi ZEN (Atos), Chatter (Salesforce), Sazneo (Access aCloud), Socialcast (VMware), Socialtext, Tibbr, Yammer (Microsoft)
Social media management
Alterian SM2, Brandwatch, Gigya, Hearsay Social, HootSuite, Lithium, Repute-Me, Salesforce Marketing Cloud (Buddy Media + Radian6), Simplify360, SocialAppsHQ, Socialware, Sysomos, ThoughtBuzz, Vitrue (Oracle), Wildfire (Google), Zuberance
Alterian SM2, Brandwatch, Gigya, Hearsay Social, HootSuite, Lithium, Repute-Me, Salesforce Marketing Cloud (Buddy Media + Radian6), Simplify360, SocialAppsHQ, Socialware, Sysomos, ThoughtBuzz, Vitrue (Oracle), Wildfire (Google), Zuberance
Continued
Cloud Services Brokerages
The burgeoning SaaS market poses a problem for CIOs, CTOs and IT managers: how do you go about selecting an optimal set of services for your particular business, and how do you manage the resulting collection of subscriptions, SLAs, APIs and data structures?
The burgeoning SaaS market poses a problem for CIOs, CTOs and IT managers: how do you go about selecting an optimal set of services for your particular business, and how do you manage the resulting collection of subscriptions, SLAs, APIs and data structures?
This is where a relatively new kind of service, the Cloud Services Brokerage (CSB), can help. Sitting between the customer and the cloud providers, the CSB can provide access to an aggregation of SaaS partners, adding value in the form of expertise and tooling for migration, integration, customisation and management, plus the convenience of a central billing point. Think of CSBs as the 'cloudy' equivalent of the system integrator. Examples are Appirio, Cloud Sherpas and the UK-based Nephos Technologies.
CSBs won't suit every kind of business: smaller companies are unlikely to deploy enough SaaS applications to justify going through an intermediary, while very large enterprises should have enough in-house IT manpower and expertise to effectively become their own cloud-service brokers. But for a multitude of mid-sized businesses, employing a CSB may well look like an attractive proposition.
Many telecoms, IT and other services providers will see cloud service brokerage as a useful business opportunity, and enterprises may require assistance in setting up an internal cloud brokerage. This is where Jamcracker comes in. Jamcracker helps companies become external or internal CSBs via the Jamcracker Services Delivery Network (JSDN), which includes an extensive catalogue of third-party cloud services with centrally managed provisioning, access, security, billing, administration and support.
Conclusion
The SaaS market is taking off in a big way, with startups exploring multiple niches in numerous software categories, established players busily acquiring and integrating the most promising new services, and CSBs helping to smooth companies' paths into the cloud.
The SaaS market is taking off in a big way, with startups exploring multiple niches in numerous software categories, established players busily acquiring and integrating the most promising new services, and CSBs helping to smooth companies' paths into the cloud.
For new businesses, in particular, it's almost a 'no-brainer' to quickly deploy a collection of SaaS business apps and pay for them with a monthly subscription, rather than invest heavily in on-premises IT infrastructure and in-house technical support. Perhaps the biggest problem facing small businesses is the enormous amount of choice that's already available in the SaaS market -- particularly if they're unwilling or unable to sign up with a cloud services broker.
Larger businesses have a different set of problems to contend with when it comes to SaaS adoption, mostly centering around integration with existing on-premise enterprise applications (into which many may well be locked with costly contracts). Still, enterprises looking to expand into new regions, or adopt new 'social' business processes, may well find that SaaS is the most cost-effective way to go.
Related Topics:
Digital Transformation Data Centers CXO Innovation Storage Cloud TVYou can find fast-growing software companies in almost any vertical, but there are certain characteristics they all share. To find out which of these features are most key, my investment firm combed through our 2017 SaaS Benchmarks data, which covers 300 SaaS companies ranging from pre-revenue to more than $20 million in ARR. Here’s what we found.
1. Fast growers are extremely efficient at acquiring new customers
As investors, we keep a close eye on customer acquisition cost (CAC) payback. This metric represents how long it takes, in months, to pay off the costs of acquiring a given customer on a gross margin basis. We use it as an indicator that a company has the right fundamentals in place to effectively ramp up customer acquisition.
Despite how important it is to properly understand CAC payback, our data shows that companies consistently underestimate this number. All too often, companies omit certain acquisition costs, over-inflate recurring revenue by failing to strip out one-time revenue, and/or leave out some of the ongoing costs of serving a customer.
Despite disparities in reporting, self-reported data on CAC payback does reveal a clear trend: The fastest growing SaaS companies report a CAC payback period of only 7.4 months. That’s less than half that of slower growing SaaS companies (15.4 months).
Clearly, getting this number down is crucial for your bottom line. OpenView’s Liz Cain shares some phenomenal advice on how to improve your number here.
2. Fast growers acquire new customers mostly through inside sales
Slack, with their hyper-efficient self-service sales model and incredible virality, is the epitome of a fast-growing SaaS company – and for good reason. It took them only two-and-a-half years to hit the coveted $100 million annual recurring revenue (ARR) milestone.
But most fast-growing SaaS companies don’t look like Slack. Instead, they take from the tried and true templates of software giants like Salesforce and NetSuite.
On average, the fastest growing companies derive 51 percent of their ARR through inside sales, compared to 26% from field sales and only 16% from no touch or self-service sales. On the flip side, slow growers tend to rely more on field sales (43%) and actually see 19% of their ARR from no touch or self-service sales.
Inside sales offers a compelling balance between attractive deal size and high deal velocity, allowing companies that follow this model to invest in sales and marketing efforts to reach the right customers. Sales cycles are also shorter than with field sales, which makes it easier to find talent and ramp up new hires.
3. Fast growers retain and expand new customers, resulting in net negative churn
Net Churn
Understanding customer and revenue retention is an extremely attractive growth signal for a SaaS company. These metrics are an indicator of product-market fit. Low churn shows the product is sticky, hard to replace, and truly generating value for customers. In our experience, most SaaS companies spend far more time on acquiring new logos than they do on the less sexy task of retaining existing customers.
But our data shows that the fastest growing companies can walk and chew gum at the same time. In other words, they don’t just efficiently acquire new customers, they also retain and expand those customers at far higher rates than slower growers.
Fast growers see on average 109 percent net dollar retention, which means that every $100 in ARR they acquire from new cohorts actually turns into $109 in ARR the next year (and likely even more the year following). By comparison, slow growers see only 90 percent net dollar retention and consequently have to keep adding more and more new customers just to maintain their run rate, let alone grow year-over-year.
To improve net dollar retention, examine just how you’ve designed your product packages, pricing model, customer onboarding, and sales compensation. In the near-term, help your customer success team focus it time and attention where it can actually make a difference to the lifetime value of an account, rather than just where it has good relationships. This should include both customers that show leading signs of potential churn (i.e. low usage, no relationship with decision makers) as well as potential growth in spend (i.e. high usage, growing usage month-to-month).
4. Fast growers pour cash into their sales and marketing engines (because they can afford to)
Saas Churn Statistics
If it’s efficient to acquire a new customer, and that revenue from new customers compounds over time, it becomes a no brainer to pour more money into sales and marketing. Going all-in helps you reach scale quickly and become a market leader in your category, able to fend off threats from new entrants that might try to copy your success. The only potential limitation is cash.
And our data backs this up. The fastest growing companies spend an average of 58 percent of their ARR on sales and marketing, versus only 34 percent for slower growers. If you’re in the fastest growing bucket, evaluate whether you’re actually spending enough money on sales and marketing. You may want to pull forward your next fundraise so you have the cash to fully capitalize on your market opportunity.
The takeaway
“Land and expand” is a cliché for a reason – it works! To improve your growth rate, you need to hone both the efficiency of your customer acquisition and the ongoing health of your existing customer relationships. Then, and only then, you’re ready to invest more resources to truly become a market leader.
Kyle Poyar is Director of Market Strategy at OpenView, an expansion stage VC firm.