How a SAAS company should focus

The business model of Software as a Service (SAAS) is very different from transitional software in which licences are sold.  SAAS relies on subscriptions and consequentially offers a lower barrier to entry.  Because of this, it is extremely import for SAAS companies to keep their users for long periods of time.  In fact, the software has to be built to keep users engaged and finding value from the software.  Lets take a look at what the software product must focus on.

Lifetime Customer Value (LCV).  This is an important concept in SAAS businesses.  The lifetime customer value is the recurring revenue the company can expect to gain over the period of time the company expects to keep the customer.  To increase LCV, the company has two options.  One, increase the amount the customer is paying.  The other, increase the amount of time the customer is a client of the company.

So the software has to always be evolving and offering new services to its clients to increase the potential its clients can be paying the company.  It also must be relevant to the client for as long as possible.  So it must stay current with changes in the market and be able to grow with the customer.

Churn.  Churn is when a customer cancels their service with the company.  To fight churn, companies must have a product that is sticky and always showing value.  On top of that, they must have a support team that is doing the same.  Keeping clients happy and making sure they understand the value the software is providing them.

Customer Acquisition.  The product must be attractive enough to acquire new customers.  Sales must be increasing for the company to be growing.  So building a product that is easy to sell and easy to demonstrate value is very important to a software company.

Out of the 3, the most important is likely to be churn.  It costs a lot of money to acquire new customers.  It is also much easier to sell something to existing customers.  So reducing churn keeps current clients paying and keeps the pool of people to sell new products or services to large.

This means the product has to focus on reducing churn.  It should take a look at where churn is most likely to happen, why it does happen and then solve for those reasons or situations.

One of the most likely places a client will churn is during implementation or shortly there after.  Sales and Implementations teams have to set great expectations but at the same time, the barrier to entry or the resources needed to implement the software should be as limited as possible.


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