SaaS and usage, a key success factor

Do you know who is using your software?

as a provider of SaaS software, you should be concerned with who uses your software.

And how much

first, a step back

there are many advantages to the SaaS model:

  • it scales
  • it can be inexpensive in the early stages, which are very risky, to understand if there is demand for your service
  • more importantly, you can find out predictable customer acquisition costs with a reasonable investment

therefore, many VC software investments are going into SaaS and cloud oriented business models

consequently, a lot of money is spent on getting customers

digital marketing, buying keywords, diverting traffic and numerous other efforts (some in the physical world)  focusing on creating leads and converting them to customers.

but then, what is next?

as the SaaS oriented companies mature, their key challenge becomes not just cost-per-lead and optimizing conversion ratios in the funnel.

what we have given up with the SaaS model, is direct contact with end users.

so, are we all to become like 3M, a great company, without intimate knowledge of its end-users?

one of the key challenges today in SaaS companies is what is driving usage.

i always like things that get high usage. e.g. a pen that runs out of ink (where do all that other pens go?)

are your customers getting high usage out of your system?

as an investor in several SaaS companies (i think i have the largest portfolio in Israel, including CloudShare, SaasPulse, TaKaDu and Panaya) i would like to point out several key issues that i see companies run into:

who are power users?

why are some users using less of the system and its features?

which of my customers is getting best bang for the buck?

getting insights into these issues is not simple if you did not plan for it in advance.

between managing growth, operations (we need to be up 24×7), and leads, i find that usage is often neglected

yet, understanding usage has important benefits:

  • it can become a competitive advantage. the process of building a ‘usage dashboard’ also creates barriers to entry.
  • it can impact your digital lead machine: segmenting your customers and understanding where to find more happy ones through the usage model can potentially reduce marketing costs considerably
  • if you sold 10 seats, but only 3 are highly used, the likelihood of growing within an account is not high. as many SaaS models penetrate enterprises at a departmental level, or low in the organization, they are highly dependent on growth within existing accounts. increasing the ratio of power users against seats sold can increase cross-sale and up-sale ratios. this is very attractive to a SaaS based start-up
  • it affects churn. detecting unhappy customers, or ones that are not using the system to their advantage may reduce variable costs for a while. However,  company valuation is highly correlated not just to operating margins, but also to low churn rates. to get the most out of the SaaS subscription-based model, the lifetime of a customer is crucial. if a customer is a user for 18 month or 48 month, has immense impact on profitability, cash-flows, and therefore, valuation.

i therefore claim that understanding usages is crucial. it can lower marketing costs, increase revenues from existing accounts, lower churn, and increase your company’s impact on its space.

However, it is not yet mastered in many SaaS start-ups.

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