Business Management Challenges in SaaS
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You need to get two things right in order to be a successful SaaS ISV –Right Product and Right Business plan. While the success of the product depends on several factors, including those that are beyond the control of the ISV, putting together a right business plan in very much in control of the ISV. However, in many cases the technical focus over shadows the business focus, resulting in a situation where SaaS ISVs struggle to sustain, and even in the case their product is a hit they find it difficult to sustain the growth from an operational perspective.
Let’s take a look at some of the common business/operational challenges that SaaS ISVs tend to encounter:
Providing custom(er) friendly subscription package
With the world moving towards “Pay as you use” no one wants to pay for something that is not of value. In the case of SaaS products, it’s a common scenario to see that customers tending to pick and choose the modules that they would like to use in the offered SaaS product. For example, in a SaaS HR product customer may choose not to use Payroll module as they already have a working payroll solution, which they don’t want to disturb. In some cases, Customers may want to use certain modules only for certain periods of time. For example, in SaaS CRM product customer may choose to use the e-card module only during Christmas time. The above said cases and similar variations can easily be addressed by the ISV when the total customer count is less. Imagine what happens when you have customers in the range of 50, 100, 200… It’s going to be an operational nightmare to keep track of all the subscription details. On the other hand you cannot say “No” to customers as your competitor would be ready to allow the customer to pick & choose the modules and pay only for that.
Managing multiple price plans by customer segment
On an average across industries, SMB (Small and Medium Business) segment covers around 60-70% of the whole market segment. This results in a diversified customer base for ISVs to handle. As a result, ISVs need to have a flexible pricing plan according to the needs of the customer. For example, you may want to offer discounted pricing for micro businesses, and regular pricing for other customers. Alternatively, you may also charge the customer by their usage. For example, for one customer you may charge them by user (profile in the system) and for another it could be based on number of reports generated from your system or it could be based on total value of transactions performed through your system, etc. As you can see, this gives you a great level of flexibility in terms of the options that you can take back to your customers. Customers also find it attractive as they can choose the best option that fits for their business, hence, resulting in a win-win situation. However, managing these variations manually can take a big toll on the ISVs.
Increasing trial conversion rate
Trials are inevitable in a SaaS model. I have seen SaaS start-ups giving upto 1 year of free trial for new customers and charge them only from the second year. Once again handling trial situations with customers are much easier when the number of leads trying out your product is less. Infact you would even be able to personal attention to every one of them. However, this is not possible when the numbers are thick. Given the customer base, which is primarily SMB segment, combined with your marketing efforts to drive more leads, you can (rather should) definitely expect a good number of leads trying out your system at any given time. In this case you need to have some analytic information that will allow you to differentiate the immediate potential buyers “Hot Trials” so that you can pay more attention and convert them to paying customers. The same information can also be used to identify those leads that are in the bottom list of your analytic reports, which means they either don’t like your product or struggling to get going with it. In either case it calls for your sales team’s attention to check out their concerns and move them to the “green” category.
Cost effectively managing billing and payments
Considering the above 3 points – flexible subscription, multiple price plan and trial support – Billing activity (raising invoices) is going to take a lot of workload. Moreover, given the amount of the variations manual creation of invoices it’s not only going to take more time but also highly error prone. Issues in billing can create havoc when it comes to customer’s confidence on the ISV. Therefore, it’s extremely important to have some level of automation for creating the invoices. Similarly when it comes to collecting payments, lot of customers prefer to pay the subscription amount (which usually is in hundreds of dollars) through credit or debit card. Managing the overall cost of generating invoices, payment collection, follow-ups is challenging, and with increasing number of customers this is going to take a lot of time and cost from the ISVs. Therefore, automating the invoicing and payment collection process can save a significant amount of time & effort from ISVs.
Churn is a big risk for ISVs, and keeping the churn levels down is as important as getting new customers, as you don’t want the sales team to keep replacing customers rather look for adding customers. Pushing for longer term commitments from customers is one way of minimizing the risk. However, ISVs should not stop at getting their first subscription alone signed. Increasing the adoption of the software is a key for creating the first level of stickiness with the customer. Therefore, ISVs should have mechanisms to identify customer usage analytic that can provide valuable information on customers that are not properly using the system. You can even further slice the data and see which modules are more effectively used and modules that are under used by customers. This will help the account management team to address these gaps at an early stage there by strengthening the customer relationship.
Resellers are vital for expanding the customer base. There are 2 kinds of resellers
- Resellers, that just get the subscription signed and the rest of the services are taken care by the ISV.
- Resellers that also take care of managing the customers by providing customer support.
While the first type of resellers can be easily managed with or without automation, the second type of resellers will require administration level access in the SaaS product iin order to create and manage customers (tenants). Particularly if the resellers are from different geography then you may also have language and time zone barriers from having ISVs support team in assisting them. Therefore, the SaaS systems should have a mechanism to allow Resellers (restricted access) to directly manage the customers owned by them.
Some ISVs prefer building these capabilities as part of their SaaS product. While this approach gives a lot of flexibility it takes a considerable amount of time and also diverts the focus of ISVs
Solving these business challenges are as important as the technical solution. ISVs focusing on both the business and technical challenges are the ones that are able to sustain the SaaS wave.
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