Selling software as a service is a growing business model as software seller’s move from one off license sales to ongoing revenue through pay for use. In this so called “Software as a Service (SAAS) model” customers pay per month for the use of the software generating a stream of potential ongoing income. The end result is a business with a forecasted revenue stream. This makes a software company more attractive valuable to potential buyers.
This model is great if you can ensure your customers spend as much in successive months of “pay for use” than they would have done on paying up front for a perpetual license. There is therefore a breakeven point that at minimum must be achieved to make the model fly.
The whole marketing effort in a SAAS model is about a two way approach, firstly to on-board as many new users as possible and then to keep the ones you have so that they continue to supply revenue. The rate of loss and replacement of clients is called “churn” and the aim is to lower the churn percentage as much as the vendor can.
When people buy software they often use it for a project and then often put it to one side for a while – this is the weakness of the SAAS approach as a cancelled direct debit or credit card payment is not what the vendor wants. It is in the interest of the vendor to help the user to identifying projects that the software can help add value to. More value means ongoing use and ongoing SAAS payments.
Marketing material with ideas to stimulate people to use a software product is vital. Many companies do this well and that’s because they have realised the importance of encouraging use because use means ongoing monthly subscriptions. However, others see the provision of advice as a revenue opportunity in itself. In the B2B market “Professional Services” are often sold at consulting day rates and the business model is specifically around the professional advice revenue stream, or a mix of licensing revenues: maintenance and professional services.
There is obviously a bit of a conflict here and balance between consulting revenue and maintaining low churn rates within a SAAS model is required. If the business model is poorly thought through then disaster awaits!
Training in the product needs to be addressed too. If you sign up for a SAAS product and you have difficulty in getting it to do what you want, then there is a very high chance of you stopping to use it. The benefit of SAAS as sign up and try from a customer perspective can be seen as attractive but conversely a disappointed frustrated client is a rapidly lost customer. When getting the customer on board costs more than the first six months of revenue then there is a problem.
Some companies report a direct correlation between training uptake and the degree of churn. People trained to use applications get: less frustrated with them, generate value quickly and advocate the use of the product to colleagues and others.
The question here then is “should training be a revenue stream at all?” or should it be provided at cost because its value is achieved elsewhere in advocacy and lower churn rates – training is therefore part of the business model of SAAS retention.
One line of thinking that some vendors have is that: “we need to charge for everything we do and at professional levels of margin”. This approach is seen often when professional service teams and sales teams are targeted separately. Training is seen as revenue that has to fund itself. When opportunities to inspire, provide advice and leverage investment are held back until the customer signs an order then this has potential strategic consequences.
This behaviour is problematic enough in a license sale model, let alone a SAAS software offering. When customers who buy products and then fail to leverage them get frustrated and stop using them. This is a lost customer and a lost cause. They tell everyone they know how rubbish the product was and how they couldn’t get on with it. A disaffected user damages your brand. Keeping a customer using the product and generating value month on month is essential.
If a vendor tries to make consulting type rates out of training their product are they dooming their future revenue stream? When you consider the high sales and marketing costs to on-board a software user in the first place, then a strategy of maximising revenue from training services can’t be a good business strategy, so what do you do?
What is needed is cost effective user content that stimulates use and cost effective training. The two together create delight in the use of the product with the user telling everyone about it. E-learning plays a role here as we can apply the build once and use many times idea This tactic brings down the individual cost of training delivery and creates a good return on investment ROI where the benefit is seen in reduced churn and creating productive supportive clients who go on to rent month after month.
With e- learning scenario based modules that solve real business problems and show how the software can be used to deliver those solutions in a step by step practical way, then we end up with users who use software more and more productively; if they are productive and see ongoing value then they will continue to provide revenue.
Check out www.e-confident.co.uk for e-learning solutions.