The bad news about the SaaS subscription model: long-term paying customers.
With the software-as-a-service (SaaS) business model, vendors can build a sustainable source of long-term, predictable revenue. As long as the subscription fees cover customer acquisition expenses and other costs, the model should support a profitable, growing business.
So far, so good. But there's a catch:
Long-term, paying customers require long-term care and feeding.
In exchange for collecting on-going subscription fees, the SaaS vendor takes on substantial on-going obligations.
Some of those depend on product development and operations. They need to keep the SaaS solution up and running, protect the customer's data, and add new features over time.
Marketing's role in retention
But marketing plays a role too. Those long term customers also expect on-going communications from the SaaS vendor. They want to know how best to use the system, what enhancements are being developed, and what other customers are doing.
And they don't want just one-way communications. Customers want a way to have input into what new features are built, and they want a way to share information with other customers.
This is where marketing comes in. (I warned you that we weren't off the hook.) Marketers need to take a role in building and maintaining communication channels with existing customers.
Talk to existing customers? For lots of marketers, this could be new territory.A confession
When I was responsible for marketing traditional on-premise applications, I usually only thought about existing customers on two occasions: once at the annual user group meeting, and second when I needed a customer reference. That's it.
Nothing personal; it just wasn't my job. My main responsibility in marketing then was to find new customers. People who had already signed up and paid weren't my concern.
In the SaaS subscription model, it's all different. Retention and renewals are an essential part of marketing's job. Marketers need to focus on existing customers as much as on prospective customers.
In fact, in the SaaS world, existing customers are prospective customers.
This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License.
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What a thought provoking post. I do have a question for you, and for your audience: On average, what % of your marketing dollars are spent on customer communication?
ReplyDeleteGreat points, Peter. Once I as a client have fully realized the value (features) of a SaaS product, I tend to wonder "what's next?"
ReplyDeleteI'm not sure I ever thought this way when running on-prem software. Thanks!
Thanks for your feedback.
ReplyDeleteOn the question of spending on customer communication, I've found that the most costly part of the effort involves people's time, not budget.
For example, experts within the company will need to spend time to participate in a customer forum or prepare a quarterly customer newsletter.
While they can be costly in terms of time, the marketing program costs for these customer communications tend to be low.
SaaS companies will typically spend much more of their marketing program budget targeting prospective customers via organic and paid search, webinars, events, etc.
Bottom line, SaaS companies can realize a very high return on the small portion of their budget that they allocate toward customer communication.
Nice post. What avg. churn rates (%) and customer lifetimes (months/years) have you seen? It will vary widely in different companies/markets but I'd like to know from your experience..
ReplyDeleteYes, churn rates will vary. As a rule of thumb, however, well-run SaaS companies should achieve churn rates below 10% annually.
ReplyDeleteFYI, churn can be measured in different ways: See http://saasmarketingstrategy.blogspot.com/2009/06/measuring-renewals.html