SaaS enterprise applications have enjoyed quite the limelight for some time now. In the last two decades, the word ‘SaaS’ has somewhat become synonymous with ‘growth.’ SaaS businesses busted the myth that one needs to be ‘big’ to succeed. Most SaaS companies start small with bold products. They make their way upward by leveraging their ability to scale and network quickly.
SaaS heralded a significant shift in the software industry. It offered customers a formidable and cheaper cloud-based alternative to clunky and complex on-premise software. In 1999, Salesforce offered the first-ever SaaS solution — its cloud-based CRM. Initially, SaaS was perceived as a fit only for startups and small businesses. However, as cloud security and access control improved, SaaS gained traction over the next few years. It rapidly ate into markets dominated by traditional on-premise software. By 2015, ~50% of all CRM systems were supported by SaaS. According to Gartner, the number is estimated to go up to ~80-85% by 2025. Besides CRM, SaaS began casting its spell over sales force automation, analytics, human resource management platforms. Today, even enterprise businesses are embracing SaaS. As per a Deloitte report, 70% of CIOs who were part of a global CIO survey preferred cloud-based SaaS for scalability. Businesses cite ‘ease of use’ and ‘cost-effectiveness’ as their top reasons for ranking SaaS above on-premise software.
SaaS companies have benefited hugely from a subscription-based predictable revenue stream. Investors prefer businesses that generate consistent, repeatable revenues. This drives up the valuation of subscription-based SaaS businesses vis-à-vis software businesses with a one-time purchase or transactional revenue model. Quite naturally, today, SaaS as a business model has gained popularity among software giants like Microsoft, IBM, Oracle, Adobe, etc. A quick way to gauge the growth of cloud businesses is by looking at the BVP Nasdaq Emerging Cloud Index (EMCLOUD). It tracks the performance of emerging cloud-based public companies. It hit a record $2 trillion in Feb 2021. Just a year before that, and pre-pandemic, the index was valued at $1 trillion. Predictably recurring revenue is valuable today because it is becoming monetizable. Pipe, a US-based startup, enables companies to sell their future revenue streams for a discounted sum. This represents a lot of benefits for recurring-revenue-based businesses. Upfront capital without relying on VC-funding or debt is a compelling proposition for any business looking to scale.
The ongoing shift in mobile app revenue models from transactional or ads-based to subscription-based is uncannily similar to the enterprise software industry’s shift to SaaS-based models. Apps that are in pursuit of fast-paced business growth stand to gain a great deal by observing the journey of SaaS businesses.
The core nature of SaaS businesses offers excellent insights into what works and what doesn’t when it comes to converting prospects into customers, upgrading free users to paid users, generating brand awareness in a very crowded market, and building a loyal base of subscribers. Subscription-based apps deal with the same kind of problems on a day-to-day basis. SaaS companies have invested a reasonable amount of time and effort to identify growth and marketing hacks. And the best part is subscription-based apps can readily take advantage of these learnings to grow their bottom line.
Key SaaS Success Strategies for keeps
Deep customer relations, innovative pricing, data-driven decision-making, and operational efficiency are four fundamental tenets of successful SaaS businesses. Let us try to deep dive into each of these:
Deepen Customer Relations
SaaS businesses listen to their customers, and they listen hard. This is partly because, unlike other regular revenue models, customer retention is a lot more critical for subscription businesses. The traditional one-time sale model focuses on the product’s lifetime value—the focus shifts to the customer’s lifetime value in the subscription model. Customers have the full power to use the service month-on-month or to pause/cancel their subscriptions with every billing cycle. The success rate of upselling to an existing customer is 60-70% instead of selling to a new customer, which is 5-20%. Happy subscribers can become a powerful engine with referrals and repeat purchases, causing revenues to spiral upwards. Hence, creating positive moments of truth in the customer journey becomes more critical.
SaaS businesses are pretty good at establishing direct communication lines with their subscribers, informing them about new feature releases and upgrades. However, nurturing customer relations requires SaaS businesses to go beyond the regular communication drill. They engineer contextual, ‘human’ conversations with customers by tracking product usage and payment activity. This often means segment-based, personalized communication based on the transaction behavior of customers. Such effective and meaningful customer communication at scale demands tools that can provide real-time subscriber intelligence.
Innovate on pricing
SaaS businesses swear by the mantra of ‘experiment and rule when it comes to pricing.’ They don’t hesitate to iterate and experiment in search of pricing and promo patterns that can accelerate sign-ups and revenue. A 100 dollars earned every month is certainly worth more than a 1000 dollars earned merely as a one-time fee. The key to pricing for subscriptions is to try and price low for every payment but woo customers to sign up for making those payments on a recurring basis. Freemium and free trials as pricing models have proven popular and very successful amongst SaaS businesses. Take the case of Zoom. It launched in a very crowded video conferencing market in 2011 amid giants like Microsoft (Skype), Google, and Cisco. At the SaaStr Annual 2017 Event, Zoom CEO Eric Yuan said, “I think it’s very important. We want to get the customers to test our product in our case. This market is extremely crowded.” He goes on to say: “We give most of our features for free, and one-to-one is no limitation. That’s why so many users are coming to our website almost every day, free users. If they like our product, very soon they are going to pay for the subscription.” Cut to 2019, Zoom launched its IPO and turned profitable. The freemium offering translated into a steady user growth and then fortuitously catapulted Zoom to unprecedented growth during the pandemic in 2020. Zoom was one of the fastest-growing businesses of the pandemic, with a 2900% increase in meeting participants!
A lucrative introductory offer helps ensure a comprehensive top of the funnel and maximize the impact of campaigns and ads’ impact on new customer acquisition. But there is a catch. The customer-onboarding experience needs to be flawless. Zoom was not only relatively inexpensive compared to the more established players out there, but it was also the most user-friendly and easy to use. It is best to minimize friction points at the app onboarding stage. The idea is to attract customers with a low barrier to entry, secure a chance to demonstrate value, take them step-by-step through the value delivery process and create raving fans out of them.
Drive operational efficiency
Revenue predictability is a boon, but it demands a promise of excellent customer experience. If you’re not operationally prepared to deliver recurring delight to your customers, recurring revenue could become a nightmare for any business. Managing products, payments, and revenue reconciliation across channels can be a tall task for engineering and finance teams with an ever-increasing subscriber base. These could be automated and outsourced to ready off-the-shelf platforms like Chargebee. SaaS businesses have learned to focus their engineering efforts on the areas that deliver unique value to their customers instead of building undifferentiated tooling in-house. Your developers’ time is better spent adding more value to customers in the form of new features, optimizing solution performance, and user experience.
Leverage subscription analytics for financial planning and decision making
More robust and systematic projections help plan better for your business. Thanks to predictable revenue, projections will likely become more data-backed, making it relatively easier to run financial projections. Subscription-based business models have key metrics that help provide the insights required for financial planning and management decisions. Let’s deep dive into these metrics in the next section.
App growth metrics SaaSified
Since in-app advertisements have been the predominant source of revenue for most apps, developers are used to focusing on metrics like downloads, installs, and acquisitions. A subscription-based revenue model calls for a shift towards customer retention vis-a-vis customer acquisition. It is not about how many customers you add every month but how many you retain and how that grows your customers’ lifetime value. So while monitoring the usual daily active users (DAU) is essential, businesses need to keep a tab on metrics at all customer lifecycle stages since the customer relationship is recurring.
App businesses needn’t look far for inspiration. They can quickly leapfrog all SaaS businesses’ mistakes in their growth journey. A quick look at SaaS growth strategies will tell us that they tend to incentivize longer-term subscriptions versus shorter term, pay close attention to churn and customer experience metrics like the Net Promoter Score (NPS). SaaS businesses swear by Annual Recurring Revenue (ARR), Monthly Recurring Revenue (MRR), Customer Lifetime Value (CLV/LTV), Customer Acquisition Cost (CAC), and Churn rates. These metrics quickly make perfect sense for subscription-based mobile app businesses as well. Furthermore, the right revenue analytics toolkit can help keep a proactive tab on these metrics.
Riding the subscription wave
The subscription wave is here to stay, and app businesses that can adapt themselves to the demands of a subscription-based revenue model stand to make the most of it. Subscriptions have been the mainstay for SaaS businesses for quite some time now. Mobile apps can easily employ SaaS best practices for hitting that elusive hockey stick growth curve.
Talk to us to know more about how Chargebee is working towards subscription solutions for app businesses.