Nervous About Transitioning to SaaS? Here is What You Need to Consider
The growth of your business is not a fixed quantity. If you are in it for the duration, you cannot count on a perpetual upward slope without realizing there will be adaptations and changes to your business structure along the way. Customer needs are fluid. You're not going to succeed unless you're willing to adapt.
This has never been more evident than in the past decade or so for those in the software industry. It isn't just about providing a software product. Consumers today want a software service that demands an entirely different business model.
Transitioning to a SaaS model allows companies to react to their customer's specific needs. Companies that are new to the market are busting out of the gates with a SaaS model already in place. However, there's a sea of existing companies that need to transition to survive. This leaves them with questions about how to most efficiently transition and what to consider along the way.
The answer to this question can be broken down into 4 components. Considering each will make for a smoother, more profitable and successful transition for your company.
Assess Your Current Business Model
For many businesses, the most difficult area of transition is how they view their business model.
With a SaaS offering, keep in mind that you are taking on the cost of building the product upfront and the return on that investment kicks in over time. This means you need to have a “runway” to stay afloat while the revenue stream builds in over time.
Businesses can make huge profits with a SaaS model, but it takes some time to get there, no matter how reputable your product. Instead of focusing only on the next sale, your business model needs to reflect how you're going to win the trust and respect of subscribers, so they stay committed to you. This is going to involve restructuring financial expectations during the initial period, along with adapting marketing, billing and customer service strategies to match a new type of customer.
Look at Your Customer
When transitioning to a SaaS model, it's crucial to look at your customers for inspiration and guidance. The trend in software is overwhelmingly pointed at SaaS models. Still, the transition isn't always easy for your customers, and there will be some who are resistant to change. Your goal is to get a complete picture of what your customers expect and do your best to meet their expectations with this new model.
Paying attention to your customers now will reduce your churn rate later. Know your market and understand the features of your SaaS model that will win them over. Enhanced customer service is huge, and so is engagement. You need to make sure that your software is adapted to encourage consistent engagement. If software that costs $90 a month goes unused because they aren't engaged, what do you expect to happen?
You should be focused on customer retention just as much as customer acquisition, especially during the transitional period. You're not just selling a service, you're selling a relationship. Knowing your customer, optimizing analytics and testing are going to be huge in determining your success.
Value for Customers
Identify How a Subscription Model Will Provide More Value for Customers
The customer should be the center of your SaaS transition. The whole purpose of switching to a SaaS model is the value it's going to provide to your customers. But, before you begin, you need to recognize what that value is.
While you're taking a little time to get to know your customers, use your insights to get a clear picture of the value you're going to be providing. There are reasons that software users are flocking to the SaaS model in droves, here are just a few of them.
- Customer Service: With companies having a greater interest in retaining subscribers, customer service becomes more of a focal point.
- Agility: With automatic updates and exposure to new products through subscription services, customers benefit from greater agility.
- Less Headaches: There's no need to worry about when the next version is coming out, or constant notifications that their software is about to expire. Renewal and payment is automatic.
- Consistency: All your SaaS subscribers are on the same release schedule.
- Trust: A SaaS model allows you to build a relationship, and with that comes trust. Customers who engage with businesses they trust generally have a higher level of satisfaction.
Understand How a Subscription Model Will Affect Your Business Processes
When transitioning to a SaaS model, you need to anticipate more than a change to your pricing structure. It's going to affect your entire business. Creating a plan, or a roadmap, that outlines the process will help you focus and make sure that you aren't left unprepared in any area of your business. It is also important that you are clear on your Key Performance Indicators (KPIs) so you know what you need to measure to determine your success.
Recurring Revenue is the most obvious KPI, but you must also consider customer churn, cost of customer acquisition, revenue growth per customer, customer lifetime value, etc.
You'll want to start by aligning your business to the transition. The focal points of marketing, accounting and customer service are all about to change. It's crucial that everyone on your team is aware and prepared for the transition. The time to focus on training and SaaS education is before you start the transition, not after.
You'll also need a system in place to handle the more complex billing and payment process of a SaaS model. This is one area where attention to detail matters, for both customer service and your bottom line.
It's also important to look at how this transition is going to affect both short term and long-term revenue. This might mean meeting with investor and discussing your strategy and plans for adapting.
Transitioning to a SaaS model can be the best move for your business. When you prepare and adapt, the transition will go smoothly. There's a bright future for you with SaaS, and your going to love where it takes you.
Read more about SaaS Revenue Recognition Simplified