Archive for June, 2009

Technology Marketers Should Put Customer Usage Models First

Technology usage model

Technology usage model


Usage models are commonly used for technology and software products in testing, use analysis, UI design,… But I think one of the most important applications of technology usage models is in marketing.

What is a usage model? Basically, usage models are the ways in which customers use or interact with the technology product, software application, web service… whatever the product happens to be.

Some questions I think are important to ask ourselves are:

  • Why are usage models important in marketing?
  • How can we use usage models to improve marketing ROI?
  • Why don’t technology marketers focus more heavily on usage models?

Too often, technology marketers focus on the features… What cool things can this product do? What cool things can you do using this service?

But that’s thinking about it backwards…

Put usage models first, and that naturally gets you thinking first about the customer’s needs, and second about the features.

Isn’t SaaS Just Like Any Other Services Business?

In my last post I wrote about the key SaaS metrics:

  • Customer Monthly Recurring Revenue (CMRR),
  • Churn,
  • Cash Flow,
  • Customer Acquisition Cost (CAC), and
  • Customer LifeTime Value (CLTV).

It’s a big leap for a software business to go from thinking about Bookings as their main metric… to now these more services-based metrics.

Then that got me thinking… Aren’t these just the exact same metrics that apply to all subscription services businesses?

What about your local health club… that’s a subscription services business. I can’t say I’m an expert in the health club industry… but I bet they also track CMRR, Churn, Cash Flow, CAC and CLTV pretty closely. And similarly Bookings really aren’t what matters: who cares if you signed up 100 new members to the gym this month, if you also lost 150 member who didn’t resubscribe.

If you’re planning a SaaS business, but have more of a software/technology business background… then it might be a good idea to understand a little more about how these other service subscription businesses are run and managed. Come to think of it, I think I will too!

There just might be some really good lessons to be learned…

Ten Laws for SaaS Success

Want to know what SaaS metrics to use to be successful at Software-as-a-Service (SaaS)? I highly recommend this presentation by venture capitalist firm Bessemer Partners. From last fall… but still just as valid. Maybe more so as customer adoption of SaaS is really heating up compared to other software industry segments.

Here are the ten laws for SaaS metrics of success:

  1. The key monthly SaaS metrics are CMRR (Customer Monthly Recurring Revenue), Churn and Cash flow. Bookings are not a valid metric.
  2. The best indicators of long-term business health are Customer Acquisition Cost (CAC) and Customer LifeTime Value (CLTV).
  3. Tune the business before scaling it. Make sure you’re tracking to the SaaS metrics first. Keep sales team small and focus on each making >$100K CMRR.
  4. Pay sales people on CMRR not bookings.
  5. The most important channels are business service ones, not the traditional IT channels.
  6. Focus your marketing online, which is where your customers are and costs are lower.
  7. Keep your business local first.
  8. Focus: keep a single code version in production, support multi-tenant, and don’t do on-premise software also.
  9. “Service” is the most important element of SaaS.
  10. SaaS companies will need capital to last them 4 years – invest upfront in R&D and sales.

I think these are all really important points… ones to fully take to heart if you are trying to build a SaaS company.

The most critical mindset shift is #9: you are running a service business, not a software one. That means a fundamental change in culture and focus throughout the business.

#8 is important too – and one that needs planning out up-front before you sign up your first customers. The more profitable services long-term may be add-on services built on the value you can provide through aggregated data analysis. So think that through as you design your architecture, finalize customer contracts, and plan implementations.

If you need a SaaS business plan template that includes these SaaS metrics then take a look at our recently updated SaaS business planning package here.

SaaS Consolidation – Is it Time?

As the Software as a Service (SaaS) market is maturing, we’re beginning to see acquisitions and consolidation.

On Forbes.com, Sramana Mitra has an excellent analysis of the recent Intuit acquisitions.

I think she’s correct on the acquisitions/mergers directions for SaaS now it’s maturing.

The other driver is that as SaaS matures, the base services become commodities where it’s hard for providers to turn a profit. To build revenue they have to climb up the value chain by offering more value-add services on top of the base… acquisitions are a faster way for the larger SaaS consolidators to do that.

I think Intuit will likely be one to watch in this space, in addition of course to the likes of Google, Oracle, and Microsoft.

But not all consolidators will succeed – there’s a lot involved in turning a traditional software license-driven business into a SaaS model as I’ve discussed before in this article on the impact of software trends.

Welcome!

Since this is my first post on this Technology Marketing and Strategy blog, I’d like to take the opportunity to introduce myself and the areas I plan on covering in my blog. If you have other ideas for topics or questions you’d especially like addressed, then feel free to add a comment with your suggestion.

I started Software-Marketing-Advisor.com to address issues surrounding software marketing strategy and software business planning, particularly as the industry transitions to the Software as a Service (SaaS) model. Whether you sell enterprise software, consumer software, hosted services, or software consulting, you will find tips and ideas to refocus your marketing efforts, improve your business planning, and align your marketing strategy to your business goals.

Here on the Technology Marketing and Strategy blog, I’ll focus on issues surrounding the marketing of technology, whether that’s software, IT services, hardware, or other technology products or services.  What makes marketing technology different from marketing other types of products or services?  I think the big difference (unless you have a technical target customer base) is that when you’re marketing technology the customer may not know (or need to know) the details behind the product or service you are offering.  Yet too often technology marketers get wrapped up in the coolness factor of the technology itself, forgetting the real customer benefits.
In my fifteen years in various software/solutions marketing, strategy and consulting roles in the technology industry I’ve had the opportunity to work with software and services firms and enterprise companies of all sizes to help them better position their products and services to meet customer and market needs.  But too often I see marketing efforts reduced to pushing technology for the sake of technology, focus on features rather than benefits, and “tech coolness” rather than realworld customer usage models and solutions.
I plan on starting this blog with a discussion of customer usage models, and how to use usage model analysis to better understand your target customer, their real painpoints, and narrow down to your unique selling proposition.  So stay tuned for more in the next post…
In the meantime, take a look at these recent blog posts on my website blog at Software-Marketing-Advisor.com:

 


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