Posts Tagged 'saas model'

Avoiding SaaS Customer Churn

Today’s VentureBeat guest post by Vishal Sankhla covers the topic of how to keep customer churn low in the SaaS business model. I definitely recommend checking out the article “The SaaS Churn Challenge: How to Hold Onto Your Customers”.

The crux of the issue is that in the SaaS business model, you invest up-front to acquire each customer, but you only get positive ROI from that customer if the customer lifetime value is high enough. In other words, you are counting on customers staying customers for longer than a few subscription periods. If your churn is too high, then you never make enough off each customer to cover the acquisition costs. That is a losing proposition for any SaaS business! The key is finding ways to maintain customer support and interaction while keeping those costs down.


Quest Software SaaS Case Study

Check out this new case study on Quest Software’s transition from being a licensed software company to a SaaS firm. You have to have Gartner registration to access it, but if you do you can find the case study at

Quest moved to a SaaS-based log management offering. Their SaaS case study shows how significant the impact of moving to SaaS can be across the entire software business.

If you can’t access the Gartner case study, Microsoft also published their own case study about Quest Software’s move to SaaS earlier this year.

They’re both worth a read, if you’re a software company considering the move to a Cloud solution. For additional reading, check out this article about the important considerations when moving to a SaaS business model.

The Changing Enterprise Software Model

Yesterday, a panel of software leaders discussed the direction of the enterprise software model at the InformationWeek 500 conference. You can read about it here.

The panelists agreed that the enterprise software model is making the shift toward SaaS rather than on-premise application deployments. This is dramatically impacting software sales cycles as I wrote about before, with processes that previously took weeks or months now taking less than a day.

Clearly, SaaS is the wave of the future for greenfield applications and enterprise solutions. But for most enterprise deployments, there’s a legacy infrastructure and business process to contend with. In many cases, that legacy will dictate an on-premise solution as the only realistic near-term model. And in cases where the legacy infrastructure can be transitioned or integrated with a SaaS solution, that integration will in many cases take significant time, cost and resources. This is going to create (and is creating) new business opportunities for vendors and service providers alike.

Read more about the software market transition to SaaS here.

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, 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.

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