Oct 13, 2008 by Sinclair Schuller
The following is a guest post to SaaSBlogs by Joel York at Chaotic Flow
Most SaaS businesses embrace the idea that Web-based delivery and a multi-tenant architecture create economies-of-scale and lower TCO. Hence, they price their annual subscriptions at 1/5 to 1/20 the cost of an enterprise license. However, these savings only occur in R&D and IT infrastructure. Achieving a stable, profitable long term cost structure requires proportionate expense reductions in sales, marketing and support operations.
In the traditional enterprise software company, customer acquisition, services and support are labor intensive operations and they often entail significant additional out-of-pocket expenses for promotion, travel and entertainment. On the surface these processes do not appear to offer the same opportunity to reduce costs through automation and IT economies-of-scale. However, SaaS vendors that do not attack this problem aggressively end up bleeding cash as startups and then well into growth and market maturity. Their hands are then forced into focusing on the higher paying “mid-market” and eventually they are likely to experience a painful staff layoff to bring costs in line with revenue.
To ensure solid business profitability, SaaS vendors should consciously build lower cost acquisition, deployment, support and up-selling into their business model from day one…. But how?
Build for the long tail first.
If you create your business around the product vision of profitably servicing the lowest revenue customer, then you will have no problem servicing higher revenue customers. Once you have your basic cost structure in line, it is easy to add advanced product capabilities and services to move upstream profitably. However, it is virtually impossible to move downstream once are locked into a high-touch, high-cost operational model.
Building for the long tail first means delivering a commodity product that can be easily configured to myriad specific needs through mass-customization, i.e., multi-tenancy must go far beyond simply separating accounts to provide a platform for creating highly tailored solutions within a single application instance. The next step in profitably servicing the long tail is staying lean on staff and leveraging the Web and self-service automation to facilitate progress throughout the entire customer lifecycle with minimal labor and offline expenses–particularly in the early days of a startup. Set up your SaaS business so that it can grow organically even if you don’t come in to work. Customers can find your product, try your product, buy your product and use your product without any help from you. Consider this, how fast and how profitably would eBay or Google (AdWords) have grown if these companies had required you to speak with a salesperson to subscribe to their respective applications?
Self service / Web automation throughout the customer lifecycle
- awareness (SEO, SEM, PR, links, RSS, widgets, etc.)
- interest (interactive, reusable content and video)
- decision (online trial)
- action (online purchase)
- deployment (superior usability, mass customization, open architecture)
- support (e-learning, knowledgebase)
- loyalty (forums, communities)
- upselling (new product discovery and purchase)
When you have a effectively automated the customer lifecycle, you can pick and choose when and where to apply higher cost, higher touch sales, marketing and support resources based on ROI. Moreover, the resources you will need to apply will be much less, because they will be supported by the automated infrastructure. For example, onboarding a mid-market customer may amount to the same process as a long tail customer with the addition of an account manager whose presence is primarily to increase comfort level, rather than provide labor intensive consulting.
read more
