How to create and earn SaaS (Part 10 / Business Model Metrics)
I did not stop, as I promised, not to write about SaaS for a simple reason - I missed a few things that are basic - legal aspects in SaaS and metrics that will help make a business predictable. Today, I am correcting and discussing the metrics applicable to the SaaS software provision model. Yes, and the chosen topic was interesting for readers and it is logical to continue it despite the holiday season.
Already having written nine articles on the topic, I began to realize that at the very beginning I made one serious mistake - I did not introduce the definition of SaaS, which is already understandable to professionals, but it is not yet clear to many people not involved in the industry. Correcting and defining itself is very important when discussing business metrics and helps interpret metrics correctly and unambiguously.
From a business point of view, SaaS is a business model for the delivery of your b2b software and nothing else but a business model.
In terms of technology , it’s
- multi-tenancy - the life of all customers on a single database;
- application operation in the browser;
- it is desirable, but not necessary, to have our own billing system and provision of client isolation.
From the point of view of marketing , the transfer of capital costs of operating (rent, installment payment).
')
Historically, systems for automating business processes of companies fall under the definition, but recently Internet services have appeared on the market, which position themselves as SaaS. Basically, they are focused on the b2b segment and have some kind of front end (client's personal account) in which you can implement the functionality needed by the company. I will give an example of such services below. I would not even recommend using the term SaaS in product positioning (in some Russian vendors, sales are generally forbidden to pronounce this abbreviation), but use a more understandable positioning option - cloud or on-line service and this is simply clearer.
In attracting customers:
The main metric, in my personal opinion, is the cost of monthly service provision — tariffs . The price is not some kind of benchmark indicator that you need to focus on, but this is what you need to determine once and from which everything else will depend - the economics of the project, and its prospects.
In the practice of vendors, the cost of a license provided under the SaaS scheme is 3 years by installments of the cost of the “boxed” licensing scheme, excluding server costs and 5 years with them. In the Quickme practice , we made the e-mail box cost so that it was within the understanding of ARPU by our potential partners - cloud providers, hosting providers, telecom companies and did not differ much from their world view. When you do not have anything to compare with and you are making a new product, such as the niche automation service of dental clinics Dental-Cloud , you can be guided by the logic "we skim the cream" and make the cost of the service higher.
The cost of attracting a client - unfortunately, it is high and differs little from the cost of attracting a “boxed” client. With this you need to live and understand that the profit from the client will happen several months after the fact of sale.
The sale period for SaaS is several months, including the trial period and can be shortened only by playing with free access, for example, reducing it to two weeks.
Customer retention:
The period of use of the service - the time that the client uses the service. In practice, can be considered a good period of one and a half years. If the service closes business-critical places, then I suppose that the deadlines can be up to 3 years — this is exactly the cycle in which the company or rethinks its IT strategy, or organically grows to the next level that requires software replacement - it scales up (opens affiliates, for example). From the bad - after 5 years, 50 percent of small businesses will close and in this scenario, you will have exactly half of your customers.
The percentage of customers who refused service - the lower the figure, the better. In the practice of successful projects - this is 2-4% in the cohort - a sample of customers who have purchased the service for one period of time.
The percentage of returning customers - well, that we will forgive them, but without a discount this time, and I believe that the percentage will always be small - dragging data from the application to the application is too complicated and expensive task. As a result, 99 percent of your customers will be lost forever. On the other hand, it’s time for SaaS developers to learn how to do a normal data upload - this is a good argument for increasing confidence in the cloud and a hypothetical way back to your service.
I am not a big specialist in projects from the segment and therefore I turned to my colleagues with a request to share their experience. To understand the situation, I ask questions about the use of metrics by experts from the Witget.com vitget creation service and the Usability Factory testing service.
EO "Factory usability" Maxim Kozlov
- For me, the generally accepted metrics of Internet histories are important - MAO, CTR, CPA, CAC, because my selling strategy through the landing. The service itself is not complicated and I as simply as possible implemented the work with the testing tools - creating tests, conducting testing with the possibility of video recording the results, the function of working with the site during testing, convenient work with reports.
CEO Witget Vyacheslav Davydenko
Witget is a service that helps with the help of the cuffs to increase the conversion of the site. The client starts an account in our service, then sets the code on his site, then chooses the thread to display on his site and activates it.
In addition, our service is not yet monetized, so at the moment we are not tracking all the parameters that are associated with the first payment, re-purchase, etc.
Now we are interested in the following metrics:
- CPA - the cost of a click in advertising and the cost of registration in the service,
- ARPU and ARPPU - we need to determine the average revenue per user. This is an important metric for us, especially at the stage of monetization, when we need to understand whether the cost of attracting it covers the revenue from the user.
- Retention - the majority of SaaS is built on the subscription model. This means that you need to make all possible efforts so that the client will pay for the second month, for the third and so on.
- Life Time Value, which shows how much income we expect to receive on average from the client during the whole period of using our service.
- Also in connection with the specifics of the business, the time from the moment of registration on the site to the moment of activation of the product and the beginning of its use is important for us. If registration takes more time, then there is a greater likelihood of losing a client in one of the steps. Therefore, in the case of long-term customer activation, it is necessary to improve the service and simplify working with it so that the customer moves from an interested user to an active user faster.
- the average daily number of hits on client sites - the more witts the client uses, the greater his involvement.
Aquisition cost is not so important for the SaaS metric, as the costs are only related to the content of the team of programmers.
As we can see, different metrics for different segments of SaaS are important, and their choice is directly influenced by the service promotion strategy and their purpose.
Alexey Kalachnikov / Author's blog http://www.bootstrap24.ru/
Materials series "How to create and earn on SaaS"
What do I mean by SaaS
Already having written nine articles on the topic, I began to realize that at the very beginning I made one serious mistake - I did not introduce the definition of SaaS, which is already understandable to professionals, but it is not yet clear to many people not involved in the industry. Correcting and defining itself is very important when discussing business metrics and helps interpret metrics correctly and unambiguously.
From a business point of view, SaaS is a business model for the delivery of your b2b software and nothing else but a business model.
In terms of technology , it’s
- multi-tenancy - the life of all customers on a single database;
- application operation in the browser;
- it is desirable, but not necessary, to have our own billing system and provision of client isolation.
From the point of view of marketing , the transfer of capital costs of operating (rent, installment payment).
')
Historically, systems for automating business processes of companies fall under the definition, but recently Internet services have appeared on the market, which position themselves as SaaS. Basically, they are focused on the b2b segment and have some kind of front end (client's personal account) in which you can implement the functionality needed by the company. I will give an example of such services below. I would not even recommend using the term SaaS in product positioning (in some Russian vendors, sales are generally forbidden to pronounce this abbreviation), but use a more understandable positioning option - cloud or on-line service and this is simply clearer.
What is important to focus on SaaS services (#SaaS metrics)
In attracting customers:
The main metric, in my personal opinion, is the cost of monthly service provision — tariffs . The price is not some kind of benchmark indicator that you need to focus on, but this is what you need to determine once and from which everything else will depend - the economics of the project, and its prospects.
In the practice of vendors, the cost of a license provided under the SaaS scheme is 3 years by installments of the cost of the “boxed” licensing scheme, excluding server costs and 5 years with them. In the Quickme practice , we made the e-mail box cost so that it was within the understanding of ARPU by our potential partners - cloud providers, hosting providers, telecom companies and did not differ much from their world view. When you do not have anything to compare with and you are making a new product, such as the niche automation service of dental clinics Dental-Cloud , you can be guided by the logic "we skim the cream" and make the cost of the service higher.
The cost of attracting a client - unfortunately, it is high and differs little from the cost of attracting a “boxed” client. With this you need to live and understand that the profit from the client will happen several months after the fact of sale.
The sale period for SaaS is several months, including the trial period and can be shortened only by playing with free access, for example, reducing it to two weeks.
Customer retention:
The period of use of the service - the time that the client uses the service. In practice, can be considered a good period of one and a half years. If the service closes business-critical places, then I suppose that the deadlines can be up to 3 years — this is exactly the cycle in which the company or rethinks its IT strategy, or organically grows to the next level that requires software replacement - it scales up (opens affiliates, for example). From the bad - after 5 years, 50 percent of small businesses will close and in this scenario, you will have exactly half of your customers.
The percentage of customers who refused service - the lower the figure, the better. In the practice of successful projects - this is 2-4% in the cohort - a sample of customers who have purchased the service for one period of time.
The percentage of returning customers - well, that we will forgive them, but without a discount this time, and I believe that the percentage will always be small - dragging data from the application to the application is too complicated and expensive task. As a result, 99 percent of your customers will be lost forever. On the other hand, it’s time for SaaS developers to learn how to do a normal data upload - this is a good argument for increasing confidence in the cloud and a hypothetical way back to your service.
Like the others (niche Internet services for businesses)
I am not a big specialist in projects from the segment and therefore I turned to my colleagues with a request to share their experience. To understand the situation, I ask questions about the use of metrics by experts from the Witget.com vitget creation service and the Usability Factory testing service.
EO "Factory usability" Maxim Kozlov
- For me, the generally accepted metrics of Internet histories are important - MAO, CTR, CPA, CAC, because my selling strategy through the landing. The service itself is not complicated and I as simply as possible implemented the work with the testing tools - creating tests, conducting testing with the possibility of video recording the results, the function of working with the site during testing, convenient work with reports.
CEO Witget Vyacheslav Davydenko
Witget is a service that helps with the help of the cuffs to increase the conversion of the site. The client starts an account in our service, then sets the code on his site, then chooses the thread to display on his site and activates it.
In addition, our service is not yet monetized, so at the moment we are not tracking all the parameters that are associated with the first payment, re-purchase, etc.
Now we are interested in the following metrics:
- CPA - the cost of a click in advertising and the cost of registration in the service,
- ARPU and ARPPU - we need to determine the average revenue per user. This is an important metric for us, especially at the stage of monetization, when we need to understand whether the cost of attracting it covers the revenue from the user.
- Retention - the majority of SaaS is built on the subscription model. This means that you need to make all possible efforts so that the client will pay for the second month, for the third and so on.
- Life Time Value, which shows how much income we expect to receive on average from the client during the whole period of using our service.
- Also in connection with the specifics of the business, the time from the moment of registration on the site to the moment of activation of the product and the beginning of its use is important for us. If registration takes more time, then there is a greater likelihood of losing a client in one of the steps. Therefore, in the case of long-term customer activation, it is necessary to improve the service and simplify working with it so that the customer moves from an interested user to an active user faster.
- the average daily number of hits on client sites - the more witts the client uses, the greater his involvement.
Aquisition cost is not so important for the SaaS metric, as the costs are only related to the content of the team of programmers.
As we can see, different metrics for different segments of SaaS are important, and their choice is directly influenced by the service promotion strategy and their purpose.
Alexey Kalachnikov / Author's blog http://www.bootstrap24.ru/
Materials series "How to create and earn on SaaS"
- Part I / remove all unnecessary, hit the target, experiment
- Part 2 / invaluable experience of Russian ISV
- Part 3 / sales through an affiliate channel that may not be needed
- Part 4 / Startta Quickme - communication and collaboration of small teams
- Part 5 / pervasive SaaS integration, how nice the threat is to the rest of the software business or how 1 + 1 turns into 3
- Part 6 / Quickme story for partners or 7 reasons to do things together
- Part 7 prefinal / why not sell SaaS?
- Part 8 - FINISH / SaaS - the realities of the Russian market
- Accidentally forgotten Part 9 / Legal SaaS fog
- Part 10 / Business Model Metrics
- Part 11 / Cloud Services Reviews / UX and Usability Testing
Source: https://habr.com/ru/post/229543/
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