What advice do you have for a company looking to convert their offering into a SaaS model?
The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.
1. Set Up Data Tracking
To ensure the recurring revenue that comes with a SaaS business, you need to understand how your users are interacting with your platform over time. Which activities lead to better retention? How can you ensure more users are doing those activities? Getting your key data analyzed from the start will help to set you up for success.
2. Make Sure Your SaaS Model Isn’t Predatory
Make sure that offering your product in the SaaS model offers true ROI for the customer. Be honest with yourself about this and the riches will follow. Be kind to your customers first before focusing solely on your bottom line. Make it easy to cancel, and don’t shove renewals down peoples’ throats. I’ve been in the SaaS business for 14 years and many of my original customers are still with us today.
3. Identify the Ongoing Need
For a company to be a true SaaS business, it needs to fill an ongoing need as opposed to a one-time need. For example, Optimizely is a SaaS company because businesses are running new split tests every single month. Think about how your product can fill an ongoing need, and then set a price point that charges on an ongoing basis.
4. Know the Metrics Like The Back of Your Hand
Know SaaS metrics like the back of your hand and read this article. You’re also probably not charging enough and it’s extremely likely you will need a sales team. A lot of companies believe they’re innovative enough that sales will happen naturally. Instead of trying to justify why you need a sales team, try justifying why you don’t need one instead.
5. Choose the Right Infrastructure Provider
Choose a vendor with a proven ability to scale and the technical knowledge to support your application environments. If you choose poorly and hit scaling issues, network failures and performance shortcomings, your customers won’t have the experience they deserve. Migrating to a new infrastructure host can be hugely expensive; take the time to get it right — don’t simply go for the cheapest option.
6. Research Pricing
A key aspect of getting your customers to transition into your SaaS model is to find the right pricing. If you can easily show your existing customers how much they would have paid if they were part of your SaaS model in the last 12 months, then they can get a better sense of whether or not this is the right decision for them.
7. Evaluate Sustainability
Migrating to SaaS makes the most sense when the following conditions exist: you have a sufficiently large addressable market allowing you to scale to 10,000+ paying customers over time; you can acquire your target customers through low-touch digital marketing; you estimate that your cost of customer acquisition will be well below the projected customer lifetime value.
8. Understand the Metrics
We transitioned from a consulting firm to a SaaS business over the last couple of years. The hardest part of the transition was understanding all of the metrics. ARR (annual recurring revenue), MRR (monthly recurring revenue), churn etc. are all thrown around constantly in the SaaS world and are very important. This is critical when seeking investment, so do your homework!
9. Get Unbiased Feedback
Analyze how much you’d need to sell your SaaS subscription for to make a profit, then use Craigslist to recruit people in your target market to try yoursoftware. Ask them how much they’d be willing to pay for a monthly subscription, and what’s the highest price they’d pay. If that data doesn’t square with your pricing analysis, either improve your product or don’t turn it into a SaaS offering.
10. Convert a Beta Group From Your Existing Customers
Speak to your current customers and gather an initial group to convert to SaaS billing. Work out the kinks with billing, customer service and your feedback loop and then launch to your larger customer base, using success stories as your ammo to convert the rest of your customers.
11. Consider How Your SaaS Model Will Scale
Will it eventually roll out into a national product? If the answer is yes, then start with a pilot and test relentlessly to drive invaluable product iteration. Expand the product moderately across various regions and iterate again. Then ramp up deployment in steps with regional demand and iterate. Be prepared to test and iterate your SaaS model relentlessly before is scales nationally.
12. Focus on Client to User Conversion
If you are looking to convert your service business into a SaaS business, your No. 1 objective should be to convert 100 percent of your current clients into users of your software. Otherwise, you’ll have no user base for your product. Roll it out in small phases, and offer free incremental value as an opportunity to test, improve and develop a built-in user base before your launch.
13. Think About Churn Early
At first, recurring revenue can feel amazing — all of a sudden your revenue starts compounding over time — but very quickly companies realize that one of the most important aspects of the SaaS model that they never had to think about before was churn (the percent of users who cancel over a period of time). If your churn is too high, growth will slow significantly. You have to focus on it early.
14. Bring on Experienced Software Developers
If you are looking to offer a SaaS product, you may need a specialized software development team with experience building SaaS products. Building a good SaaS product requires some proficiency in managing certain aspects of security, robustness and scalability that an ordinary developer may not have.
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