MassTLC Seminar: SaaS Business Model Update – Creating and Managing Revenues

GloveLast Thursday, I attended a seminar organized by Massachusetts Technology Leadership Council (Mass TLC) where speakers shared and discussed their experience and provided real life examples of how they had implemented SaaS business model in their organizations. Topics discussed in the session were focused around specific areas such as revenue model, customer acquisition, customer retention, and pricing. Here are the notes I took at the event.

David Skok, General Partner at Matrix Partners

David keynoted the event and provided a detailed framework for analyzing profitability, cashflow, and sales strategy in a SaaS business.

David presented these key metrics for anyone in operating in the business of SaaS:

  • (Customer) Lifetime Time Value (LTV) – this is an indicator of how well a SaaS business is performing. LTV relates to how much an average customer will return in value to the business over its predicted lifetime. In plain speak, LTV measures a SaaS business monetization performance.
  • Customer Acquisition Cost (CAC) – this is the business sales and marketing expense incurred over a period to acquire a customer. Basically, CAC measures a SaaS business cost.
  • Churn Rate – known also as attrition rate, this is a measure of net customers acquired or lost (through service or subscription cancellation) in a SaaS business.

David compared LTV with CAC and stressed that every SaaS company should strive for a CAC/LTV balance of:

LTV > 3*CAC (and good SaaS business are in the 5+ range)

David also talked about the growth of a SaaS company. It’s all about timing, don’t invest too early and burn cash as a company spends a lot of money during growth phase. SaaS companies need to know how to best utilize capital to maintain the key metrics and understand when is the best time to grow a company. On the latter point, David emphasizes that company growth usually coincides with one of the phases of a SaaS company. Get them right first before growing.

  • Search for product/market fit
  • Search for repeatable and scalable sales model
  • Scaling the business

David’s presentation can be found here.

William Daly, Manager of Professional Services at Iron Mountain

William gave an introduction to Iron Mountain and talked about their first customer, a leading financial company, they acquired. He highlighted how addressing the needs of their first customer changed their product/service offerings and business model. He ended the presentation emphasizing personal touch and connection goes a long way for any SaaS business.

Bill’s presentation can be found here.

Jim Kizielewicz, Senior VP and CMO at Kronos

Jim started his presentation with an overview of Kronos’s product offerings. It has been challenging for Kronos transitioning from a license-driven business model to one that provides both SaaS and perpetual-licensing. At the end, Kronos adopted a system that includes their traditional business model of offering perpetual licensing and one offering SaaS. They then broke their product/service offerings along the dimensions of pay, deploy, and manage, and designed bundles that comprise varying degrees of these dimensions.

Traditional License Managed Services Hosted License SaaS
Pay License License License Subscription
Deploy (Hosting) at Customer at Customer at Kronos at Kronos
Manage by Customer by Kronos by Kronos by Kronos

Under this strategy, Kronos first let the customers select a product and then allow them to pick a bundle that fits the customers requirements and budget.

Jim’s presentation can be found here.

Drew Fortin, Senior Manager of Internet Marketing at Compete

Drew gave a recount on one of Compete’s past marketing campaigns on driving free account holders to convert to paying customers. A few years ago, the company started speaking their brand and engaging more deeply with free account holders through a more streamlined online presence. The result created Compete Pulse, the company’s online magazine/blog, a series of white papers (to get white papers, users have to ask questions which turned out to be great), and expert educational content where partners in other domains are involved (Compete don’t claim to be an expert in everything, they refer to other partners who know their domains better). Conversion jumped from 0.85% to 1.25% while number of free accounts increase. There were no change in product and just marketing alone increased sales by 30%.

Drew Fortin’s presentation can be found here.

Cory von Wallenstein, VP of Product Management at Dyn

Cory discussed two tactics that the were used at Dyn to combat churn rate (reducing attrition and improving retention):

  • Don’t ask customers whose accounts are due to expire on Friday, Saturday, or Sunday to renew their subscription because their motivation to renew is low during the weekend. Defer notifying the customers about the renewal till Monday. This tactic change increased renewal rate from an average of 62% to 85%.
  • The Support team typically hears from people who dislike or love the product, but not from people from the middle. The company implemented a policy that whenever Support has the time, they proactively reach out to the customers in the middle asking them about the renewing their subscription. The team also asks if customers want to auto-renew, which generates huge upsell.

Cory also mentioned that customers love transparency and simplicity. It seemed contradictory to conventional wisdom at first to consolidate all DNS services into one service package. But Dyn did it anyway with a simple call to action, and all key metrics increased as a result.

Cory’s presentation can be found here.

The speakers were insightful and provided valuable information about the SaaS business model. The event was definitely a good one.

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  • http://twitter.com/LucyLzrd Lucy Gibson

    Great summary of the presentations. Nice to see Kizielewicz’s chart and other ideas.