The software industry continues to expand as more and more businesses enter the cloud-based services space. According to a report published back in March, The Gartner CRM Guide, over 50 percent of customer-relationship management deployments were deployed purely as software-as-a-service (SaaS) in 2015, with the same number surpassing 80 percent by 2025.
Someone probably said it right, “Software as a service is eating up the world”!
If you are someone googling around to get some guidelines for building a successful software business, here is a roundup of the proven 10 tips to help you do so. Using these tips in the proper way, you can create a successful business in the ever-expanding software industry.
The KISS Rule (Keep It Simple, Stupid)
SaaS products are generally self served, hence, should be self explanatory, clean, concise, simple, yet highly intuitive. You don’t have to make it appear like something too complicated or with high-level descriptions. Sales and marketing collateral need to focus on value, ROI, and use flows; not features, introduction, or technology.
Provides Multiple Packages
The basic entry-point every SaaS offers should be always kept free, as much as possible. It should be kept limited in usage volume, time, or functionality, however. Recommended is to additionally offer two or more paid packages alongside, based according to different customers needs and segments with different capabilities, ROI, usability, and of course, willingness to pay.
Define, Analyze, Measure, Revive And Then Control
SaaS users share extremely useful information regarding their use of our specific products, and their needs and behavior based on that. What functionalities aren’t in use or not popular, should therefore possibly be omitted as per the SaaS products. It also enables you to categorize users and then define packages.
When you are dealing with customers, it’s increasingly important to define tests continuously, possibly with A/B testing, and then control the effective improvement once the changes are done.
Cultivate An Ecosystem
Great products don’t come with a tag!
Successful products are identified with open and flexible APIs that offers easy integration with third-party software and thereon. The case with the better ones is that they amass around them a wide community of developers. They also deliver a plugin marketplace that contributes for development and promotion of third-party plugins.
Interoperability expands product value, additionally introducing an ancillary source of referral-based revenue, resale possibilities, and equipment manufacturer deals.
Focus On Right Amount Of Professional Services
Your business depends on the services you offer. When you are dealing in software business, professional services become a double-edged sword. At once, they help increase revenue, your presence, and cut off churn rates; on the other, the same can result in an increased deployment time and cost of sales, and might eat your margin as well.
Professional services account usually between 10 to 20 percent of new annual contact value (ACV). The gross margin is generally 20 percent (vs. 80 percent for the recurring revenue). Such proportions as aggregates, add up to a mixed gross margin (greater than 70 percent). This is the reason it is essential to maintain good valuation multiples and limited professional services.
Commitment To Customer’s Success
Your customers are your strength and reputation and you should in any way think about their benefit first. Or else, why would anyone be interested in your service!
Apart from signing up new customers, your another main business goal is to defend and expand its recurring revenue from existing customers as well. In general, the goal of a SaaS company is for up-sells to make up for 10 to 25 percent of new ACVs booked. The company should also aim on maintaining a gross monthly churn rate under at most 1 percent, excluding up-sells. It should also focus on maintaining a net monthly churn rate in negative, i.e. up-sells are more than gross churn.
But how will this be achieved? It’s simple, to achieve this, a customer success-focused team should constantly check their customer’s usage levels and send them new product updates. You can also include sending satisfaction surveys or invite them to customer-advisory board sessions, apart from the aforementioned tips. Your customer-success team should be a pro in selling and communication.
Your Dashboard Matters
SaaS companies need to continuously monitor their key performance indicators (KPIs). Monthly Recurring Revenues (MRRs) are the most critical measurements, other than cash flow, churn rate, customer lifetime ratio, customer acquisition ratio, ACV/MRR pipeline, as well as average ACV/MRR per salesperson.
Incentives form a significant part for any business and keeping it alive. In every way, it is important to align your incentives and set some compensation plans as per KPIs. Like for instance, the deserving salesperson should be compensated in different manners. It should be contingent upon the type of customers (whether a new or up-sell), type of booking (recurring or no-recurring), contract term, payment terms, and more.
In the same way, customer-success team managers should be compensated for reduced gross churn and maximised up-sells, or for both.
Growth Is The King
A SaaS company with usual gross margins of more than 70 percent sees a valuation dependent basically on annual revenue growth rate. An average SaaS company grows by around 25 percent year-over-year and is valued at up to four to five times its forward revenues.
Proportionately, a company with same revenue amount growing at around 50 percent year-over-year would be then valued at around twice that.
So the fact is clear: if got the means to do it, invest heavily in growth.
Leading To Profitability
Data reveals that most of the SaaS companies aren’t profitable as they invest their resources on fuel growth. Having that said, the wise SaaS companies must focus on leading to the path of profitability. They should simply prove the business model is fundamentally sound (per KPIs).
They should express that they plan to be more profitable over the next one or two years, or at its least do so while maintaining near or above average growth rates. Simple way to understand this is companied should enjoy profitability every few years before investing into more again towards higher growth.
So this was the roundup of the best 10 tips for building a successful software business. Following a single won’t bring you benefits, so consider making a suitable strategy with a combination or all of the tips mentioned above.
About the guest author: Heena has over 5 years of experience in writing about technology, education, health, social media and other topics for different sites including www.softwarevilla.com. She has contributed her writings to many top blogs and websites. She also works as a freelancer for many sites. When not writing, she enjoys travelling or listening to music.