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SaaS - Revenue Model and Value Delivery

Almost 24 years ago, SaaS (Software-as-a-service) software solutions began to make their mark in the tech industry. These innovative platforms distinguished themselves from traditional software in several crucial ways, with one of the most significant distinctions being their revenue model. 

 

Before the era of SaaS, software acquisition often entailed hefty upfront costs, extensive implementation timelines, and substantial concerns around change management. Companies had to commit to long-term contracts spanning 5 to 10 years, which made adopting new technology a daunting prospect. 

 

However, the advent of SaaS brought a transformative shift. Organizations now had the flexibility to test and evaluate software for a shorter period, typically 3 to 6 months, before committing to a complete overhaul or system change. This shift allowed them to explore innovative solutions without the financial burden of long-term contracts or heavy initial payments, ushering in a new era of agility and cost-effectiveness in the software industry.

Revenue Model

 

Experts often emphasize several key points when comparing SaaS to traditional software, and rightfully so. While the SaaS revolution transformed the software industry and had a profound impact on countless lives, one of its most intriguing aspects is its revenue model. The disparity in cost between traditional software and SaaS solutions was monumental. This cost difference empowered businesses with the confidence to explore and embrace new technologies, fostering mutual growth and innovation.

 

What is SaaS Revenue Model

 

The SaaS revenue model is often simplistically characterized as a subscription-based approach, where businesses pay a monthly fee for software usage. However, it's worth looking at it from a slightly different perspective. In essence, the SaaS revenue model is rooted in a 'proof of value' or 'proof of concept' framework. Many SaaS companies offer a 15 to 30-day trial period, allowing clients to explore the software before committing to contracts ranging from 1 month to 2 or 3 years. 

 

This approach encourages businesses to evaluate the software's utility and assess whether it aligns with their specific needs. Crucially, the flexibility of SaaS contracts empowers users to adapt as needed. If the software proves valuable during the trial or early contract phases, clients continue their subscription. Conversely, if the tool no longer aligns with their business goals or ceases to deliver value, they can terminate the contract at any point. In essence, SaaS transforms software acquisition into a pay-as-you-see-value proposition. You invest in a tool only if it consistently demonstrates its ability to deliver value both in the present and foreseeable future

 

Revenue is further divided into 2 parts

 

  • New sales

  • Existing business (Retention/upsell/cross sell etc.)

 

Value delivery is required to secure contracts and grow revenue in both the types mentioned above.  In the article below we are particularly referring to the existing business value delivery model. The value delivery for New sales is slightly different and we shall discuss that in another post, another time.

Value Delivery

 

As we've established, value delivery is a critical component of SaaS revenue growth. Let's delve deeper into how SaaS businesses approach value delivery in the Customer Success Management (CSM) framework. 

 

Defining Value Delivery 

 

Every business presents a value proposition – "What's in it for you?" Many confuse this with value delivery. While it forms the foundation of value delivery, ensuring what was promised is delivered is not the entirety of what we mean by value delivery in the CSM architecture. Let's explore this concept further: 

 

Suppose you purchase a SaaS tool for creating presentations. The Customer Success Manager (CSM) provides training, and you create your first presentation. You select a template from the initial options, but your boss isn't satisfied. Their feedback is, "It doesn't look professional enough." 

 

The tool offers more templates, but you decide to explore another tool where a knowledgeable representative understands your needs and suggests a professional template. 

 

  • Value proposition by business: Create presentations quickly and choose from 100 free templates.

 

  • Value expected by client: Create a professional presentation that my boss appreciates. 

 

To bridge the gap between the 'Value proposition by business' and the 'Value expected by the client,' Customer Success Managers (CSMs) play a pivotal role. Technology finds true utility and delivers value when it precisely aligns with a purpose. 

 

Build your playbook to deliver value 

 

You will need specific playbooks for value delivery to clients in different segments, based on the product, market, client segment, etc.  However, there's a basic framework to remember while building your playbooks: :


 

  1. Sales Handover - Start your process with collecting information about the client's business and the area where you can assist them. Get details from the sales team, review their contract, visit their website, LinkedIn or other applicable social platforms, if the company is public you may want to collect a little more information into their previous year’s performance, this year’s goals and areas of improvement.
     

  2. Understand your client and their goals - Genuine Interest and care for your client’s business can help you understand your client and set correct expectations.  Expand your understanding beyond generic questions like “How can I help you?”  Take client consent and customize the onboarding schedule, number of calls, number of users, training etc. as per client needs.  It’s best to document these things in a success plan and share with client (and all users) for transparency.
     

  3. Establish the definition of perceived value - Understanding your client’s needs, KPIs, goals will also help you understand the value he wants to derive but, do confirm this with your client before you further venture on this journey. Long term goals, short term goals, First value delivery targets, future targets etc.
     

  4. Document - Human brain has its limitations, trying to remember everything about all your clients is great but it takes time.  In the meantime, document everything.  The best way is to create a success plan with your client and continuously work through that, map the deviances and take client’s approval on an alternative plan etc. Moreover, with each client you learn something new and documenting everything can help you learn from failures and build from success.
     

  5. Weekly/monthly calls - Most of the CSMs want to talk to customers but, a customer on an average could be using 4-5 SaaS tools and once the tool meets their expectation, they may not want to talk to the vendor unless they understand the value these calls can add. To add more value in every client conversation, prepare for the conversation better. Make a list of all the pointers you want to discuss on these calls. You can make a pre-decided format and list of items and then choose applicable or take 30 minutes before every call to prepare as well. Sharing these pointers as agenda (before the call) can also help you ensure client attendance on the call.
     

  6. NPS/C-Sat Surveys - It’s important for CSMs to learn to read between the lines or understand more than the client is saying.  But, at times when you fail to do that or miss another important step in the value delivery framework, NPS/C-sat surveys bring you back to track.  Remember to not overdo them though.

  7. Track Value delivery - Your customer’s success lies in the value delivered by you and the product together.  Establish the metrics you will use for tracking value delivery.  Once metrics are established and tracked by the product, CSMs can use Customer engagement score, health score, health index, etc, as your value delivery tracker to ensure you are meeting your value delivery targets. Our team can help you establish metrics, customize/build your engagement score and set appropriate targets  so, feel free to reach out.
     

  8. Multi-Layer Relationships - Almost every CSM has been in the situation where your POC left right before the renewal and no one else on the client side understands the work done by your tool.  Hence, the renewal goes on hold or they cut down the contract etc. It’s imperative to ensure that you have at least 2 -5 different relationships in an account.  Involve your manager, sales rep, or CRO/CEO depending on the situation as well.
     

  9. Value Realization - Value realization is when a customer, CSM and business agree that perceived value has been delivered.  Though it sounds like it, it's not the end. SaaS businesses need to deliver value continuously, which means you will need a roadmap for optimized value (new features, templates from old data set etc) . Value realization is done through business reviews, face to face meetings, contract signing etc. This step is most critical but is as easily missed as well.

 

Hope you relate to the structure above as well, for any assistance with the execution of these steps or laying out the exact framework of value delivery for your customers, feel free to reach our team.

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