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Churn is part and parcel of running a SaaS company.

Some customers won’t get enough value out of your product. Some will switch to a competitor. Some will go out of business. It’s unfortunate, but it’s also inevitable.

However, you should do your best to keep churn as low as possible, because otherwise, it can do serious damage to your business.

So, how can you prevent churn from cutting the customer lifecycle short?

What is churn?

Like most complex challenges, it’s important to first understand them at the most basic level. Here’s how Joel York from Chaotic Flow defines customer churn:

“SaaS churn is the percentage rate at which SaaS customers cancel their recurring revenue subscriptions.”

For example, if you had 100 customers at the beginning of the month, and 10 of them left by the end of the month, your churn rate for that month would be 10%.

Of course, the problem is that if you acquired 10 new customers in that month, you would still have only 100 customers at the end of it, stagnating your growth rate at 0%.

This is why churn it’s so deadly. If you let it get high enough, you will find yourself pouring resources into your business, only to find yourself staying in the exact same place — or worse, moving backwards. It’s never pleasant to feel like a hamster on a hamster wheel.

Stages of SaaS customer lifecycle

In her HubSpot article “The 6 Stages of the SaaS Customer Lifecycle” Sophia Bernazzani explains the SaaS customer lifecycle from awareness to purchase to renewal.

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A customer can churn at any stage between the conversion and the renewal, thus killing your customer lifecycle. So how can it be prevented?

Combat churn at every stage of the customer lifecycle

You can’t cross your fingers and hope that churn will magically decrease. You need to take proactive measures to prevent your customers from leaving.

After all, you have spent so much time, energy, and money to acquire them that letting them go without a fight would be a disservice to you and your business.

By identifying the six key stages of the customer lifecycle and thinking through how your business can proactively work to engage customers in each of these phases, you can proactively drive loyalty and reduce churn.

Awareness

It’s important to understand that you need to provide a consistent experience throughout the customer’s journey.

This starts with their first exposure to your product. You should set clear expectations and never intentionally mislead your potential customers.

Also, you need to target the right prospects from the get-go. If you put your product in front of the wrong crowd, all you’ll get is customers who churn almost immediately because your product is not suited for their needs.

For example, Laure Roeder from MeetEdgar got her startup off the ground with Facebook ads. She used this service to get her offer in front of the people who would benefit the most from it.

“So we just ran ads to people that like the pages of our main competitors. And the ads were literally just like, there’s a new social media tool out there. Maybe you wanna check it out.

Because that’s really interesting. If you’re a person that uses social media tools, you’re actually super interested in the new ones, and how they might be different than the one you’re already using,” explained Laura in her interview on the Indie Hackers podcast.

Here’s an example of a MeetEdgar ad. Very straightforward. But it works. Why? Because the ad is shown to a targeted subset of people — ones who want to automate their social media use.

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What is equally important is that MeetEdgar software actually does exactly what they promise in the ads, which makes customers happy and establishes trust.

So, before you think about any other stage in the customer lifecycle, you need to make sure that you have put your product in front of the right people and are delivering on what you have promised.

Conversion

Once you have managed to catch the attention of a potential customer, you have to persuade them to make the purchase.

This starts with compelling website copy.

You need to clearly explain the benefits of your product and then support that explanation by describing its features.

How will your product make the customer’s life better? This should be immediately clear to anyone who lands on your website.

But great website copy isn’t enough. You have to put effort into selling your product and showing a potential customer why and how this investment will solve their specific needs.

This is especially true for B2B SaaS businesses because people who purchase software on behalf of their company usually have to report and justify their investments to someone higher up the corporate ladder.

That is why you need to provide sales contacts with additional information that will help them become an informed buyer and advocate for your product.

Now, how you do that depends on your budget. You can offer downloadable materials like eBooks or demo videos, you can hold live webinars where you give product demos and answer questions and you can even do personal product demos if it makes sense for your business.

For example, here at Chargify we sell sophisticated subscription billing management software to B2B SaaS businesses. We know that one size doesn’t fit all, which is why we encourage potential customers to reach out to one of our billing experts for a live conversation before they make a decision:

Reinforcing the value of your product at this stage not only helps you convert hot leads into paying customers — it also makes those customers less likely to churn because they have clear and realistic expectations about the features and benefits that your product will provide their business from day one.

Purchase

Onboarding a customer, also known as the first-run experience, is a crucial phase in the customer lifecycle.

According to Patrick McKenzie, 40% – 60% of users who sign up for a free trial of your software or SaaS application will use it once and never come back.

Yes, you read that right. You lose 40% – 60% of your customers immediately after their first run.

(image source)

Luckily, you can knock this insane number down quite a bit. All you need to do is design your onboarding experience in the right way for your target customers.

And in order to do that, you need to understand the main purpose of the first-run experience — to give the customer a hands-on taste of how your product can improve their day-to-day life.

In his book “The Elements of User Onboarding,” onboarding expert Samuel Hulick uses an ice cream shop metaphor to explain this concept:

“You know how you can go to an ice cream parlor and they let you sample a flavor with a tiny helping from one of those little spoons? That’s exactly what we’re aiming for with this first experience. Simply providing them a small taste of success now will greatly increase the likelihood they go all-in on the triple-scoop later on.”

For example, when Patrick McKenzie ran Bingo Card Creator, his first-run aim was to get a school teacher to print out the cards.

In his article “Designing first run experiences to delight users” he shares how he was ruthless about cutting out everything that did not lead to that outcome:

“Accordingly, everything about the first-run experience is designed to get her a step closer to smelling that ink toner. Anything which distracts her from that is waste; there are configurations and customization options she can make, but she can make those later, she needs to feel awesome right now”

He also analyzed the first-run funnel to identify the biggest leaks and fix them.

(image source)

“We can observe that there is a small drop-off in funnel completion between Dashboard and Create list (95.9% of users having reached Dashboard will successfully create their word list), but there are significant leaks between “Create list,” “Customize,” and “Schedule print.” This is where I focus my efforts as a UX designer, as it is likely I can achieve big wins there rather than chasing a 95% to 96% improvement,” he explains.

You can improve your onboarding by identifying a quick win that gives the customer a taste of what they can do with your product. Then, design the entire first-run experience around that quick win.

Once that’s done, analyze your sales funnel, identify the biggest drop-off points, and correct them.

Also, if you are selling high-dollar B2B software, you should consider offering assisted onboarding — especially if the set up is complicated.

Ultimately, offering a customized yet simplistic first-run experience will help get your customers hooked on the efficiency gains they realize with your product. Then, they will come back looking for that “triple-scoop.”

Activation

Don’t make the mistake of thinking that your job is done once you have onboarded the customer.

You need to make sure that they actually use your product, which you can do by engaging and educating them.

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For example, Focus Booster is a company that sells a productivity app based on the famous Pomodoro technique. (You work for 25 minutes, rest for 5 minutes, which makes one “Pomodoro”, or a work cycle.)

Throughout a free trial, they send customers emails that provide tips on how to make the most out of their app, challenge them to get even more done and remind them of how much work they have already logged.

That way, by the time their free trial ends, the customer is well on their way to becoming an expert Focus Booster user, and they have tangibly seen how much more productive they can be with the app. This experience makes them more likely to purchase it.

You should aim to be this proactive with your own customers. Rather than leaving them on their own, provide them with support documentation and reinforce the benefits they are getting from your software.

Renewal

In his article Reduce churn by re-engaging customers, Intercom’s co-founder Des Traynor explains that activity churn is what matters.

“Activity churn is the best indicator of future problems. Typical churn stats use something like account cancellations as a measurement. But cancellation is only ever a trailing indicator, it’s literally the last thing that happens.

Customers don’t make a snap decision to stop using a product unless things have really gone wrong. Typically, customers gradually stop using products, from using it every morning to every week to once a month.”

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This means that you can reduce churn by identifying the customers in the danger zone and re-engaging them.

Des advises to personally reach out to these customers and ask for feedback on your app.

“The single best way you can engage customers that are slipping away is by talking with them.”

He also suggests sending these customers updates on the new exciting features that you are working on (UI screenshots and GIFs help here).

Finally, he reminds us that some churn is natural.

“Businesses come and go, as does the demand for your product. When a customer decides to leave, make sure they leave on good terms. If they have legitimate problems with your product, acknowledge them. Don’t delude yourself and fight back. Thank them for their [business] and let them go. The easiest way to screw this up is to continue to spam them months or years into their departure. It does more harm than good.”

Now, you also need to take into consideration involuntary churn, which happens when the customer churns not because they chose to cancel their subscription, but because their payment method failed. (Say, for example, their credit card expired.)

This is why it’s so important to have a sound subscription billing management system in place that automatically notices when a credit card is about to expire and reminds the customer to update their payment details.

When that fails, it’s time for dunning emails, which is something that your subscription billing management provider should help you with.

For example, here at Chargify we have developed effective dunning strategies which our customers can easily implement in their own businesses to reduce involuntary churn.

“At Knobby, we use  Chargify’s dunning email workflows to help ensure that past-due accounts are re-engaged and maximum revenue is achieved. It works!” says Rob Rand, managing director at Knobby.

Referral

You want to incentivize happy customers to spread the word. The best way to do that is to establish a generous affiliate program in which the customer gets a commission for each referral.

For example, ConvertKit invested a lot of time and energy into their affiliate program, and it has played a major role in its growth.

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ConvertKit is a company that is uniquely positioned to profit from having an affiliate program because its target audience is familiar with affiliate marketing and have audiences of their own.

However, you too can benefit from an affiliate program because it will make your customers more likely to recommend you to their peers, and you will get access to sales that you would not have gotten otherwise.

You can (and should) be proactive about expanding your affiliate program by reaching out to your most successful customers and reminding them about the referral process.

Of course, for this to work, you need to focus heavily on customer satisfaction first — because only happy customers become evangelists.

Conclusion

Growing a SaaS company is hard enough as it is.

But a high churn rate can be a nightmare — one where you stay in the same place no matter how much effort you put into acquiring new customers.

Avoid this stalled growth by implementing these measures to counter churn in all six stages of the customer lifecycle.

Want to learn more about how decreasing churn can accelerate revenue growth? Download our free eBook, “The SaaS Churn Bible,” that covers actionable ways to identify and combat churn throughout the customer lifecycle.

The post Combat Churn at Every Stage of the Customer Lifecycle appeared first on Chargify Blog.

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There is no subscription billing model that works for everyone.

It’s crucial to weigh the pros and cons of each option before deciding how to charge your customers. 

Moreover, your pricing strategy should be based on your value metric, and different value metrics require different types of subscriptions.

Let’s take a look at the seven most popular subscription billing models.

Which one should you use in 2019?

Freemium

The freemium model is a subscription billing model where you allow people to use a basic version for free and then charge them if they want to upgrade.

This model is used by a lot of well-known companies such as MailChimp, Dropbox, Buffer, and others.

Evernote’s CEO Phil Libin even said that “The easiest way to get 1 million people paying is to get 1 billion people using”.

However, keep in mind that freemium comes with its challenges, and making this model work for your business might be harder than you think.

In general, free plans attract individual users for whom the basic functionality is often more than enough, as well as those who can’t afford to pay for your premium plans, which means that converting enough free users to paid users might prove to be complicated.

That’s why the freemium model works best when supporting the basic product isn’t resource-intensive and when there’s a clear path from being a free user to being a paid user.

MailChimp, an email marketing company that offers a free plan is an excellent example of a successful implementation of the freemium model.

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Back in 2009, MailChimp introduced their Free Forever plan that allowed people to use MailChimp for free until their email list reached 100 subscribers.

According to Sumo, the co-founder and CEO of MailChimp Ben Chestnut said that in one year it helped them:

  • Grow their user base 5X (from 85,000 to 450,000)
  • Increase their number of paying customers by over 150% (despite offering a free product)
  • Hit several days of 2,000+ new user signups (when they were averaging about 1,000 new user signups daily before then)

“Launching their “forever free” plan helped MailChimp grow their profit (yes, profit – not revenue) 650% in one year by lowering their customer acquisition costs,” says Chris Von Willpert from Sumo.

Note how Mailchimp tested the waters by offering a free plan with a 100 subscriber limit at first. Then they gradually increased it to the current 2000 subscriber limit which was introduced in 2011.

It’s important to understand that their product lends itself to the freemium model. Someone who put in the effort to grow their email list to 2000 subscribers won’t just abandon it. And they won’t be content with staying at their current level either, so it’s a seamless transition from being a free user to being a paid user.

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The freemium model can work very well, but you need to think about whether it makes sense for your product before you implement it.

As Lincoln Murphy, the managing director of Sixteen Ventures, put it: “Freemium is a numbers game.”

It all depends on whether you can get enough people to use the free version of your product and then convert enough of them to paid users.

Evernote’s CEO Phil Libins outlines these three steps to freemium success:

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#1 Win millions of free users

Evernote managed to acquire over 3 million free users in just two short years.

#2 Convert more active users to premium status over time

Their free-user-to-premium-user conversion rate over time was 0.5% after one month, 1% after six months, and 5.5% after two years

#3 Keep costs down

They also made the math work by keeping their costs down so that they would net $0.16 profit per active user per month.

Can you see your company acquiring over a million free users and converting enough of them to paid users over time while keeping your costs under control?

If so, it might make sense to experiment with the freemium model and see how whether it works for your business.

However, if your product is too niche to attract enough free users or too resource-intensive to support them, then other subscription billing models discussed in this article might be a better fit.

Fixed fee

The fixed fee model is a billing subscription model where you offer a single monthly plan with a fixed price. The main advantage of this model is that the revenue is very predictable. All you need to know to do the math is the monthly price, the number of customers, and the churn rate, plus the number of new customers you should expect each month.

Sure, your projections might not be perfect, but they will probably be more accurate than with other models since the fixed fee model is so straightforward.

You might miss out on potential revenue by not offering pricing tiers, though. Not all customers need the same functionality, which means that different people prefer different pricing plans since no one wants to pay for features they don’t need.  

Moreover, having a single price point means that you don’t control the frame of reference which the potential customer uses to evaluate whether the product is worth it. Meanwhile, offering multiple pricing tiers has an anchoring effect which can help you charge more.

Of course, one can also argue that presenting a single price point helps the potential customer decide by saying “Yes” or “No” is easier than picking from several options.

One well-known company that successfully implemented the fixed fee subscription billing model is Basecamp which sells product management and team collaboration software for $99/month.

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This pricing is a competitive advantage because other well-known companies that don’t have all the functionality of Basecamp charge per user which can add up as your business grows.

In fact, on their pricing page Basecamp explains that their software can replace 4-5 apps that all charge per user. And they demonstrate it by comparing their product to other products you would need to get the same functionality.

It’s hard to argue that they don’t make a compelling case as to why you’d choose their product over the products of their competitors.

It’s probably safe to say that this competitive edge is the main reason why the fixed fee model works well for Basecamp. Consider trying the fixed fee model if you see a similar opportunity to offer a better deal than your competitors.

Tiered fixed fee

The tiered fixed fee model is a subscription billing model where you offer several plans with a fixed monthly price. This is a prevalent, maybe even the most popular, subscription billing model used by companies such as CrazyEgg, Drip, and ConvertKit.

The main advantage of this model is predictable revenue. Having only a few options for the customer to choose from makes it easy to calculate revenue projections. But some customers might want to tailor their chosen plan to their specific needs and dislike the lack of flexibility that comes with strictly-defined pricing tiers.

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ConvertKit, an email marketing software company, offers three plans with a fixed price, and one where the price is calculated individually based on the number of subscribers the customer has.

It’s interesting to compare ConvertKit’s approach to subscription billing to that of MailChimp’s since they are both selling email marketing software.

On the one hand, ConvertKit probably attracts more serious customers since they charge a substantial monthly fee from the very beginning.

However, MailChimp probably has much lower customer acquisition costs, because when you are just starting a free plan is more attractive than a $29/month one.

It seems that when we compare the freemium model with a tiered fixed fee model, what it ultimately boils down to is the quantity vs. quality of customers (at least when we are talking about similar products).

The tiered fixed fee subscription billing model is often the safest bet for SaaS companies, and you should consider it.  

Pay-per-seat

The pay-per-seat model is a billing model where you charge for each user that has access to that particular account.

The main advantage of this model is that revenue is somewhat predictable, although not as predictable as with fixed fee and tiered fixed fee models because it’s harder to calculate how many new users you can expect each month.

However, as the customers’ teams and their needs increase, the costs start to add up. That might make them look for more affordable options (remember Basecamp’s persuasive comparison of their fixed fee price with their competitors’ pay-per-seat prices).

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Still, this subscription billing model can work well if it makes sense for the product.

For example, Groove, a customer support software company, has three plans with a different price per seat.

This works for Groove because charging per agent makes sense for a customer support product.

You might want to consider this model if you have a product where one account can have several users who each need personal access to the software.

Pay-as-you-go

The pay-as-you-go model is a subscription billing model where you charge the customer based on their usage of your product.

The main advantage of this model is that it is attractive to customers since they only pay for what they use which means they can be sure they are getting the most value for their money.

However, their usage of your product might turn out to be sporadic, which makes it hard to predict future revenue.

(image source)

This model makes sense for businesses such as hosting providers and payment processors where it’s logical to charge based on usage.

For example, Twilio mostly uses pay-as-you-go-pricing where they charge their users per minute or message and offer them volume and committed usage discounts.

Hybrid

The hybrid model is a subscription billing model where you combine two or more subscription billing models.

(image source)

Here are some conventional approaches:

  • Tiered fixed fee + custom
  • Tiered fixed fee + per user
  • Tiered fixed fee + pay as you go

There are other variants of this model, such as the Dutch model where the user pays a one-time fee to buy software and then a subscription fee for updates, but they are less common.

The main advantage of this model is that it provides the customers with extra flexibility because they can tailor their plan to their specific needs.

But it might also be somewhat confusing to the users, especially if they forget about the per-usage charge and then are surprised by it.

For example, Zapier uses a hybrid freemium model where they charge $250/month or $312.50/month for their Teams plan. But they also charge per usage for extra tasks.

The hybrid model makes sense if you have a product where the usage of a resource-intensive feature might vary a lot on a month-to-month basis. If so, your customers might appreciate the option of purchasing extra usage when they need it.

Custom

The custom model is a subscription billing model where instead of having a set price that applies to all customers your offer is customized to each customer based on their needs.

The main advantage of this model is that it attracts high-quality customers that want a solution tailored specifically to them and are willing to pay for it. But it also takes more effort to sell a product like that, which means that you may need to hire salespeople.

Moreover, it might scare away potential customers who might otherwise have purchased the product but assumed that it was too expensive for them without reaching out to find out the price.

We use this model at Chargify because every SaaS business has different needs when it comes to billing, so it makes sense to tailor our solution to each customer.

On our Plans page, we used our decade of experience to design three customizable offers that cater to the ever-changing needs of SaaS businesses.

Then we list our three plans: Core Plan, Enhanced Plan, and Startup Offer.

We then provide a comparison chart that makes it easy for the potential customer to assess each plan.

Finally, we encourage the potential customer to reach out to us if they are unsure which plan is best for them.

Note how we have seven call-to-action buttons on our Plans page that take the potential customer to the contact form. Once they submit the required information, we reach out to them to schedule a call.

Chargify’s billing engine simplifies the process by providing all the tools you need to launch, experiment, and personalize offers without custom code or professional services.

You should consider the hybrid model if you have a sophisticated product which solves a complicated problem that you then sell to businesses who want a solution tailored to their specific needs.

Conclusion

Your choice of a subscription billing model has a significant impact on your revenue so you should give it the thought it deserves.

Take a look at the way you are charging your customers now.

Is it sustainable? Does it fit well with your value metric? Could changing it give you a competitive advantage?

All these things need to be reconsidered with a fresh perspective.

Don’t be afraid to make a switch if you decide that a different subscription billing model would make more sense for your business.

The post 7 Subscription Billing Models To Consider in 2019 For Your SaaS Business appeared first on Chargify Blog.

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How long is a startup a startup? We found ourselves asking this question in a marketing meeting not too long ago. It came up because people regularly refer to Chargify as a startup, but our company has been around since 2009. Are we still a startup? I don’t think so.

There are specific stages a software-as-a-service (SaaS) company moves through during its life cycle.

The first thing you may think, as we did, is “Does it matter? Do you really need to know what phase your company is in?”

According to a study by the Startup Genome Project of more than 3,200 startups, they found that “70% [of startups] fail because of premature scaling.” Understanding which stage your SaaS business is in can help determine the appropriate time to scale to the next phase—and do so successfully.

In this post you’ll learn how to identify each SaaS stage, what you should be focused on in each stage, and when is the right time to scale. The four major SaaS life cycle stages we’ll cover:

  • Pre-startup
  • Startup
  • Growth
  • Maturity

Hopefully the information below will help you avoid premature scaling. Let’s get started.

Pre-Startup

You may also hear this stage referred to as discoveryvision/mission, or problem/solution fit.

During the pre-startup stage, a SaaS company should be focused on identifying a problem and how your service provides a solution to that problem.

“At this point, you are trying to work out whether or not you are solving a problem. It involves a lot of research, reading and discussion. And, realistically, you don’t have to quit your job to do it. Find out that a problem exists before you dive into the deep end,” explains serial startup founder Leticia Mooney.

Common activities your SaaS should focus on during the pre-startup stage can include:

  • Talking to potential customers
  • Seeking financing from friends and family
  • Establishing relationships with advisors and/or mentors
  • Joining an incubator or accelerator group
  • Creating a minimum viable product (MVP)

You should also be aware of the common risks your SaaS faces during the pre-startup stage.

The “primary risk [during pre-startup] is the failure to design a business plan and strategy that will enable the company to become profitable as it makes sales and earns revenue. Other significant risks include a dependency on seed money to cover operational costs for a longer period than anticipated, or a lack of funds to cover rising employee and infrastructure costs,” according to Andrew Armstrong, founder of KickStart Search.

Finally, how do you know when it is time to move your SaaS forward to phase two?

“Ask yourself two questions: ‘What problem am I compelled to solve?’ and ‘Does my proposed solution solve it effectively?’ If you have a clear answer to the first question and a confident ‘Yes’ for the second, then you’ve got problem/solution fit and a hypothesis, and it’s time to start pressure testing your idea,” advises growth marketing consultant Lauren Bass.

Startup

You’ll also hear this stage called validation or the product/market fit stage.

As those names indicate, in this phase a SaaS company’s focus should be on finding product/market fit. While it may seem counterintuitive, you should avoid focusing on how to scale at this point. We’ve gone into detail on how to find product/market fit in a previous post, so here we’ll concentrate on the important details of this stage.

Common activities you should focus on in the startup phase include:

  • Refining product/core features (this may involve pivoting to achieve product/market fit)
  • Finding channel/market fit
  • Establishing/implementing metrics and analytics**
  • Making key hires
  • Securing first paying customers
  • Securing angel/seed money

**We should note that utilizing Sean Ellis’s product/market fit survey, NPS (net promoter score), and activation and retention rates are important elements of implementing metrics and analytics. The higher the activation and retention rates, the greater the indication that this is a must-have product. Those activities are discussed in detail in “Finding Product/Market Fit: When To Stand Firm & When To Pivot.”

As to gaining your first paying customers, “There isn’t a hard-and-fast number, but you need enough users moving through so you can see whether people are sticking around and using your product or abandoning it,” says Morgan Brown.

If you seem to be gaining traction, now would be a good time to solve the problem of recurring billing, which most SaaS business models rely on. After all, that monthly recurring revenue is the engine that makes a SaaS business work. In the early going of a SaaS startup, it’s important to concern yourself with almost anything other than writing an app to charge folks each month—that’s where Chargify comes in. Our recurring billing services let SaaS companies focus on their business and customer acquisition instead of the nuts and bolts of billing.

You may be less familiar with the concept of channel/market fit than product/market fit. At the startup stage, you’ll want to address both.

“Channel/product fit is all about using a process of channel discovery to find the highest yield and most efficient avenues for reaching your target customers,” says Bass.

In practice, this means understanding some typical risks and concerns:

  • Failing to identify the best customers/target audience for your product
  • Thinking too broadly about who your target customer is**
  • Gaining an insufficient number of customers to create cash flow needed
  • Making hiring mistakes early on that have costly impacts on the company
  • Spending too much on customer acquisition before product/market fit
  • Not pivoting when it’s needed
  • Expanding into a narrow market that is already oversaturated with competition

**Side note: Bass explains why broad target market definitions are a concern to be aware of: “You MUST be hyper specific here. For user acquisition purposes, your target customers are NOT ‘working mothers or marketers’ (they may be exactly that for the sake of fundraising, since you need to demonstrate a huge addressable market for your product). Here’s an example: in the beginning, New Relic didn’t see their target customers as developers. They zeroed in on Ruby on Rails developers as their early adopters and became a voice within that very niche community. Later they expanded to serve a larger population of developers as they scaled.”

The focus at the startup stage is not on scale, but New Relic was savvy in that early phase to narrowly define their target market, which helped them find continued success as they scaled in later stages.

It can be very tempting to move to the next phase too quickly. Resist. “Startups need 2-3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely,” according to the Startup Genome Project.

Stepping Stone: Efficiency/Process Improvement

Efficiency/process improvement is a stepping stone along the way to the next major SaaS stage. “The goal here is to build a base of loyal, passionate and successful customers to establish credibility while preparing the startup for full-on growth,” writes entrepreneur Mark Birch.

Common activities your SaaS should be focusing on during the stepping-stone stage can include:

  • Clarifying value proposition
  • Refining customer experience/onboarding
  • Funnel optimization**
  • Achieving viral growth
  • Finding the channels that allow you to scale customer acquisition
  • Identifying a repeatable sales process (this is mission critical!)

**For more information about optimizing the customer life cycle funnel from first touch to paying conversions and beyond, check out our post: “Master The SaaS Customer Lifecycle Funnel: Acquire, Retain, Engage.”

Typical risks and concerns to be aware of during this phase include:

  • Not pivoting when needed as the market changes
  • Expanding “to exploit a company’s accomplishments…rather than keeping the company stable and profitable” (Armstrong)

Once you’ve successfully found product/market fit and made initial processes more efficient, your SaaS company is ready to scale to the next stage: growth.

Growth

Congratulations, you’re growing! In this SaaS stage, “You have a product and market fit. You know it works. You’ve got the process to a point where you’re driving traffic, leads and conversions. So you move into top gear and drive acquisition quickly, efficiently and smartly,” says Mooney.

For enterprise tech startups, this step “defines the true market challengers and when the startup evolves from a scrappy startup to an actual business that has a clear understanding of [the means] and the cost of acquiring customers,” writes Birch.

Industry-wide, there is some disagreement about whether “scale and establishment” is its own distinct phase or if it falls under the umbrella of “growth,” such as in Startup Commons’ model below:

For the purposes of this blog, we agree with the latter.

At the growth stage, some companies will find themselves needing to shift focus from revenue growth to profitability. Alternatively, your SaaS may need to focus on raising the capital required to support aggressive customer acquisition and scaling.

Some of the common activities at the growth stage include:

  • Seeking Series A funding
  • Aggressively acquiring customers
  • Hiring executives
  • Scaling improvements on the back-end
  • Gaining a deeper understanding of A/B testing and conversion optimization**
  • Have an established, repeatable sales process 
  • Ensuring your product, marketing and sales teams are aligned

**BigCommerce cofounder Mitchell Harper points out that “improving your visitor to trial conversion rate by just a few percent can have a huge impact on your revenue, so getting an intimate understanding of conversion rate optimization and split testing during [this phase] should be a top priority.”

At Chargify, we agree. That’s why we’ve built subscription management capabilities into our platform. They can help you flip a trial-based customer into a paying one. With our email automation logic, you can have a staged email drip campaign to inform those customers that their trial is ending. We also offer other logic to communicate with your customer throughout their life cycle and cultivate that relationship. Messages can include:

  • Welcome email at signup
  • Upcoming renewal notice
  • Receipt after transaction
  • Card-on-file expiration
  • Payment overdue

Scaling is expensive because your costs increase as the number of customers you support grows. In the graph below, Groove illustrates their scaling expenses as the company grew. The company provides the following advice: “Be careful not to let your costs scale faster than your revenue.”

You should also be aware of the following risks and concerns in the growth stage:

  • Insufficient cash to handle the costs associated with growth
  • Inability to get “costs lower than revenue at scale” (Startup Genome Project)
  • Failure to focus on your business model
  • Hiring mistakes (at this stage bad hires can harm company culture)
  • New competitors copying your business model**
  • Scaling prematurely
  • Amplified issues of cash burn and working capital needs (Destin)
  • The difficulty of “getting things done” as you increase the number of employees
  • The need to shift developer focus***

**”The first two stages are easy. The third stage is when other people can see what you are doing and now other companies try to copy and destroy you,” explains Airbnb cofounder and CEO Brian Chesky.

***As Groove scaled, they found themselves forced to shift developer attention. CEO Alex Turnbull explains “more customers means more bugs. And more bugs means less time for our team to work on everything else.”

Metrics are key in every SaaS stage, and at this step the data will determine when your company is ready to move on…

Maturity

In the maturity stage, “customers know what they bought. How your services are used/consumed and what your product will do for them have been defined/documented. Ninety-five percent of outcome scenarios fall into an operational bucket and are delivered consistently, at scale. Your departments’ and organization’s products/services have a known set of predictable measures,” according to Alexander A. Sulpasso, Vice President of Operations at Guilford Savings Bank.

At this stage the growth of your SaaS will slow, but it should never completely stop.

Here is some of what you’ll focus on during the maturity stage:

  • Looking for opportunities to grow globally—put local teams in place who understand the culture and nuances
  • Considering the addition of new products or services
  • Identifying acquisition opportunities**
  • Continuing to invest in growth and experimentation to find additional opportunities
  • Considering an IPO or an exit strategy

**According to Bass, acquisition opportunities can “align either directly or tangentially with your product. Maybe an acquisition target gives you access to a new but very similar market of users, or maybe a product helps you expand the value you offer current users.”

Even at this stage, says Mitchell Harper, it is critical that employees “understand that regardless of how well your business is doing, you’re never done, so a cultural bias towards ambition and a drive to win are important.”

The biggest risks at the maturity stage are that the SaaS company becomes too comfortable in its success and stops doing the following:

  • Monitoring/changing with the market
  • Testing new things (products, tools, etc.)
  • Retaining your competitive edge

Leslie Ventures Managing Partner Mark Leslie paints a picture of the worst-case scenario for a SaaS in the maturity phase:

“Growth slows even more, eventually flattening out—yet operational expenses continue to climb as they strive to compete with new players in the market. Finally, unable to keep up, burdened with bloated budgets, companies spiral into negative growth, marked by layoffs, high burn rates and eventual bankruptcy or liquidation.”

Yikes! While that description is dire, the key to avoiding those extreme circumstances is strategic transformation.

If you’re a company leader, you’ll be the force behind any company transformations, whether it means pivoting in your business model, bringing new products/services to market, or making some other strategic change.

At the maturity stage, you’ll likely experience a series of shifts that “will meld over time into an overarching story of transformation and extended life expectancy.” Leslie shows what that looks like:

Your SaaS company is now in a prime spot! You have momentum behind you and stability in front of you. “You have the talent, money and market influence to do something new while maintaining and growing the core business,” says Leslie. Alternatively, you may be considering an exit strategy at this point.

Wrap-up

With premature scaling being the reason 70% of startups fail, it is vital to identify the points at which your SaaS can successfully expand.

By understanding the major stages of a SaaS company, you can create and implement better strategies for growth at every phase. And no matter where your SaaS company currently is in its life cycle, there are always opportunities to learn, adapt and excel.

And remember that if you’re looking for a recurring billing solution, Chargify is here to help. We have built a world-class billing platform that integrates with a variety of leading payment gateways, can handle customized recurring billing requirements, assist with subscription management and provide security for your customers’ data—we’re Level 1 PCI compliant. Not to mention that we’ve just brought on ProRata to handle the new ASC 606 and IFRS 15 accounting standards for recurring revenue recognition. Stop mucking around with building your own billing app and let us do the heavy lifting. Your business has other things to focus on.

Do you have any tips for what a SaaS company should be doing or watching out for at each stage along the way? Let us know in the comments below.

Related reads:

The post The Stages Of A SaaS Company: When To Scale For Success appeared first on Chargify Blog.

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Recurring subscriptions are becoming the norm in the business world, and for good reason. Subscription services give the end user control over costs and employee access, without the cumbersome contracts. But some software-as-a-service (SaaS) companies struggle with how to sell subscriptions. To help, we’ve put together a list of the four strategies that are key to selling SaaS. And after you’ve mastered the sales process, Chargify is here to handle your recurring billing.

1. Have a Trial or Freemium Offer

The freemium pricing model allows clients to experience your product prior to purchase. And while trial pricing does come with a very real risk of straining resources (we had to learn that lesson the hard way), when executed correctly, this strategy can be a healthy source of new customers that stay with you for the long haul.

A great example of this strategy being done right is Dropbox’s freemium offering, which allows “users to see how easy it is to back up and share their files using the Dropbox platform,” says Sujan Patel, cofounder of Right Inbox.

Offering a basic version of the product for free gets people hooked. This is a huge leg up when selling to businesses because when the time comes to scale up to a premium offer, the decision making process is already skewed in your favor. It’s more time consuming and expensive to start over and learn a competitor’s product than to simply continue to use the product a company already knows and loves.

An important feature of any successful freemium model is a good subscription management process. Chargify’s subscription relationship management tools help bring paying customers on board by, for example, reminding new users when their trial is ending so the conversion to paid membership is transparent and frictionless.

2. Have a High-Quality Product with a Seamless User Experience

Can employees figure out how to use a clunky interface? Sure. But they’re not going to take the time to do that, and they shouldn’t have to.

UX separates the winners and losers in the subscription game. InVision Lead Designer Scott Savarie says, “Generally with SaaS products being so large and complex, interfaces tend to get overly complicated, and the user gets lost in the mix when teams try to integrate new features. The best SaaS products are as enjoyable to use as your favorite consumer-facing products.

Let’s be clear: every point of the customer experience (and onboarding in particular) should be seamless, efficient, and outstanding. Businesses simply don’t have time to spend learning and relearning interfaces and processes. And because subscription services offer the freedom to jump off, a poor UX or unclear onboarding process could be enough of a headache to send a prospective customer packing. At Chargify, we’ve seen firsthand how businesses truly value an easy-to-use interface.

I love how easy Chargify is to use. I don’t have to be in it all day—I just do what I need to get done, then quickly get back to work.
Bill Carney, Marketing Director at RStudio.

In short, if you’re wondering how to sell subscription services in the B2B sector, design a product that sells itself thanks to a stellar UX.

Communication is also critical aspect of the customer experience. Our revenue retention features allow companies to prevent payment failures as well as monitor at-risk accounts so that clients receive the reminders they need and never feel like they are being caught off guard.

3. Provide a Self-Service Solution for Problem Solving

When users encounter an issue, most would prefer to solve it themselves. This means that while your company may have live chat, phone, and email support options, businesses need to work quickly and are unlikely to turn first to those methods.

If self-service doesn’t sound very, well, helpful, take a moment to think about it from another angle. “Customer service reps for a company are normally providing assistance based on information given to them in a user guide. Giving a customer access to the same information eliminates the need for sitting on the phone or waiting for an email reply,” writes Peter Roesler, president of Web Marketing Pros.

Self-service solutions are also cost effective. “Manned support can cost up to $12 per contact, while self-service solves problems at 10 cents or less,” according to Forrester Research.

PredictHQ does a great job of empowering customers and giving them all the tools they need to succeed from within the online support center: the Quick Start walkthrough takes customers through the onboarding process step-by-step, developer docs offer detailed technical resources, and a searchable knowledge base covers almost every type of issue.

This variety within the PredictHQ support center means options for its many user types. And should all else fail, they can always contact the support team through live chat, email or phone.

4. Align Your Product with a Purpose

The B2B subscription service field is crowded, so capitalize on those differentiating features of yours. Every partnership a business enters into says something about the business and is potentially a marketing tool. Aligning your product with a purpose can help to create goodwill and make it easier for people and their employers to choose your product over a competitor’s.

A great example of this strategy in action is Salesforce’s Pledge 1% initiative. CEO Marc Benioff says, “The business of business is improving the state of the world,” and with this philanthropic initiative, those aren’t just words. The Pledge 1% program encourages entrepreneurs to pledge 1% of their equity, profit, product, and/or employee time to their communities. Since its founding, Salesforce’s Pledge 1% program has donated more than $230 million in grants, 3.2 million hours of community service, and thousands of products to more than 37,000 nonprofits and higher education institutions.

The post How to Sell Subscriptions: 4 Strategies for SaaS Companies appeared first on Chargify Blog.

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