One of the bright shining spots in the world after the pandemic was enterprise SaaS companies & their growth. The subscription based software providers defied the odds and scaled new heights during a period when markets around the world entered recession.
The increasing dependence of businesses, governments and consumers on SaaS products augurs well for the growth of the SaaS companies. The pandemic has in many cases driven unexpected growth for SaaS companies. Product led growth is pushing companies to new heights at an unprecedented pace. As per Mckenzie report, 92% of SaaS companies fail within 3 years despite growth and funding. The remaining ones master the art of adaptation, grow at a sustainable pace and stay resilient to the challenges. Here’s a look at the key takeaways from successful SaaS companies.
1. Product Market Fit
According to CB Insights, 42% of startups fail due to poor product-market fit. Companies that are successful are able to build a product for which customers are willing to pay. These companies establish their customer needs with the right product.
The SaaS products that are successful define the core features with precision. These products test their hypothesis with customer feedback. SaaS products that serve their customers well typically answer the following questions about them:
Who they are?
What do they do?
What makes them successful?
What are their pain points?
What does their typical day look like?
Marc Andreessen & Ben Horowitz have suggested the following definition for product-market fit:
“Product-market fit means being in a good market with a product that can satisfy that market.” When there is a good market that is ready & you have a product that can satisfy the market, you can build a successful product around it.
2. Frictionless Experience
The customer acquisition costs for a SaaS product have increased many times in the last few years. Customer onboarding plays an incredibly crucial role in building frictionless experience for them.
Most SaaS products have a high churn rate, the conversion ratio from a trial customer to a paying customer is typically low. Companies that provide hand holding support to the users & help them with their day to day tasks are able to retain their customers longer.
Customer experience and smooth product experience shape the journey of the users. Studies have shown that 44% of companies spend more on customer acquisition than customer retention. Infact, just 18% go the other way. But customer retention is an important metric for SaaS companies. When companies invest in building superior customer experience for the users, the customers can use products with ease and derive greater benefits from them.
Successful SaaS companies follow-up with their customers by sending them emails and scheduling calls to ensure active usage of their products. They ensure that users get the best out of their trial period and do everything to assist them. Companies like Slack have built dedicated training sections for customers to use the software effectively, in addition to its intuitive product & stellar user experience.
3. Smooth Checkout & Recurring Payments
The customer retention rate is one of the keys to building a SaaS company. Companies that have a smooth checkout process and automation for recurring payments are able to reduce the customer churn rate.
Platforms like Netflix, Amazon Prime etc. are great examples of how payments can be done with minimum fuss. These platforms help you create subscription based recurring payments for their products.
SaaS products that are equipped & leverage payment automation are preferred by customers. Many companies have successfully employed annual subscription fee models for their SaaS products. They charge customers one time for the year, but payments are deducted monthly. Payment automation, reminders and automated billing reduces friction for customers.
4. Customer Insights
How organisations plan, understand and use insights from customers makes a great difference. Organisations who listen to their customers often provide them with better products in the process. Great SaaS companies use strategic ways to listen to their customers. For e.g. Salesforce has a conference dedicated to listen to its customers where they share their experiences and aspirations.
Customer insights can unlock great features and capabilities in building better products. Customer service, support and marketing teams can all bring in insights for the product teams to work on. The priorities and roadmap can then be charted by the management teams to serve their customers. Data driven product development efforts are far more effective for building SaaS products than building them in silos without quality customer feedback.
5. Sustainable Growth
One of the highest causes of failures among startups is growth. Yes, you heard it right. When SaaS companies grow too quickly, don’t have the necessary infrastructure, product and capabilities for handling growth, it can create trouble.
SaaS companies that are well funded oftentimes scale up prematurely. It can create unnecessary hurdles for them. When resources are hired at a fast pace, sometimes teams don’t have the right people in right places. Technologically, the product is not architected for exponential growth and the underlying sustainability of the business is questionable.
The successful SaaS companies are built on strong value propositions and sustainability. They have a focused approach of delivering value for their customers, have the right teams in place for building, supporting, marketing and sales of the product. They look at their most important metrics, take a process driven approach and track progress religiously to meet their goals.
6. Switching Costs
The switching costs are the additional efforts & money to switch from your product to another one. Typically there is a learning curb involved when customers use a new product. More often than not, they will not switch, if the effort and costs are high.
Studies have also shown that users and customers typically value something when they have spent efforts on it. For e.g. if your customers have been frequently using your SaaS product, they would value it more compared to products where they didn’t spend time or efforts.
The best SaaS products create triggers for their users. These triggers help users to accomplish tasks and make them feel good. When users spend time and efforts, they are more than likely to continue using the product. A process driven approach to help users accomplish what they want creates a hook for the users.
Kreyon Systems is a SaaS development company with expertise in building end to end ERP, Finance & Accounting, CRM, Lending, Document management & other software products. If you need any assistance in implementation or have queries for us, please get in touch.