Three Essential Strategies For SaaS Startups

Cloud-based software as a service (SaaS) platforms are on the rise. Big players in SaaS business such as Salesforce and Amazon have seen tremendous growth in sales over the past 5 years. 

According to Inc., worldwide spending on public cloud service will grow from $70 billion in 2015 to more than $141 billion in 2019. 

SaaS stands for software as a service which describes when users rent online software applications instead of buying and installing them on their own computers. The SaaS model has a number of benefits such as eliminating the need to install and run software on individual computers. With SaaS, users can assess their tools and files online using web browsers.

The biggest worries for SaaS startups are how to stay competitive, attract new customers, and increase sales. With so many SaaS businesses cutting prices in order to gain market shares, it’s hard to stand out. Here are three things you can do to keep your SaaS business from getting edged out.

Create Additional Revenue Sources

Subscription is the primary source of revenue for many SaaS businesses, but it shouldn’t be the only source of income. To be profitable in both the short-term and long-term you need to add additional services that will increase your revenue.

You can easily increase your income by “upselling” existing subscribers; this can be in the form of selling additional storage space, data, speed, bandwidth, or custom API. Another way to increase revenue is through affiliate sales. Affiliate sales can help you penetrate new markets faster and more cheaply.  Here is a list of services that can generate additional revenue for your SaaS business.

  • Setup fees
  • White label licensing
  • Advertising
  • Custom API
  • Extra storage space, speed, or data
  • Affiliate sales
  • Customer service

Note that for some SaaS businesses it makes a total sense to charge for these services, but for others, it carries plenty of risks. The toughest part is persuading prospects and customers that it’s the right thing to do.

Referral Marketing

According to Deloitte, 1 in 3 people come to a brand through a recommendation and those customers have 38% higher retention rate. Word of mouth plays a major role in 20-50% of all purchasing decisions, “especially when considering a first time buy or something relatively expensive.” (McKinsey)

SaaS startups must promote their brands in order to attract new customers, and the cheapest way to do that is through referral marketing.

A good way to promote your brand is to offer incentives such as discount or a free subscription to anyone who recommends your products. Well-targeted referral marketing can help you find the right customers and propel your business to the next level.

Churn Rate

According to a study, acquiring a new customer is 7 to 25 times more expensive than keeping an existing one. This makes sense because you don’t have to spend time searching for new customers; all you have to do is keep the ones you have happy.

The fact is that existing customers are very valuable to any SaaS startup, keeping those customers should be a top priority.

One of the key metrics in understanding whether you’re retaining customers is customer churn rate.  Although many executives prefer to monitor the opposite of churn rate (retention rate),

but whichever metric you use, customer relationship management can make or break your SaaS business.

One way to maintain a good relationship with your customers is to engage them. Engagement matters because if a customer rarely uses your product, he/she is going to stop paying at some point.

According to a research by Bluenose, lack of usage is the number one cause of high churn rate. A customer who frequently uses your product is very unlikely to cancel, on the hand, a customer who rarely uses it is going to unsubscribe.

To prevent churn from lack of usage, you have to constantly track your customers’ engagement with your product. If a customer regularly uses your product, that’s great, but if the customer’s usage level drops off, you need to find out why and make a change if appropriate.

James Corbin

I write about technology, marketing, and finance. As a freelance journalist, I've worked with several writers and columnists around the world. My academic background includes B.A. in Journalism from Gannon University and completion of Strategic Marketing Management Program at the University of Virginia. Drop me a note at jamescorbin@protonmail.com

Written by James Corbin

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I write about technology, marketing, and finance. As a freelance journalist, I've worked with several writers and columnists around the world. My academic background includes B.A. in Journalism from Gannon University and completion of Strategic Marketing Management Program at the University of Virginia. Drop me a note at jamescorbin@protonmail.com