People are building too much software. I see how lots of SaaS teams focus on building their software product, more features, refactoring and building infrastructure, while often essential matters such as offering a good first user experience (‘onboarding’) is often left the chance. The second ‘S’ in ‘SaaS’ stands for ‘Service’. This is exactly where the difference is made. It is high time for SaaS companies to understand that first of all they have to develop a service, and only then, in second place, software.
The SaaS business model in a nutshell
In theory a SaaS business has a simple business model: you lease the software functionality per month (or per year) and usually the customer can terminate his contract at any time. In exchange for that monthly amount, you ensure as a SaaS company, that the software is always ready at the moment when your customer needs it, that the data of the customer are correctly saved and that the application works properly. As long as you make sure that it makes your customers (much) better from it, they will usually remain faithful to your product and continue to pay their monthly fee. The total amount you earn from one customer throughout your entire relation with the customer is called ‘customer lifetime value’ and is one of the core benchmarks to optimise your SaaS business. Churn, i.e. customers who leave and cancel their subscription, is the worst enemy of a SaaS business.
Second important benchmark for a SaaS company is the ‘cost of acquisition’ (CAC), the cost to attract a new customer. Customers are typically attracted by a SaaS company by a combination of (online) advertising, content marketing and/or referrals. All these things come at a price. You can calculate your CAC by dividing the amount you spent on a monthly basis on attracting customers by the number of customers you actually attract. In general, it is assumed that the life-time value must be a factor 3 to 4 higher than the CAC and that the CAC is ideally earned back within 12 months.
This is often where it goes wrong for SaaS companies: SaaS is a 'pay-later model', which means you first spend money (CAC) in the hope to earn back a multiple of that amount in the future through monthly invoices. Customers who leave too soon are loss-making.
Good service = satisfied and, most of all, returning customers
The moment when a prospect, after visiting your landing page and reading the necessary content, decides to try your service, might well be the most crucial moment of your entire relation with that customer: give him or her a good feeling and you may have acquired a new paying customer. If you give them a cold shower, you see the cost of acquisition rise. Bringing a new user up-to-speed with your application and get him on board successfully, is very important. It will have a direct impact on your two main benchmarks.
The question is: how will a new user, who has just created his free-tail account, be convinced? Is it the whole series of features, hidden in menus three levels deep, or a specific process that guides him in the first steps to a better, faster and cheaper solution? Do you think more software development will increase the chance that someone switches to a paying plan after 30 days or do you rather think a series of educational videos and tutorials, sent by e-mail in the days after the subscription, in combination with a welcome tour and/or a wizard, specifically for new users, will increase your chances? I will bet on the latter.
This brings me to the title of this article. By putting yourself in the shoes of a new user and focusing your user experience on making the transition of a new user to someone who understands how much value your platform can generate, you start thinking about the service you give, rather than about the software you deliver. It’s true that your service is implemented by means of software, but in the end you will be held accountable for the service, and much less for the software. Therefore, make sure to focus on building a unique user experience for your users. That is hard enough as it is! Be as economic as possible about the software part. Just do what is strictly necessary: only add features that are absolutely critical, only the infrastructure you absolutely need and use, where necessary, things that already exist, such as web services, APIs and open source. This is the only way you will have enough time to build what really matters: a convincing, converting user experience.
(This article was also published on Bloovi) (in Dutch) and on the Sirris blog (English)