By 2020, eighty percent of SaaS players will move to a subscription-based model. Discover essential SaaS benchmarks based on data from 1,000 SaaS companies, and learn the best practices to maximize revenue, improve acquisition, and spur adoption when you catch up on this VB Live event. Howdy, Debra Sharp
Gartner says that by next year, all new entrants, and 80 percent of historical vendors, will offer subscription-based business models. The catch is that only 20 percent of those have the right systems and processes in place, including pricing and packaging, in order to optimize and mature that model — but it’s time to get in the game.
“Selling software as a service has kept companies like Salesforce in the business for 20 years, has allowed them to go to market faster, and users have more flexibility,” says Emma Clark, chief of staff at Recurly. “The value and cost are better aligned.”
SaaS can even offer a more secure future, as it gives companies the ability to deploy new features at a faster cadence. In addition to the benefits inherent to software itself, there’s just naturally some benefits in the subscription model that are ideal for a digital customer-centric economy, where the competition is high, and the customer expectations are higher than ever.
For one, the subscription model offers much better revenue visibility and predictability. With something like a perpetual license model, the customer purchases, the revenues are fast, and the books close. Revenue tomorrow is based on the deals you close in the future. It’s a lot different with a subscription model and SaaS.
Every quarter starts with an installed base of revenue, and a clearer view of the revenue you’ll grow or the revenue you might lose over the course of the quarter or the course of that year. You use historical data points to assess how much that revenue base will change over that time. It makes your models a lot more accurate when it comes to predicting revenue, as well as forecasting. From a financial perspective, that’s a huge benefit.
The subscription model also lends itself to deeper customer relationships. You don’t have long gaps — like years — in selling a license to customers, such as in a perpetual license model, so you’re interacting with your customers consistently. You’re engaging with them to drive retention, to upsell, and to increase revenue from the existing base of customers.
“That’s a blessing, because there’s the opportunity for upsell more often, but it comes with a higher expectation, a higher caliber of service,” Clark says. “You’re continually needing to re-earn the customer’s business, every month and every quarter and every year, depending upon the cadence.
The good news is that although there are higher expectations, the quality of customer engagement becomes stronger because you have a wealth of data to personalize experiences and customer interactions. And because there are more interaction points with your customers, you can make more informed decisions on how to drive loyalty and where to find more of those loyal customers to drive overall lifetime value.
The upfront spend that subscription businesses invest to acquire customers is paid back over time. In order for subscription business to sustainably grow, it’s essential to increase that lifetime value. And over the lifetime of the customer, you’re paying back that customer acquisition cost until you reach ‘economic loyalty,’ earning back a multiple return on the cost of acquiring and serving your customers.
“That’s the ability to optimize how you monetize through pricing and plan structures,” Clark explains. “Price optimization is one of the few ways where you can increase revenue, increasing lifetime value from your subscribers without also correspondingly increasing your cost of acquisition or your cost of goods and services.”
Because the way SaaS businesses structure their subscriptions can have a significant impact on subscriber acquisition, retention, and revenue growth, Recurly Research launched a study on industry benchmarks and best practices. Benchmarking helps you get a better idea of where you are in terms of growth and maturity. For those that are not new to subscriptions, it can help you compare yourself to competitors, identify gaps, or competitive advantages. For those that are new, it gives you a better idea of how others are approaching subscription management.
The study looked at anonymized and aggregated data across 1,000 SaaS businesses, and was conducted over a 19-month period. The company looked at everything from how common is it for certain types of SaaS businesses to structure their plans on a monthly or annual commitment cadence; why, where, and when SaaS companies offer discounts to incentivize longer commitments, and how they’re structured; to how common it is for SaaS businesses to offer a free trial as part of their pricing and plan strategy in order to increase new customer signups.
More importantly, the study uncovered which strategies resulted in the highest churn rates, which strategies ramp up customer lifetime value, and the best practices for subscription companies of every size to structure their pricing, discounts, and trials.
For an in-depth look at the numbers behind the most important questions a SaaS company needs to ask itself, and how, statistically speaking, to set up your testing and pricing and plan structure for the best odds of success, and more, catch up on this VB Live event!
Don’t miss out!
Attendees will learn:
- Important SaaS benchmarks by industry segment
- How to structure your SaaS subscription plans and pricing to maximize revenue and retention
- How successful SaaS companies use a test, learn, and iterate framework to optimize revenue
- The key metrics — and reports — to monitor for success and maximum LTV
- The results of an in-depth case study on SaaS testing and pricing
- Panelist: Emma Clark, Chief of Staff, Recurly
- Moderator/Analyst: Sean Joyce, Recurring Revenue Technologies, Navint
Sponsored by Recurly