Filed in Cloud Industry Insights by Jeff Kaplan | November 8, 2012 9:00 am
In one of my previous blog posts, I identified eight things you should consider when moving your SaaS business to the cloud. Here, I’d like to delve into the key performance indicators (KPIs) for managing your SaaS business. These KPIs fall into two primary categories: minimizing the cost of acquiring and supporting customers, while maximizing their lifetime value.
Before you can attack either of these two areas, you’ve got to develop a SaaS solution that is timely because it solves a specific inefficiency within an organization and is clearly differentiated in the market. In most cases, this means creating an easy to use application that appeals to a specific persona (salesperson, marketing administrator, IT manager, etc.) and helps them perform a task or function that has historically been difficult to complete because of the complexities of their legacy software or because there wasn’t an application that addressed this particular need.
For instance, Jobs2Web provides “transformational technologies that straighten the path and break down the barriers, we’ve radically shortened the commute between your jobs and the people you want to hire.” The SaaS company’s “Recruiting Marketing Platform” automates many of the steps that were previously performed manually, increasing efficiency while reducing the costs of recruitment. (For more information, go to http://c488692.r92.cf2.rackcdn.com/CaseStudy_jobs2web_r02.pdf.)
Creating a winning SaaS app can take a lot of work and numerous iterations. It requires a keen understanding of the customer’s needs and preferences. And, it requires a rapid deployment capability and agility to out maneuver your competition. Time to market is essential in the SaaS marketplace because of escalating competition and rising expectations among customers that their “on-demand” applications will keep pace with their rapidly evolving needs. Therefore, the best SaaS companies have focused their energies and limited resources on building and promoting their solutions. These companies have also chosen to partner with leading Infrastructure-as-a-Service (IaaS) providers to satisfy their service delivery requirements.
Partnering with a leading IaaS provider makes sense for the following reasons:
Focus and Cost Mitigation
Contracting for IaaS not only makes sense because it enables the SaaS vendor to focus on developing winning apps, but also because few SaaS companies are able to predict their initial data center requirements or make the upfront investment in these costly resources. This is especially important as they try to keep their Customer Acquisition Costs (CAC) and Cost of Service (COS) down as they build their Monthly Reoccurring Revenue (MRR) and TRuC (Total Revenue under Contract).
Managing their Customer Acquisition Cost to Sales (CACS) Ratio while optimizing Monthly Revenue is also critical to appeal to investors who are essential to funding future growth. The best venture capitalists and private equity firms fund SaaS companies that not only offer compelling solutions, but also demonstrate tight financial controls and a highly scalable operations model.
Service Reliability, Security and Scalability
Of course, delivering reliable and secure services is also crucial to mitigate risks and minimize churn. Losing customers is not only costly in terms of lost opportunities for additional account penetration, but also because it could tarnish a SaaS company’s reputation in the market if word spreads about subpar service quality.
Ultimately, optimizing Customer Lifetime Value (CLV) by maximizing the upsell and cross-sales opportunities within each customer account is dependent on delivering highly reliable, secure and productive SaaS solutions. While some might debate which business apps are “mission critical,” no one wants their SaaS app to be disrupted by a service outage that could prevent them from getting their jobs done. Therefore, teaming with an IaaS provider that can ensure maximum uptime and performance is essential.
Building a robust SaaS ecosystem that can provide customers with a set of complementary SaaS solutions can also increase customer loyalty. Ensuring SaaS integration and the ease of provisioning among multiple SaaS providers is imperative. Many SaaS vendors leverage IaaS providers’ security certifications and integration partners to address these issues quickly and economically. This can reduce their costs significantly. For instance, a SAS70 certification can cost $75,000 and take months to obtain. Leveraging integration tools from companies like Informatica and Pervasive can also accelerate the deployment process and increase the likelihood of success.
Monitoring, Measurement and Management
Finally, you can’t manage what you can’t measure. The best SaaS companies measure everything. They track every user keystroke to better understand how users utilize their solutions. And, they monitor all the systems that impact application performance to optimize their responsiveness while minimizing their operational costs.
The best SaaS companies depend on in-depth analytics to run their business as well as maximizing their service delivery capabilities. They track the effectiveness of their marketing campaigns, sales productivity and customer service satisfaction. They rely on integrated reporting systems within their marketing automation, customer relationship management (CRM) and IT service management (ITSM) systems. They also leverage the management portal of their IaaS provider to gain real-time visibility into their service delivery availability and performance levels.
SaaS companies that can gain a command over these KPIs are in the best position to succeed in an increasingly competitive marketplace.
Source URL: http://www.rackspace.com/blog/best-practices-for-managing-your-saas-business/
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