07 Nov 2012 | Gregor McKelvie
Last week we introduced Founding Memberships (thanks to those who have signed up). These memberships are a chance for our first users to get in early and save money down the line. But it's more than just that. It's a different mindset to how we want to have a relationship with the people who invest time and energy into using the tools we build.
Plus, there's something eating at me…
The web application (SaaS, Cloud, etc.) industry has boomed in the last 8-10 years. I've loved following it. I've seen different pricing models along the way that have succeeded and failed. But it has matured and we are now at a point where app developers are heavily optimising their monthly SaaS fees for the sole purpose of increasing revenue. First it was trial and error, then there was a period of analysing results and now we're at a point where there is so much information available that monthly charges are being optimised. This post on "Doubling SaaS Revenue By Changing The Pricing Model" provides a good example into the thinking behind this.
I'm all for optimising things; efficiency is key, but I'm at a point of fatigue.
It seems that every developer now has caught on that a steady stream of monthly income is good for business. And that's exactly my point; how is it good for the customer? To quote a comment in a recent Quora post I read:
Monthly pricing is purely a marketing feature
In the most part, I agree with this now. But there is also evidence to suggest that customers like paying upfront for things too. Marc Benioff mentioned in his book that many customers...
...believed that paying on an annual basis was much simpler than dealing with a monthly billing cycle
With that aside, there is also the issue of how the monthly charges are costed...
...because you don't even know how much I am using it
I can accept that there are real costs in giving users extra storage or bandwidth or speed, but what is not clear are the costs in so many other features that are bundled into "premium" accounts. In a post a couple of years back from Gartner surveying SaaS vendors they found that:
Many SaaS vendors state that they are utility-based providers, similar to electric companies, claiming that you’re only charged for what you use. However, for most SaaS deployments, this is false.
Whilst I've no recent research on this, my feeling is that this is still quite true. In fact, you very rarely see companies being so honest about why things cost more. For a good example of what it does cost see this Pinboard.in post.
My take on charging for use is that if you are going to charge more then make it transparent. More users; what's the cost to you? More storage; what's the cost to you? And so on. This is costing with the customer in mind.
Any product (online or offline) that is highly disruptive, deserves the financial success they achieve. As a "buyer" you cannot deny the makers that. However, with the amount of open source technologies and information available on how to use these technologies, creating a standard SaaS application is much easier than it was. So why are there not more successful SaaS products that are completely free?
Obviously the first answer is to make money, but there are different ways to do that - and what's frustrating is that monthly charging is the new norm when you build a software product.
Or put another way, I'd go as far as to say that many of the revenue models in relation to monthly charges are lazy.
What monthly charging can stop the founders and developers doing is actually thinking about what paying customers will actually want. The question they ask (on the numerous Q&A sites) is "How much should we charge a month?" where they should be trying to answer "What is the one thing we can do that will make our customers feel comfortable about paying us for?". Money will follow after that.
The premise of SaaS was that you sign up, pay monthly and away you go. Easy. With systems like CRM, project management and HR management that is true. However, there is change coming. Despite my point above on development becoming easier, things like social media, APIs, big data requirements, different browsers, mobile development and more systems in general are throwing in different complexities for both the customer and the developers. Even building a website these days for your average business is harder!
That means that there will be extra requirements for support…
There are some outstanding examples of support (Zappos always come up), but I have to say this example from Time Warner on BAD customer support is remarkable (definitely one to save for later). Customer support nowadays is a huge problem - 1) to receive and 2) to deliver it!
What surprises me about SaaS products is that there are very few who cost in support. It's almost like an after thought. And when it does make it on to a comparison matrix of monthly costs, support is normally the last on the list.
That is not right.
Here is an analogy; I like internet banking, but it has suffered from feature creep. There are way too many features and functionality. I would happily have 25% of the functionality in exchange for my bank answering the phone when I call. But there is a cost to that I hear you say… Well charge me then. Customer support has gotten that bad that I believe business and consumers will pay more for support and guidance than they previously have done.
So what about a model where the SaaS application is free, but support is not?
...and it's easy to provide average support.
Going back to optimising monthly charges, I'm not saying a business owner shouldn't consider metrics like the cost of acquiring a costumer (CAC is regularly used as part of optimising), but what about a "keep the customer happy" metric? Would that not be a better thing to optimise? And then share with the customer?
At Tracks, we are reviewing a lot of different business models inside and outside the industry, so that we can make pricing transparent for customers. We believe that support, guidance and community is more valuable to users than an additional feature - particularly in sales software where a large percentage of being successful is people related.
sales, crm, saas, pricing, business, models, softwareTweet