Whether your Software as a Service company is a mature, successful corporation or start-up in your first years of operation, you will most likely have multiple revenue channels:
- Direct sales representatives (either field sales representatives or telesales)
- Value Added Resellers/Integrator Referral Partners
- Application marketplaces of complementary SaaS solutions
- Self-service customers who proactively subscribe for your paid or freemium services
Keeping track of these revenue streams, and creating the marketing campaigns to generate leads for all of them takes careful planning and execution and therefore the question is, do you need a specific SaaS revenue management team?
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Should You Add a Chief Revenue Officer to Your Executive Leadership Team?
Depending on the size of your company, an individual Chief Revenue Officer, or a SaaS revenue team could make sense.
Activities would include:
- To establish a go-to-market strategy, in terms of direct/partner/affiliate/freemium channels
- Definition of pricing models for subscribers
- Definition of whether your product is best licensed based on:
- Named users
- Consumption/utilisation volume
- Concurrent users
- Technical metrics, such as storage space usage
- Annual or monthly subscription terms
- Tracking revenue splits across the various sales channels
- Researching competitive intelligence related to pricing and value added service offerings
- Defining commissions for direct/partner sales and referral fees
- Reporting on sales funnel metrics, such as numbers of days from lead capture to sales
- Establishing discounts on a promotional, volume and/or contract pre-payment basis
- Tracking of subscription renewals and add-on services for configuration, training and premium support
To establish a successful SaaS revenue team, communication with your marketing and sales teams is critical.
Marketing or sales operations can provide insights about which revenue channels are performing best. Sales can communicate what they are learning from existing customers and prospects they are speaking with, together with any feedback received on the GTM strategy.
Key SaaS Revenue Goals
All SaaS businesses have a set of key revenue objectives, which always need to be top of mind for a revenue team:
- Profitability - Primarily influenced by Monthly or Annual Recurring Revenue (MRR/ARR)
- Cash - Customer acquisition is costly from a marketing and sales resource perspective initially as revenue is paid back in monthly increments through subscription payments. This is known as the Customer Acquisition Cost (CAC) and is a vital metric in determining Profitability. CAC should be less than twelve months. A customer’s Long Term Value (LTV) should be greater than three times the CAC for startup SaaS companies.
- Growth - This metric is a no-brainer. However, revenue growth, market share growth and market awareness/coverage growth are all important targets, especially for start-ups.
- Market share - Capturing a significant portion of a SaaS domain is also a consideration.
To simplify these goals, the three keys to SaaS success are:
- Acquire Customers
- Retain Customers
- Monetise Customers
These metrics should be the focus of every SaaS revenue team’s ongoing efforts.
A Revenue Team Prevents Common SaaS Mistakes
Traditional software companies which add cloud/SaaS versions of their products to their portfolio sometimes make mistakes when transitioning to unfamiliar revenue models.
A SaaS revenue team, reporting to a CRO can:
- Focus on retention, renewals and subscription utilisation
- Monitor customer support escalations and other customer satisfaction anomalies
- Establish programmes such as Customer Success Management and customer reference programmes
- Define the highest performing routes to market, and manage budget allocation for each
- Investigate trends on reasons why customers churn out of your subscription and potential winback strategies
There are a number of cloud-based services for B2B SaaS revenue management, such as:
- FinancialForce ERP rom Salesforce.com
- Apttus Revenue Management
Revenue Recognition and Recurring Revenue
For publicly traded service companies, revenue recognition compliance adds a new set of accounting complexities into the mix.
Revenue teams can ensure the company is complying with Generally Accepted Accounting Principles (GAAP), including bundled service offerings and proof of:
- Vendor Specific Objectives Evidence (VSOE)
Documentation of list prices, negotiated price and bundling of products and services for each audited transaction
- Third Party Evidence (TPE)
If your company is reselling a product and the MSRP or other price evidence is available through other means, Third Party Evidence will be used to determine the revenue generated by a transaction. This might happen in the case of reselling a product
- Estimated Selling Price
For companies that cannot provide satisfactory documentation from internal or 3rd party sources, revenue will be estimated on a best effort basis
Larger, established SaaS vendors have the reputation to offer annual, or multi-year contracts. Start-ups don’t have the industry presence, or the reputation to secure annual contracts, unless they offer significant discounting.
Since SaaS solutions are available immediately upon payment, SaaS vendors need to ensure they have clear documentation of sales transactions, especially when a customer might have multiple contracts, and multiple recurring revenue SKU’s with a single vendor.
How Revenue Teams Benefit from Inbound Marketing Tactics
SaaS vendors offering free trials, or freemium onboarding programmes can send prospects targeted, lead nurturing email campaigns to educate them through their evaluation. Landing pages can also help to incentivise prospects who are nearing a decision to become paid subscribers.
For retaining customers who are showing signs of cancelling their account, tutorial videos, FAQ pages or personalised content can help to make clients feel like they are part of a valued community. Monitoring social media and responding accordingly builds credibility for your brand.
Increased conversion rates and reduced customer churn are music to a revenue team’s ears.
Is your Software as a Service, or XaaS company struggling with how to retain and grow your customer base, once you have converted them from prospects to subscribers? Are you looking for ways to optimise landing pages, to increase trials or build authority with thought-leading gated content?