Nic Brisbourne (@brisbourne on Twitter) of DFJ Esprit posted on his Equity Kicker blog about businesses with Subscription Revenue Models. I felt compelled to comment on his post to share that, especially in Software-as-a-Service (SaaS), the Subscription Revenue Model is just one stream of the 8 available Revenue Streams and that, within the Subscription revenue stream, there are many variables. I also touched on the up-sell opportunities available to SaaS vendors that most miss. I've cross-posted my comment below as I think my readers will benefit from it, as well.
When we work with SaaS vendors who are hanging their hat on the subscription revenue model there are two key elements we bring up:
1) The subscription revenue stream is only one of 8 revenue streams available to a SaaS vendor, and within that revenue stream, you must ensure the metrics (user, per month, transactions, etc.) are properly aligned with the customers or you will not get the traction you want/need
2) it is critical to not only keep a customer for a long time, but to actively seek to increase customer lifetime value. This ties directly to the other 7 revenue streams for upsell opportunities, but also monetizing your existing clients in non-direct ways. In SaaS, the ability to generate revenue beyond the core application and outside of your main subscriber base is due to the network-centric and ecosystem support of Software-as-a-Service.
The interesting thing we run into are gross margin profitable companies that kill all net with high customer acquisition costs as they try to grow, while forgetting all about the captive audience they have in their existing customers. But this problem goes far beyond not understanding how to create an environment for upselling existing customers, at the core, it speaks to the fact that many SaaS vendors simply don't understand all aspects of their chosen Business Architecture.
Too many SaaS vendors don't understand all of the potential revenue options available to them and far too many focus only on charging a low monthly fee, per user. They end up leaving a lot of money on the table and are ultimately doing a disservice to their investors and other stakeholders.
If you find yourself in that same position, not growing Customer Lifetime Value, or you haven't looked beyond the "de facto standard" revenue model in SaaS, the Subscription, then you should give us a call at (972) 200-9317 or contact us through our myriad options.
Author: Lincoln Murphy (You should follow me on Twitter)