Revenue leakage in SaaS (Software as a Service) and other subscription-based businesses can sneak in with little notice. Like a drop of water in a small space that freezes and expands to further widen that crack, even a small revenue leak can grow and undermine the fiscal strength of any business.
In 2005, Ken Rudin, John Sichi, and Tai Tran founded LucidEra, offering solutions for SaaS business intelligence by analyzing business information. That information was to come from CRM (Customer Relationship Management) and ERP (Enterprise Resource Planning) data.
Two years later, the company launched its first product, a forecast to billing application. That same year, LucidEra raised $15.6 million in its series B funding round. Several industry influencers cited the company as a business to watch.
However, the product limited its customization for customers, and its overhead was simply too great for the business to survive. In 2009, the company announced it was shutting down operations.
LucidEra is by no means an exception to the rule. In fact, an estimated 9 out of 10 startups fail, and many of those are in the SaaS environment. Failure is such a prevalent occurrence that many entrepreneurs of these failed companies write their own company ‘post-mortems’ outlining the reasons why their business failed. Oftentimes, lack of cash flow is one of the main factors.
There are many different reasons why your subscription-based business could be losing money. Some of them may even seem small. However, the snowball effect can bury your company in costly problems.
Let’s take a look at 6 of the most prevalent reasons that your SaaS business may be losing money, and the solutions to these revenue leaks.
TLDR
- Build customer trust. Start right by simplifying the onboarding process with multiple options and accessible support. Enhance communication and product value by regularly updating customers on new features and tools.
- Implement effective revenue recovery and pricing strategies. For instance, use recurring billing platforms to manage delayed payments and automate reminders.
- Deliver excellent customer service to retain users and address issues promptly. Implement customer retention strategies like loyalty programs and personalized offers.
1. Your onboarding process
It is essential to make the customer, or user, experience (often referred to as the UX) as smooth as possible during the onboarding process. Users come to your business with different levels of expertise, as well as preferences for how they want to familiarize themselves with your product.
Forcing customers through one roadmap for onboarding may dissuade them from using your product. For example, some businesses offer simple videos to explain the different tools with their product. However, it’s important to give users the chance to opt out of the how-to videos if they want to explore on their own.
It’s very common now for SaaS products to offer customers (particularly high-value ones) an onboarding guide who works with them to get their offering up and running. Some companies, like Hubspot, will then transition the customer from their onboarding rep to a long-term product consultant that the customer meets with regularly to ensure that they have continued success and satisfaction with the product well beyond onboarding.
At the same time, ensure that they are able to reach out for help immediately by making your business’s contact information visible throughout the onboarding process.
Also, analyze the number of steps it takes to create an account, and simplify the process as much as possible. For example, if you are collecting billing and shipping information, offer a checkbox to copy the information in like fields, so the user does not have to enter the same information twice.
Experiment with different strategies – one SaaS company tested the success of having a welcome message when users are onboarding and found that users that received the message converted 17% more than those that did not receive the message.
If possible, reach out to those users that did bounce from your site while onboarding. It’s important to know why they chose not to do business with you, and if it is because of your onboarding procedure, it’s critical to identify and fix those problems.
2. Convey trust to your users
With many SaaS businesses, users are often asked to provide sensitive information, including contact and billing information. If users do not trust a business, or are even wary of the reputation of that business, they will not form a partnership.
Nearly half the companies that use SaaS products report that they have concerns about the safety of the information they provide.
Ensure that your customer support team is well versed in the security features and firewalls of your product by teaming them up with your IT department to ask questions and understand the answers so they can convey them to users. Empowering your customer service team with this information will give them the confidence to put users’ concerns to rest and convey another level of credibility to your business.
If you are a new business, customers may be concerned that you will not be around in a year, so they may shy away from pre-paying for your product a year in advance. It’s a logical concern, given the percentage of startups that can fail.
To address this concern, offer different subscription options and ensure that they will be refunded in the event that the customer lifecycle ends during the subscription duration.
You can also build trust with customers by making subscription management easy for them. Many providers offer portals where users can choose to cancel or upgrade their subscriptions with little to no hassle. While not B2B, the streaming service Netflix has a best-in-class portal for management that allows customers transparency into their subscription fees and to easily make choices about their accounts.
3. Explain the tools you offer
This may seem obvious but it is essential to offer information on the tools that you have available with your product. The information could include FAQs and how-to instructions on your website.
Not only is the information essential for new users, but also for existing customers. You need to keep your product sticky, and one way to do this is by maintaining a high level of communication with your customers. Tell them about the new products you have.
There are different ways you can communicate with your customers. You can send them an email on a monthly basis, or add tips and tricks to your invoice when you send out billing. You can also promote solutions that you may have through a tech touch, an automated communication about a tip, trick or new feature you recently launched.
Lately, many companies, like Motion, have even pivoted to running Slack channels with each of their customers, where they can share new products and answer customer questions as they arise.
By keeping your customers informed of the abilities of your platform – or even working with them directly to implement these capabilities – you’ll be able to integrate your platform deeply into the customer’s processes, making it invaluable and difficult to replace.
4. Effective revenue recovery process around revenue leaks from delayed payments
In order to ensure your business’s fiscal well-being, one way to plug a revenue leak is to track payments in arrears. However, if your company uses a basic accounting software solution to create invoices, tracking late payments becomes very difficult to manage.
Conversely, a comprehensive recurring billing platform can track when payments are late and automatically send payment reminders through dunning management emails, a series of emails a business can create ahead of time to alert customers at regular intervals that their payment failed.
There are some rules of thumb to catch a customer’s attention without overwhelming them with information.
- Keep the email simple.
- Remind them of the payment due date.
- Tell them when you will retry the payment method on file.
- Be professional and choose your words carefully.
- Recap your product so they know what they will be missing if the subscription is terminated.
In the instance of a failed credit card, there is an estimated 75% success rate if that payment is retried at a later time. Recurring billing platforms monitor these failed payments and can automatically retry that payment.
The savings can be extraordinary. For example, Stax Bill’s platform saved one customer $364,813.41 in 11 months, simply through the automated dunning management email system. Imagine what the savings were when considering the future lifetime value of each customer that would have been lost through churn. Revenue recovery should be a priority for any business.
Delayed or failed payments can be easily mitigated when incorporating a recurring billing platform, plugging a substantial revenue leak.
5. Price tag should be right
In an eye-opening statistic, one report found that SaaS businesses spend an average of 6 hours overall to determine their pricing strategy.
Proper pricing is a cornerstone for any company. If the product is priced too high, it will put off customers; however, undervaluing your product by establishing a price too low can be just as much of a deterrent. Amazingly, an estimated 80-90 percent of companies charge too little for their product, which can threaten your bottom line or convey the message that your product is inferior to those of your competitors.
The ‘sweet spot’ for your pricing depends largely on your business model and what competitors are doing, but it’s important to factor in your internal data, including: the customer lifecycle value churn rate, and customer acquisition costs.
In levering your SaaS subscription pricing strategy, it’s also important to consider different pricing levels. Four of the most popular pricing levels are:
- Standard pricing
- Tiered pricing
- Stairstep pricing
- Volume pricing
Also, keep in mind that your pricing is not set in stone. It’s in the best interest for your business to consider pricing changes through experimentation to determine the best pricing strategy for your customers.
As mentioned, billing schedules and contracts will also depend on your subscription model. Subscription businesses can vary widely, with software companies often locking their customers into an annual subscription with constant access to the product. On the other hand, subscription box companies will often offer a monthly subscription where the customer only receives the product once a month. The predictable revenue for these two subscription revenue models is therefore different.
You can conduct research on how long an ideal plan for your customer is both at the market level and at the individual customer level. You may even consider running landing page A/B tests to determine which billing length converts at a higher rate. It’s worth noting that in such an A/B test, you should also be determining the quality of the customers converted. A shorter contract length is likely to convert at a higher rate simply because it’s more accessible. The ultimate question is whether this conversion rate is yielding long term customers or resulting in higher churn.
6. Improve customer service department
Regardless of your product or your pricing, customer service is essential to retaining your users. An estimated 40-54 percent of customers reported discontinuing a relationship with a business because of poor customer service.
When users have a question about a product or tool, they are likely going to reach out to your customer care team to ask additional questions. It’s critical to ensure these clients have a positive customer service experience in order to avoid them from churning out.
There are two major ways poor customer service can impact a user:
- If the user has a personal issue with customer service personnel, such as a rude representative.
- If a response to a concern or question is not addressed in a timely fashion.
Walmart founder Sam Walton once summed up the importance of customer care: “There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”
There are many ways to improve your customer service team and it should be something that your company remains focused on perennially. Customer service can always be improved. Some specific recommendations for improving your customer service team are:
- Invest in comprehensive training programs for customer service representatives to improve their communication skills, product knowledge, and problem-solving abilities. Regularly update training materials to reflect new products, services, and customer service best practices.
- Establish clear response time goals for addressing customer inquiries and concerns, ensuring that customers receive prompt assistance. Monitor response times and implement improvements based on customer feedback and performance metrics.
- Use automated systems to acknowledge receipt of customer queries and provide estimated response times. Use chatbots and AI to handle routine inquiries and free up human representatives for more complex issues.
- Develop standardized communication protocols to ensure consistency in how representatives interact with customers. Provide representatives with scripts and templates for common inquiries while allowing flexibility for personalized responses.
7. Enhance Product Features and Integrations
Product updates are essential for staying competitive. Continuously improving your product by adding new features and ensuring seamless integrations with other popular tools can make your SaaS offering more attractive to both current and potential customers. 84% of companies that invest in improving UX see an uplift in revenue.
Customers, in particular, expect the SaaS products they invest in to evolve and improve over time, addressing customer needs and growth. Your roadmap should be highly influenced by what customers are asking you for. While you absolutely should ask your customer service reps to informally gather these requests as customers make them, you should also conduct formal research into what your customers need. Conduct surveys, interviews, and usability tests to gather input on what features they find most beneficial and what additional functionalities they desire.
Additionally, integrating with other widely used software can enhance your product’s utility and appeal. For example, integrating with major CRM systems, payment gateways, or communication tools can make your SaaS solution more versatile and indispensable for users.
Regular updates and enhancements don’t just keep your product competitive. They demonstrate your commitment to delivering a superior product, fostering customer loyalty and reducing churn.
8. Focus on Scalability and Performance
Ensuring your SaaS infrastructure can scale efficiently as your customer base grows is critical for maintaining a positive user experience. After all, if your product experiences downtime as more customers use it at the same time—or anything similar—you’ll start losing customers left and right.
To scale, you’ll need to work on both your actual product and the infrastructure supporting it, as well as your operational end.
For your product infrastructure:
- Ensure your servers, databases, and networks can handle increasing loads without compromising performance. Implementing scaling automation solutions can help manage varying demand efficiently.
- Regularly monitor system performance, conduct load testing, and address any identified bottlenecks
- Utilize content delivery networks (CDNs) to enhance load times for users across different geographical locations.
From an operational perspective, streamline processes such as customer onboarding, support, and billing to handle growth without creating bottlenecks. It’s important to invest in solutions like Stax Bill that can grow with you.
Subscription billing, in particular, is very complex, though customers expect their subscription services to make checking out as easy as any checkout and billing they do with traditional businesses. If your billing system doesn’t make recurring payments a breeze, you’re going to lose many customers and likely waste hours of pay on staff performing manual tasks.
By prioritizing scalability and performance, you can provide a seamless and reliable experience for your customers, enhancing their satisfaction and loyalty.
9. Invest in Robust Analytics
Another key to a successful product? Understanding your customer. While your customer service team can likely offer you useful anecdotal insight into behaviors, your best view comes from data.
Utilizing advanced analytics gives you deep insights into customer behavior and usage patterns, among other things. Analytics tools can help you track key metrics such as customer acquisition cost (CAC), customer lifetime value (CLV), monthly recurring revenue (MRR), and churn rate. But they can also be used to identify which features customers actually use and don’t use, what parts of a page the customer is most likely to click on, and even how long on average your customers actually use your product per day.
These data points, in conjunction with customer interviews (which provide the qualitative data to the quantitative gathered during surveys), can help you identify areas of satisfaction and dissatisfaction to help prioritize your roadmap. For instance, you can find features that are rarely or never used, and ask customers about why. If the reason is that they would use the feature if it were improved, you know you should work on it. If the reason is that the feature is not helpful to them, you can sunset it.
With predictive analytics, you may also be able to recognize patterns in customer behavior that indicate imminent churn and intervene. This data can help you identify which customers you should proactively reach out to and have a rep work one on one with to improve their experience with your product.
10. Optimize Customer Retention Strategies
Retaining existing customers is almost always more cost-effective than acquiring new customers – and customer churn costs U.S. companies some $168 billion annually! Implementing best-in-class customer retention strategies can significantly enhance your SaaS business’s stability and growth.
It’s becoming standard for many B2B SaaS companies offer customers long-term one-on-one coaching from a rep who builds an ongoing relationship with the customer now as a way to help increase retention.
One method to increase customer retention is implementing a loyalty program. While B2C companies have been running loyalty programs for a long time, B2B loyalty programs tend to be fairly new, with 57% being at most 4 years old. But they’re no less successful for their youth. 75% of B2B companies using loyalty programs find them to be critical for increasing retention. Customers love them, too! More than 90% of B2B program participants reported increased satisfaction.
With an increase in satisfaction, subscription-based services will see an increase in renewals. You likely can also gain upgrades in upselling add-ons and cross-sells, increasing your monthly fees per customer and overall boosting the revenue stream for your subscription business model.
Wrap-Up
There is no one right way to ensure the success of your SaaS business. However, there are many factors you can employ to ensure the success of your company and prevent revenue leakage. Careful examination of these areas of potential revenue loss include investigations of overlaps with aspects of your product, your pricing, your technology, the customer experience, and your reputation.
