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 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.
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, its important to give users the chance to opt out of the how-to videos if they want to explore on their own.
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, its 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.
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.
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 chose 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 its 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.
6. Improve customer service department
Regardless of your product or your pricing, customer service is essential to retaining your users. An estimated 50-54 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 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.