In the previous blog post I introduced the concept of using a customer life cycle framework as a strategy for designing a profitable software-as-a-service enterprise application. The gist of the idea is that with traditional on-premise applications, most phases in the customer life cycle are managed by people and services outside of the “core” application. The real innovation and they key to profitability for SaaS, is to build the SaaS application to handle all of these phases as scalable, standardized services. The SaaS application handles everything from services for evaluation and purchasing, to provisioning and support, to monitoring and loyalty building.
We have identified several primary phases or “touch points” in the customer life cycle that a SaaS strategy and application design needs to address. Whether customers follow the phases in sequence or whether they jump around unpredictably, the SaaS needs to provide service for every activity of every phase in the life cycle.
- Evaluation
- Purchasing
- Installation
- Deployment
- Customization
- Provisioning
- Training
- Support
- Monitoring and Billing
- Renewal and Referral
Each of these points represents a potential trigger for customer friction, abandonment or attrition (often referred to as “customer churn”). A subscription-based business with even moderate customer churn, is expensive to grow. The cost becomes prohibitive if customer churn is high. Moreover, given the low monthly subscription fees of SaaS, the method for managing these points needs to be scalable in software so that as you sign up more users, you don’t need to add more staff. A SaaS business can be profitable if and only if, it can achieve strong economies of scale.
Minimizing friction and maximizing efficiency/scalability does not come automatically; it has to be explicitly planned for and architected into the SaaS application design. Over the next few posts, I want to explore each of the phases in the customer life cycle and describe the key points for moving these (in whole or part) from being handled by many people, to being handled by the core SaaS application.
Common across all phases of the life cycle framework for SaaS is the need and ability for the enterprise or ISV (the organization delivering the SaaS solution to customers) to monitor customer behavior. Monitoring in SaaS is not a new idea. Saleforce.com has been preaching the unique ability of SaaS to be metrics driven.
While traditional on-premise applications are generally a black hole as far as information about user adoption and feature usage, with SaaS, the application can be designed to monitor when and how the software is being used, or perhaps more importantly, when and where the customer stops using the software. Monitoring becomes orders of magnitude more interesting when you extend it beyond the “primary” application (e.g. the CRM or ERP), to encompass all phases of the customer life cycle. Not only can you monitor how the customer uses the “primary” application, but you can monitor how a customer succeeds (i.e. good user experience) or fails (i.e. potential for churn) in all of the other phases in the life cycle.
For example, during the evaluation phase, while a customer is using a “try-before-you-buy” version, you can track where users click, what features of the software seem not to be used, where they get distracted, where they make mistakes, and where they stop using the trial. Essentially it is on-going user validation testing for the evaluation phase of the life cycle. You can track similar information during the other touch points of the life cycle such as purchasing, installation, support, billing, etc.
This information can then be applied to correct drop out points in the life cycle, improve effectiveness and efficiency for your customers, and quickly determine how to modify your application on a regular cycle to meet user needs, increase sales and up sell, and reduce churn.