One of the big challenges, particularly for an early-stage SaaS, is determining the right sales model for the business.
So much hinges on your pricing:
- What pricing will attract the clients we want?
- How do we get clients to a paid subscription?
- What will allow us to be profitable without outpricing our clients?
- Conversely, if we price too low, can we still profit and will we attract the right clients?
The SaaS marketplace is getting fairly crowded and many SaaS have made the mistake of pricing far too low in an effort to attract large numbers of subscribers. You may attract numbers, but pricing also plays a role in communicating the value of your product to customers. Price it low and it may have lower perceived value. If perceived value is low, how do you hang on to the customer?
On the other hand, if you have a number of competitors who offer something similar to what you do, you may struggle to attract subscribers for $99 per month when they can pay $59 somewhere else.
What might the right sales model look like for your SaaS? Joel York shared the most common models SaaS use:
Let’s take a look at these…
It’s probably fair to say that a much larger proportion of SaaS starting out in the last few years are using some form of this model than were prior to around 2010. Self-service is exactly as it sounds: the customer is able to self-select, purchase and use the product without needing to discuss with a salesperson.
Fully automating your SaaS is ideal really – it opens up greater opportunities to scale your business because the human touchpoints are limited.
Typically, for self-service to work the product should have relatively low complexity and be priced low enough that there are few barriers to entry for the customer. Customer acquisition, onboarding and payment are all fully automated.
When Is Self-Service A Good Choice?
First of all, if you need a lower-cost service offering, self-service may be a good choice. If customers are able to self-select, you save on personnel costs because there is less need for a sales team.
For your customers, self-service will also appeal to those looking to lower costs, so this works only if those are the people you really want to be serving with your SaaS.
As Dan Steinman explains, there is a lower barrier for customers to purchase for a number of reasons. These could include:
- Low software costs due to paying “monthly rental” rather than buying a whole software package.
- It’s a lower commitment – if they’re not happy they can cancel their subscription rather than trying to return a software package they bought.
- There are no direct infrastructure costs because they are absorbed by the SaaS and spread across their whole platform.
- They don’t usually need to employ someone in IT as a specialist software operator.
Assuming you have a great-quality product, self-service requires that product be simple to execute, therefore relatively easy for the average user to pick up unassisted. The key to self-service success is really customer access to good information.
You need to commit to ensuring you provide information in a way that is easy for the customer to find and understand. For example, you might offer training modules, set up a knowledge base or regularly email them with relevant information.
If you aren’t able to set up a number of good options to help customers find information themselves, you will shoot yourself in the foot by having an influx of customer service requests to deal with.
The other thing Steinman points out is, if you have a “long tail” of lower paying customers, you need to think carefully about what you’re going to do with them. Problems can arise if you’ve started out by giving them (as he puts it), the “white glove treatment” but want to move to a lower-touch solution. If they have become accustomed to receiving a certain level of service, they may not want to move to self-service
This has happened with a few early SaaS who are eager to acquire and keep customers as quickly as possible. Basically, if you don’t want to have headaches later, start out how you mean to continue and offer viable self-service options from the beginning.
[tweetthis]A self-service SaaS sales model tends to be low barrier to entry for customers.[/tweetthis]
Optimize For Success
It has been acknowledged as a “universal truth” of SaaS that your lower paying customers tend to be your fastest to churn. This means that while you work hard to acquire new customers, you need to have given enough thought and put steps in place (preferably before you launch) for how you’re going to keep them engaged.
Steli Efti made an interesting point in an article on optimizing self-service SaaS models. He describes a self-service SaaS model which has a “secret sales team.” The team is used as a control to reach out to select groups of customers and conduct tests and cohort analysis.
Wherever the human sales team does better than the regular self-service channels, they analyze the results to see how they can incorporate whatever the humans did into the self-service channel. In this way, the “secret sales team” helps the SaaS to optimize their self-service options.
This is the next step up; as Joel York points out, there is usually a self-service limit in B2B sales. This happens where there is either a higher price point on your SaaS, higher level of complexity or a combination of both.
“The customer’s desire for instant gratification becomes thwarted by the complexity of purchasing and using your product.”
Complexity will of course be subjective to the client, so in cases where the client understands your product and trusts your brand, you could move to a “mature” self-service model.
This self-service maturity model is not going to work for every client though. Those new to your brand or technology are more likely to need the reassurance of human contact to convince them to make the purchase.
From another perspective, if you’ve begun by creating a SaaS with higher complexity and price point, then self-service may not be the model to start out with.
The transactional model is a more interpersonal sales strategy where human sales teams are there to onboard the client. This kind of model helps to alleviate fears the customer may have about over-spending a larger amount on software – they want to be reassured that a human will be there to help them figure it out.
When Is The Transactional Model A Good Choice?
How easy is it for customers to pick up your software using self-service training options? You could (and probably should) test this out, but if the answer is that a lot of your target customers won’t get it, then you’re going to need the human interaction to convince them to buy.
Additionally, if your price point is higher than a lot of other SaaS, you will probably need the higher touch solution to gain the trust of prospects. Basically, the higher the price the less willing customers will be to hand over money without the assurance of humans behind the software.
A higher price usually brings with it expectations of a certain level of available service. Customers will look for things like contracts, premium service level agreements and most certainly more access to humans should any problems arise. For them it’s about mitigating risk in their expenditure.
How Will The Transactional Model Be Successful?
With an assumption that you’ve created the best possible software product there’s a short answer to this: get good humans. You need people who are closers and have a true ability to relate to customers, as well as to understand technical aspects and explain them in plain language.
Your training materials which the customer is able to self-select still play a role, just make sure that customers at this level are not left dangling when they really want to speak to a real person. How frustrated do you feel if a website keeps throwing up “knowledge base” questions and blocking you from actually speaking to, or even just emailing someone?
If you’re going to operate on a higher paying/higher complexity model, you need to suck it up and realize that means you will need to make humans available in some form.
This is the top tier of SaaS sales models and will generally take the largest amount of work per customer to get sign-ups. Enterprise is for SaaS with products that are so complex and expensive, that a natural customer-fit is those larger, enterprise companies.
Source: Chaotic Flow
Passkey is a good example of what an enterprise sales model looks like. They tend to sell multi-million dollar, multi-year contracts to large hotel chains.
Everything about the enterprise model is high-touch and high-end, which makes it the most expensive and labor-intensive model for a SaaS. This model is only for you if you have a quality, higher-end product, or if your self-service or transactional SaaS is able to be scaled with bigger features and more capabilities that will be attractive to enterprise clients.
Your SaaS sales model can make all the difference between whether you succeed, or whether your SaaS dies a slow death as funds run out and costs mount up. Pricing is a huge consideration from this point of view, as well as figuring out the right balance of how high-touch you want your sales to be.
Many SaaS now are largely going for a self-service or transactional model, but if your product is very complex and expensive, enterprise may be your only option.
A key consideration is how well you set up your sales model before you’ve launched. Have the mechanisms in place to start out as you mean to continue, whether that involves good quality self-help resources, hiring the best salespeople or a combination of both.