Success. In business, it typically boils down to one fairly simple equation: does revenue exceed expenses? In SaaS? Well, that’s not always the case. Sure, SaaS companies are still ultimately driven to become profitable – but the timeline, requirements and tactics to do so are extremely unique in comparison to more traditional ventures because of their subscription-based revenue models. In fact, over the last several years we’ve seen several large SaaS companies file humongous IPOs while still losing tens of millions of dollars per year – Marketo and Box are two of the most well-known examples.
Does it mean they’re not successful? Not at all. Does it mean you shouldn’t worry about profitability? Hell no.
In fact, when you consider all the complex moving pieces that go into generating, keeping and growing revenue in a SaaS business (product development, sales and marketing, and customer success are just the tip of the iceberg), it’s no wonder that nine out of ten startups fail.
So, as a SaaS company, how do you succeed? How do you measure success? And how can a channel partner program help? To begin with, let’s look at three of the most critical KPIs for any SaaS company:
- Customer Acquisition Costs (CAC)
- Churn Rate
- Total Customer Lifetime Value (TLV)
Done right, a partner program can have dramatic impacts on each of these core metrics of a SaaS business:
- Partners can help you reach more customers faster while spending less and accelerating your sales cycles, moving you down the road to profitability faster.
- Partners can enhance your customer success initiatives and provide more personalized hands-on support to ensure they achieve maximum value from your product or offering.
- Partners can continuously add value to your customers and increase wallet share as your product or solution continues to innovate and grow.
So, how to do you build a partner program that can successfully do these three things while also pointing you down the right path to profitability? In the end, you undoubtedly want your SaaS reseller program to turn a profit – a profit that ideally grows over time, in parallel to your overall program. But if it stagnates or you see failure looming, how you pinpoint why, quickly self correct, and continue to optimize? Well, that’s one of the other beautiful things about partner programs – not only do they help you manage your business with more speed and efficiency, they also make it more agile. Why is that important? Because flexible and agile businesses are better at responding to fluctuations in the market, unforeseen moves from competitors, and other unexpected challenges that are sure to come.
But, back to the “P” word – profit. Here are a few things to consider if your SaaS reseller program isn’t giving you the results you expect.
You are not fully leveraging upsells or upgrades
On average, a SaaS reseller program can expect to see 25% of the customer base leave or cancel on an annual basis. Since every new customer is not as profitable as a returning customer, the easy route is to offset these cancellations by marketing upgrades to returning customers. The cost of repeat business is lower due to a lot smaller footprint in the Admin and R&D areas, but the revenue is still there.
Net churn defines the relationship between cancellations and upgrades. Subtracting the rate of upgrades from the rate of cancellations will give you net churn, and so the goal is zero net churn. If you can achieve a negative churn, that’s even better, and where you’ll see growth skyrocket.
Your onboarding costs are too high
Every new customer comes with a lower profit margin, since you’re adding marketing and onboarding costs into the mix. You can expect SaaS reseller programs to take the first 18 months to pay back the initial costs, on average. It’s easy to lose most or all of your revenue to the onboarding costs, which can quickly lead to failure.
In addition to setting a zero net churn goal, you should also look to lower your costs to add customers. If you can gain a customer without full-price advertising, or reduce the costs for training and education within the first 18 months, then you reduce the onboarding costs and increase the likelihood that your cancellations will be offset by upsells.
You have not offset cancellations with viral growth
If your SaaS reseller program is in a profitable niche, then finding a way to leverage viral growth should be an overarching goal. You can stay ahead of the cancellation flood wave if your customer base is growing at a rate much larger than your rate of cancellations. Plus, if you’re able to work in methods that reduce your new customer costs, then your growth can quickly overcome the cancellations.
In a way, these three failing points can be turned around to be advantageous, if you can address the situation properly. Achieve zero net churn, and aim towards negative churn, to promote growth. Reduce the costs of adding new customers so that any churn has less impact. And when seeking out growth, don’t be content with average growth. Make viral growth a goal, even if it’s a stretch goal.
If you’re seeing failure looming on the horizon, take a close look at these three areas. It’s not too late to turn things around and create a profitable SaaS reseller program.