Software as a Service (SaaS) startups will be well positioned for success if they follow these 5 steps:
1. Clearly Define Value
Before taking your product to market, you should be able to easily explain the value you’re providing. What need does your product satisfy? Who are your potential customers and will they be willing to pay for the solution you’re providing? Even if your product is technically complex, you want to have a simplified answer about how it will improve your potential customers’ lives in a very specific way. This will also go a long way toward your marketing campaigns.
2. Look beyond the Freemium
From Dropbox to Github to Zendesk, there’s no shortage of SaaS startups finding major success through the freemium model. If you’re product is good enough to entice a high rate of conversion from free to paid users, it can be a great way to grow. There are a lot of naysayers about the freemium model, though, warning that it’s a costly trap to get stuck with a customer base of freeloaders. To create enough buzz around your product to capitalize on a strong user conversion rate, you should carefully consider which features should be offered in the free model, and which features to reserve for paying customers. Evernote co-founder Phil Libin spoke to the Wall Street Journal about the freemium model, noting that it needs time to work. Fewer than 1% of Evernote’s freemium users became paying customers within a month; after two years, that number was up to 12%.
3. Focus on Product
Especially crucial if you opt for a freemium model is making sure to focus on the quality of your product, from development to design. A recent survey of successful SaaS startups by Groove HQ found an average trial to paying customer conversion rate of 11%. Therefore you want to make sure your free version has low marginal and marketing costs. A simple user friendly product is more likely to attract converters than one that necessitates customer service and troubleshooting. The flipside of this is that you want to avoid the common trap of providing a flimsy free model and a great paid model—the gap between the two is simply too big. Provide users with a useful tool that solves a common problem in a free model, and entice them to upgrade to the paid version with even more great features that they’ll actually want to use.
4. Take Churn Seriously
Now that you’ve built a solid product and hopefully have experienced a high free to paid conversion rate, it’s time to think about churn. You want to keep your paying customers for life. Client acquisition and retention are two different issues that need to be addressed with separate marketing campaigns at the different user bases. Churn is a huge factor in determining company valuation and long term profitability, so make sure you’re tracking churn through cohort analysis and more importantly, offering great customer support to keep churn rates low.
5. Implement Strong Security
The increasing prevalence of sophisticated cyber attacks makes implementing strong security a top priority for SaaS startups. In fact, there’s a growing crop of Security as a Service companies that have grown up hoping to capitalize on this growing need for ironclad server protection. Not only do you want to mitigate attacks on sensitive company data, but also on your customer’s sensitive information. Putting in place strong measures for threat mitigation and security is an important measure in ensuring future customer satisfaction and growing trust in your product.
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