SaaS Profitability and The Strategy of Customer Conversations

The basic economics of the SaaS model inherently push vendors to run “lean and mean,” which requires close attention to operational profitability in every aspect of the organization.  Though the impact of that reality may be delayed by VC/investor funding, the elemental reckoning cannot be avoided forever. The cumulative effect of day to day operational profitability management will ultimately determine the difference between viability and failure.  Unfortunately, effective financial management can be a challenge in the on-demand world.  While a SaaS vendor’s infrastructure expenses are reasonably predictable, there is another significant cost factor that is not so easy to track. The necessity of customer retention demands active maintenance of the relationship, and every touch point of that effort carries a cost.  If a company has no consistent strategy for effectively dealing with all of those interactions across all departments, the financial consequences can be substantial.

Losing The Edge

Sales professionals know about conversation management, and are motivated to be efficient.  They’re taught to ask for the order, and to stay focused until the customer signs the contract.  While not all conversations with a prospective customer are directly productive, salespeople are generally good about extracting value from even indirectly productive interactions in the form of useful positioning and information.  If you can’t get the order now, get permission for the next contact and any data that might help you towards the close next time.  Keep the pipeline full and always moving yourself towards the commission goals.

But what happens once the contract is executed and the sales team turns their primary attention elsewhere?  The responsibility for handling customer interactions passes from one group to another.  As each transition occurs, the intent and performance metrics of the interaction manager changes, and profitability is no longer at the top of the priority list.  The effect of that shift in the traditional technology sector was often ignored as the bulk infusions of profit from new customer/sales could be assumed to cover a multitude of sins.  Those days are gone; the expenses of non-revenue-generating customer interactions are a much more vital issue in the SaaS era.

The Cost of the Bell

The ring that signals an incoming telephone call, or the chime that announces receipt of a new email, is another kind of alert as well — the company’s profitability is also on the line.  It’s a very safe bet in most SaaS companies that such interactions have not been included in the product definition or pricing calculations.  The omission can be expensive.  The number, timing  and duration of incoming customer requests and the desired responsiveness of the team that receives them determines staffing levels.  As the number of customers increases, so will the volume of touch-points; the mathematics are very straightforward.  The staff then has to be augmented to handle the larger load.  If no one is keeping an eye on strategy, utilization levels and efficiency of deployment, it’s not at all hard to go negative very quickly.  What’s worse, the change from profitability to loss may remain obscured even as the effect accelerates.

What is your company’s overall strategy for managing the profitability of customer conversations? Is it consistently known and followed throughout the organization?  If the answer is uncertainty, I can help you take a closer look.  Send me an email, or call to set up a complimentary Office Hours session.

“It’s what you don’t know about your customer relationships that can cause you to lose them.”

–The SaaS Customer Retention QuickStat