Skip to main content

What makes SaaS so successful? Four lessons all businesses can learn

(Image credit: Image Credit: Wright Studio / Shutterstock)

Since Salesforce invented the term "Software-as-a-Service" more than twenty years ago, the industry has been characterised by tremendous growth and increasing sophistication. Skyhigh networks found the average employee now actively uses 36 cloud services at work, including nine collaboration, six file-sharing, and five content-sharing services. What’s more, global spending for cloud-based software is estimated to exceed $100 billion this year, according to Synergy Research Group.

These figures aren’t surprising when you consider Netflix, which celebrated its eighth UK birthday in early 2020, increased its UK subscriber base from 7.4m to 10m between 2016-18 alone.

All businesses would like to see such success, but many are unable to copy SaaS business models like-for-like. There are, however, four fundamental qualities that have fuelled the industry’s success and carry lessons for that will benefit just about any business. Let’s take a look.

1. Make ‘customer success’ truly provocative

Unlike the sales process for traditional businesses, success for SaaS companies isn’t based solely on the initial sale. Subscription is a double-edged sword: it’s easy for customers to get on, but it’s also easy for them to get off. A failure to address churn can kill any subscription business.

SaaS companies therefore typically invest heavily in their customer success, marketing and consulting teams to forensically manage their clients’ satisfaction and address any issues before they arise. The best Customer Success Managers (CSMs) set out to understand their customers’ challenges. They don’t care about being liked; they want to earn respect by helping to address specific pain points. Success is not measured by a stunning presentation deck, a positive health score or the number of engagements they’ve had in the last quarter; the only thing that really matters is whether the customer bought again, and if so, how much more they spent. The large investments in CSMs made by a typical SaaS company means they’ve created a solid foundation for these direct and honest conversations with customers.

The biggest lesson for non-SaaS companies is that transparency breeds transparency. Establish an open dialogue with your customers and ask direct questions. Why would you pick us again? Why would you recommend us? This all helps an organisation become more self-aware in delivering its products and services, direct innovation and keep current clients happy.

2. Provide easy access to the best and latest products

For big players such as Microsoft, it was only a few years ago that customers had to renew individual products each time new versions were released. Now, the software giant allows individuals and businesses to connect to and use its cloud-based apps over the internet for a monthly fee.

A big driver of SaaS’ success is this cloud-based software delivery, which reduces the need for the large, up-front costs associated with purchasing software or hardware once and owning it, only to be left with an obsolete product once a new version comes out. In the SaaS world, the customer always has real-time access to the latest, greatest versions.

SaaS offers many other potential advantages over traditional ‘buy and own’ models, too. For example, the time it takes to set-up and deploy services is reduced and customers have effortless access to upgrades. This built-in agility helps businesses to scale and grow.

There is a key takeaway here for all businesses: when it comes to offering products and services, flexibility is key. You need to invest in the necessary resources and teams to help your customers upgrade products easily and scale their deployments of your product in a way that suits them. Enable them, don’t envelop them in arbitrary strictures.

3. Absorb the burden

There is an age-old debate about build vs. buy when it comes to services. Often, successful businesses will only build services that fall within their specialist area of expertise and use SaaS companies (among others) for the rest.

The SaaS pay-as-you-go model often suits such businesses down to the ground. For example, it probably wouldn’t make sense to for a food delivery company to build its own accounting system or online security portal. This point is particularly important, as it is not just about how well a company can build the solution themselves - there are legal and safety implications too. For security and compliance, it is often much safer (as well as easier) to rely on external providers. SaaS enables businesses to plug in the elements they need, and to focus on what they do best.

Another benefit of SaaS is the lowering of barriers to entry for smaller businesses, as "multi-tenant" architecture is typically at the heart of their delivery. This means that all customers, small and big, can benefit from the same top of the line, best-in-class infrastructure, security and compliance that the SaaS provider delivers. It democratises software and services to provide fairer and safer access for all.

The lesson here is to think hard about your clients’ pain points and see how far you can go towards solving them. Businesses across industries could improve their customer journeys by taking away as much of the cost, regulation and compliance considerations from customers as possible, allowing them to focus on their core offering. 

4. Take the friction out of payments

For the end customer, payment is a means to an end; a way to access the service they require. They want simply to sign-up once, pay in a way that suits them best, and then never be troubled about payments again. A seamless, subscription-based payment process is crucial for SaaS companies to maximise customer lifetime value.

An exemplar of payments done well is DocuSign. The SaaS company is at the forefront of trying payment mechanisms that cater to preference and remove as much friction as possible. And it’s all based on real data and insight obtained from its customers. For example, in the initial roll-out phase of offering global subscriptions, DocuSign found a significant portion of its new customers in Europe chose to pay by direct debit when given the option.

When it comes to payments, it is so important to firstly know how your customers like to pay, and then make sure that your solution is seamless. All businesses can learn from this - whether you’re using recurring payments or not, you need to cater to customer preference and maintain payment systems that don’t get in the way of making a sale.

Learning from SaaS

The combination of these four approaches has fuelled much of the success and meteoric growth of the SaaS industry. While we can all look on enviously, we should also learn. Because when it comes to customer retention and success, it’s hard to deny that SaaS does it so much better than the rest.

Neil Morgan, CMO, GoCardless