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Seven Secrets to SaaS Subscription Revenue Growth

without Compromise

Software-as-a-service (SaaS) businesses and other cloud-based service providers have taken the industry by storm. Innovative startups hatched just a few short years ago have now exploded into major household brands such as Carbonite, LifeLock, Angie’s List, and Allrecipes. Taking advantage of subscription and recurring revenue business models to deliver on the true promise of the cloud, SaaS organizations are changing the fundamental way that businesses and individual consumers purchase everyday services.

Before Carbonite, for example, consumers and businesses had to purchase external disk drives to backup their systems. Now, backup and recovery can be handled online via a convenient subscription-based service. And before Angie’s List, consumers had to flip through the yellow pages or ask friends for references and advice.

While the subscription-based SaaS phenomenon represent a true paradigm shift for consumers, it also necessitates a different way of thinking for the SaaS businesses themselves. That’s where

Vindica can help. Based on our extensive experience running recurring-revenue, SaaS-based businesses – as well as managing over 240 million accounts that

have transacted over $21 billion with Vindicia – we want to share some insights that every SaaS business should consider as part of its overall growth strategy.

Seven Secrets to SaaS Subscription Revenue Growth without Compromise

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Prioritize Your Sales Targets by “Subscriber Worthiness”As a SaaS provider, you undoubtedly understand the 80-20 revenue rule: 80% of your revenue is driven by 20% of your overall customer base. However, few online service companies provide their sales and marketing teams with insights that enable them to appropriately prioritize their efforts.

The concept of subscriber worthiness can help your business overcome these issues. Your own customer data provides you with the essential information to form the basis of the subscriber worthiness “score”:

u Whoareyourcustomers?

u Canyousegmentthembycategoriessuchasconsumersvs.small-andmedium-sizedbusinesses(SMBs)vs.enterprisecustomers?

u Howvaluableiseachsegment?

u Specifically,whatistheaveragecustomerlifetimevalue(ACLV)ofeachsegment?

Once you have collected and analyzed these data and have determined the appropriate “score,” your sales and marketing teams will be able to apply this information to their outbound efforts based on your strategic priorities.

Provide Dynamic Offer Management CapabilitiesNot all of your customers are alike or have the same propensity to pay. If you provide pricing and packaging online, then you should provide dynamic offers to people visiting your site based on factors such as:

u Fromwheredoyouronlinevisitorsoriginate?

u DoesyourofferpageautomaticallypriceyourservicesinEurosifthevisitorisfromGermany?

u Whatmarketingcampaignsdrovethecustomerinteraction?Forexample,ifyouknowthatGoogleAdWordsconversionstypicallyresultinlonger-termcustomerlives,areyouabletoautomaticallyreflectthatinyourofferpages?

Dynamic offer management gives your company the ability to personalize your service offerings to potential customers leading to greater conversions, improved revenue streams, and greater ACLV.

Benefit from the Consumerization of the EnterpriseOne of the many benefits of the trend towards SaaS-based offerings is the ease with which enterprises can purchase, implement, and consume critical services on a seat-by-seat basis rather than having to purchase enterprise-wide site licenses. This “consumerization of the enterprise”

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Seven Secrets to SaaS Subscription Revenue Growth without Compromise

allows individuals to purchase online services for themselves, their work group, or even the entire enterprise as a whole, without going through a centralized purchasing department.

Of course, allowing individuals to purchase your services for their business means that you need to ensure that they can pay online with automatic payments. This is especially true in subscription or recurring billing environments. These automatic payment methods should include credit and debit cards, mobile carrier billing, PayPal and Amazon Payments, and more. An immediate, direct benefit of accepting automatic payments versus relying exclusively on invoices is the reduction of your days sales outstanding (DSO) metric, as well as improving your overall cash flow.

Measure Customer Usage to Influence Pricing and PackagingThe utilization of your online service is an important input to your pricing and packaging decisions. Your pricing model may be usage-based, in which case you automatically have a built-in testing framework to determine whether your pricing is appropriate.

Independent of your business model, measuring usage and engagement is a great mechanism to validate your pricing models.

•Areyourheaviestusersunderpayingoroverpayingrelativetoyourinfrequentusers?

•Doyouprovideyourheaviestuserswithcross-sellandup-sellopportunitiesmorefrequentlythanyourlightusers?

•Isyoursupportteamempoweredtoengageinsalesactivitiesbasedoncustomerinteraction?

Manage Your Upgrade SegmentationPricing and packaging are not just relevant during the initial acquisition process, but also when your customer is actively using your online service. How you segment customers with respect to upgrades and how you communicate with them are important considerations.

You should customize your offer based on what you know about the customer. If they recently departed from your service, send them a “we miss you” offer. If they are not actively using the service, send them an offer to try something new for free for a limited time to encourage usage. And if they are heavy users, investigate what else might be of value to them.

Link Your Customer Acquisition Activities to ACLVMany SaaS companies focus customer acquisition efforts around optimizing the conversion rate, especially if they offer a free trial or provide a freemium offering. They then rate their various marketing

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Seven Secrets to SaaS Subscription Revenue Growth without Compromise

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campaigns and activities around that metric. For example, if webinars drive the highest conversion rates, they will pour more money into developing additional webinars.

A better approach is to focus your business activities around maximizing ACLV. You should view acquisition, conversion and retention metrics together versus in isolation so that you can identify long-term profitable customers. Once you segment your customers by ACLV

and marketing campaigns, then you can optimize for the acquisition activities that drive the biggest gains in overall revenue, not just conversion rates.

Improve Your Subscriber RetentionIn most SaaS businesses, roughly 13% of the subscriber base is up for renewal at any given time. Unfortunately, a significant

number of renewals fail due to involuntary churn caused by some sort of payment failure – even though many of these customers want to remain subscribers.

Your subscriber’s payment can fail for any number of reasons, including failures in the card association network, card expirations, or the subscriber being temporarily over their credit limit. How you manage these involuntary failures can potentially be worth millions in additional revenue to your business. Few businesses understand the payment networks well enough to optimize this retention on an on-going basis.

The Bottom LineThe chances are that no single SaaS business or other cloud-based service provider will take advantage of each and every revenue lever discussed in this paper. Nevertheless, there is plenty of “hidden” revenue opportunities to be gained by implementing even a few of them.

Our SaaS-based subscription billing and recurring revenue platform—Vindicia® CashBox®—enables us to consistently increase customer acquisition, improve subscriber retention, and build long-term revenue on behalf of our clients. And our Vindicia Select™ subscriber retention solution helps our clients retain more subscribers by dramatically reducing involuntary customer churn.

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About VindiciaVindicia brings enterprise-class innovation to consumer-facing subscription billing to help digital companies acquire and retain more customers by making

payments seamless, secure, and easy. Vindicia keeps customers connected to the subscriptions they love, and companies connected to the revenues

they need. Vindicia has processed more than $21 billion globally and generates over $90 million in annual incremental revenue for clients. Clients include

TransUnion Interactive, IAC, Vimeo, Next Issue Media, and more. Vindicia was recently ranked the number one billing software solution on the market by

Business-Software.com, and recognized as a “Top 100 Promising Tech Companies” by CIOReview magazine. For more information visit www.vindicia.com.

Copyright © 2015 Vindicia, Inc. All rights reserved. Vindicia, the Vindicia logo, and the designated trademarks herein are trademarks of Vindicia, Inc. in the

U.S. and/or other countries. All other brands or product names are the trademarks or registered trademarks of their respective holders.