I have been following the SaaS (Software as a Service) industry for a number of years and in spite of the fact that most of them lose huge amounts of money every year, the industry is growing rapidly.
They survive on repeated rounds of funding from investors and VCs who seem to think that the only metrics that really count are the following, at least when you are looking at scaling the business:
MRR – monthly recurring revenue. It is the base measure of scale. It is a simple multiple of the number of subscribers times their subscriptions. You increase it by growing the numbers of customers. Or up-selling existing customers to higher value packages. MRR is the lead indicator which shows the growth of your SaaS business.
Churn – this is a measure of how many customers are coming in, but more importantly, going out. The reasons for churn are not always obvious. Your SaaS may work like a dream. But does it add enough value? Is it worth paying for? More important, do your customers find it is worth the time and effort to have your SaaS as part of their lives?
Customer Acquisition Cost (CAC) – In SaaS, CAC is a measure of the efficiency of your sales, marketing and distribution model. It is governed by two things: Conversion and Sales Model.
Cornerstone on Demand (CSOD) finally gets it!
Notice nowhere is there a mention of profitability. Top line revenue trumps net income every time in this industry. The only exception I’ve found in the last 2 years is Cornerstone on Demand (https://www.cornerstoneondemand.com/). They have now, after 19 years of existence, begun to think that profitability is a metric that they need to be looking at. Congratulations, Adam Miller, CEO!
I’ll be doing more posts on the SaaS industry as time goes on.
In Richard Koch’s fabulous The 80/20 Principle, 2008 Edition, he delves into the new territory of applying the principle to our personal lives, not just our businesses.
This opens up some interesting discussions about quantifying that area of our lives that seems immune to analysis by numbers. But as Richard explains, every one of us derives more pleasure from some activities than we do from others. Like quiet evenings with a loved one in front of a fire; a really good meal with close friends; a solitary walk in nature.
If we look at them honestly, we will see the opposite is also true: we spend a lot of time doing things we feel we must do, but don’t really enjoy. Think about family get togethers where there is constant bickering, but missing one would hurt everyone’s feelings. Or faking it in a relationship to preserve your public image.
In the section of the book,” Fresh Insights: The Principle Revisited”, Richard shares some of the input he has received from readers and one was quite revealing in that, to me at least, the reader had missed the point. A Chinese critic contended that yin and yang are equally important and seems to equate yang with the 20% and yin with the 80%.
His final complaint had to do with sex. Since he contends that 80% of the pleasure in sex comes the orgasm, then he says perhaps we should drop the 80% foreplay altogether. Of course, if the only pleasure you derive from the sexual relationship is the 13-second orgasm, the he’s right. But the 80/20 principle is incorrectly applied when done so to micro-aspects of life. In the above situation, I would argue that the application should be as follows. Look back at all your sexual encounters and find out which 20% brought you the most pleasure and work on duplicating those. Doing that we are measuring the whole experience not just one tiny aspect.
In that case, Richard’s Chinese critic might find that the 20% most pleasurable experiences were the ones in which the foreplay was long and caring and the final 13 seconds were just one aspect of the whole experience. Yin and yang would then be in balance which is what the 80/20 principle would predict would be the case.
Data, no matter if it is called big data, gives the user information on inputs and outputs, causes and results, efforts and rewards. From that we can analyze the numbers with the intent of drawing useful conclusions and implementing actions. So far, so good.
Uncovering Secrets in the Data
As I reacquaint myself with the 80/20 Principle, I am digging deep into the work that Richard Koch did on the subject and he addresses the data issue this way: typically, the majority of the inputs, causes and efforts have little impact, but a small minority have a major dominant impact.
Where I think the difficulty with the huge amounts of data now being made available is the ability of the users to find that small minority. The more data found the more the imbalance that will always appear. The Principle provides a framework for the analysis, but even that has its limits, especially as you mention in the final paragraph – taking a leap and taking risks. Continue reading “Thinking about Big Data”
Jeffrey Immelt, CEO of GE, coined the term “the new normal” to describe the current sales environment. He says, in the “new normal,” traditional complex sales approaches no longer work; sales levels, margins and average deals sizes are down and sales cycles are longer with many ending in non-decision. Prospects are spending less and even consolidating and in some cases eliminating suppliers in an effort to save money. Selling in the new normal doesn’t work the way it did in the “old normal”.
So to differentiate, I’m going to coin the phrase “Buying in the New Normal” to describe a 180 degree shift in the way we look at the interaction between a product or service vendor and the ultimate user. In the old terminology they were the seller and buyer and sales teams always thought in terms of selling to a customer.
Buying in the New Normal
But the new normal has to rethink itself. The focus has to be on the process of buying. The seller has to see only the process of buying by his customer. To do that, he has to know why the customer buys, what they need, what they want to do with the product and what their motivation is to make the buy.
When they do that they come to understand the real issues that drive their customer’s buying decision. They’ll discover the critical business issues (CBI) that have to be satisfied by the seller and their product or service. The most important CBIs will be found at the C-level (what we call “Power”) and not below. This is where they will uncover the executive-level problems felt at their prospect’s organization and determine how their product or service addresses them.
Most companies sell products and services based on the day-to-day problems that they solve and their features and benefits. But this is a mistake. The people with budget authority in your prospects’ organizations don’t evaluate products and services based on day-to-day functionality. They make buying decisions based upon executive-level problems that are solved. This is especially true for high-value products and services with complex sales processes. C-level executives “buy”, they don’t get “sold” to. Continue reading “What is “Buying in the New Normal?””
ZEBRAselling is a go-to-market strategy that will transform the way your B2B sales and marketing teams will approach the market.
When companies like Forrestor Research find that in the B2B world, deals are being closed at the 15% rate in any given quarter, you have to ask yourself, “Why?” And the sales teams should be asking themselves the same question.
However, if your company is doing what most other companies are, that can create a false sense of security: “At least we not doing worse than the rest of the competition.”
Salesforce has published information that shows that the average number of deals that end up in their customer’s forecasts don’t close at any better than, you guessed it, about 15% in any given quarter.
15%!? What a huge waste of company resources! What a huge waste of time! What a huge disappointment that must be at the end of the quarter! What a lot of fun explaining to the VP of Sales why you came in under target again!
There is a solution to this and the ZEBRAselling methodology is just that.