Archive for the business models tag

Joni

Problem of continuous value in SaaS business

english

A major challenge for many SaaS businesses is to provide continuous value, so that the users are compelled to continue using the service.

There’s a risk of opportunism if the user can achieve his goals with one-time use; he then either uses the free trial version, or only subscribes for one month.

For example, some SEO tools enable data download, so why should I stick around after downloading the data?

This is especially pertinent if my decision making cycle is not frequent, so I don’t really need monthly data.

Potential ways to counter this effect:

  1. develop automatic insights that continuously tell the user something they didn’t know, without him having to log into a system
  2. include different tiers for one-time users (e.g., one-time report feature with the cost of xxxx USD)
  3. understand the decision making cycles of different users, and make sure your business model is adapted to them
  4. put previously free features behind a subscription plan
  5. raise the monthly price so increase CLV even for those users that drop after a month

The latter I’ve seen applied by many startups, e.g. SurveyMonkey that raised its prices substantially. At the same time, though, they lost me as a customer – that’s the risk, and it can only work if they have more high-value customers not to care about my business.

Number four was applied by Trello that decreased the number of PoweUps to one – essentially forcing you to pay if you want to use any of them (because “Calendar” is already a PowerUp). Often, the application of these upselling tactics take place after the startup has been sold or there are new investors that wish to capture a larger share of value produced by the service. Obviously, this comes at the cost of free users who previously had a great deal (=large share of value provided by the startup), now reduced to “good” or “decent” deal depending on their tolerance level.