SaaS on the House. A Dialog About Value

Who doesn’t like it when the bar tender pours an extra glass of fine wine ‘on the house’?
Every time it happens to me, my emotional attachment to the establishment grows, and it makes it that much more likely that I’ll visit again.

I tend to have the same feelings when I receive monthly emails from amazon AWS about new features and cost reductions, and a recent email I got from Beanstalk announcing a bunch of new services all included within the same package I’m already paying for. It’s a great way to create loyalty for subscription services.

Constant increment to value and service level improvement without additional costs is probably one of the biggest benefits for SaaS customers. It is inherent to the subscription/pay-as-you-go business models. The power is in the hands of the customers who can always decide to cancel their subscription. SaaS vendors must constantly innovate and create additional value to keep their customers happy.

SaaS vendors, frequently monitor a metric called Customer Life Time Value (CLTV). How much revenue does my average customer generates over it’s life-time. However, this metric can also be seen from the reverse perspective, how many months does my average customer continue to see value from my service such that they are willing to continue paying for the service.
It is also a key benefit for software vendors. Success comes from focus on the customer-lifetime value, which can only come when you truly understand customers and their changing needs. Anyone who developed software products knows how easier, more productive and more enjoyable it is when you have than organizational knowledge. With SaaS you have no choice but to develop it.

These type of customer/vendor relationships are healthier and thus last longer. As long as customers are getting real value they will pay for the services they are consuming. In the old, on-premise applications world, customers had to pay in advance for a service/product they didn’t really use yet. This up-front payment created a dynamic where application vendors where focused on the initial sales, and decision makers where focused on making the first initial buying decision. You can clearly understand why the new model is better for both sides. The new conversation between vendors and customers is about constant value creation, delivery and consumption.

Another great benefit which comes from both SaaS business models and the web based delivery model is a much faster value creation cycle. The motivation of the SaaS vendor to create value faster, combined with the opportunity to manage a single version of the service enables rapid cycle times. Customers are getting new features and functions which create value much faster.

Shorter customer commitments and business model flexibility presented by SaaS promotes healthy relationship between vendors and customers which revolves around value – simply win win!

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