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The Business of SaaS

stripe.com

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Re: The Business of SaaS

#191

Post by pmart123 »

old-gregg wrote: post #102

> Businesses and investors love SaaS because the economics > of SaaS are impossibly attractive relative to selling > software licenses. I would be careful and not over-generalize. The statement above is opposite of what many late stage investors think of SaaS companies. Their gross margins tend to be horrible. Some are basically in the business of being an intermediary mailbox for transferring money from their custom…

I think those are great points in where the underlying business model could have underlying cracks. My take is that SaaS has desirable features in the current age of agile product development and data-driven business decisions. Selling an Oracle database is a bit like going door-to-door to sell vacuums. Ultimately, it is hard to gauge product adoption, CAC, etc. with a licensing model at first since you aren't selling a $5/month per user solution. The Oracle database could actually scale better as a business model as once the customer is set up they can move to the next sale versus always battling how much it costs the company to maintain the service. However, in this current day and age, it takes a little faith to run this model versus one that has daily performance metrics from the onset.

Re: The Business of SaaS

#192

Post by lukevdp »

raiyu wrote: post #159
old-gregg wrote: post #102

> Businesses and investors love SaaS because the economics > of SaaS are impossibly attractive relative to selling > software licenses. I would be careful and not over-generalize. The statement above is opposite of what many late stage investors think of SaaS companies. Their gross margins tend to be horrible. Some are basically in the business of being an intermediary mailbox for transferring money from their custom…

True which is why one of the more mature (timeline) SaaS companies, Dropbox, decided to in-house their infrastructure to bring costs down. While this was a massive undertaking that took many years, they were able to achieve it and are reporting various levels of profitability (free cash flow). Also if you dig in further to most SaaS companies P&L you'll see that infrastructure by and large isn't the biggest driver of…

The more customers you get, the more customers you get from "organic" sources. Blended CAC makes sense from this perspective.

Re: The Business of SaaS

#193

Post by seizethecheese »

How do people "flatten" churn to a single number? In my experience churn is very high in the first month, then falls as time goes on.

My current (consumer) startup has a churn of around 25% the first month, then dropping to almost nothing after a few months. Using a single churn number doesn't even come close to approximating real behavior.

Re: The Business of SaaS

#194

Post by ciguy »

jcadam wrote: post #112
a13n wrote: post #74

Yikes, that was the best article on SaaS that I've read all year. So much great information. A few things jumped out to me as off: > Conversion rates of low-touch SaaS trials with credit card not required: > 2%+: extremely good Really? 2% seems awful. If a company signs up for your trial, they must have a problem they're trying to solve. If you don't solve 98% of peoples' problems, it seems like you have a problem ge…

Well, I've had my little SaaS up and running for about 6 weeks. - The landing page gets about 30-70 hits per day (excepting the occasional spike) -- how many of those are bots and crawlers, I wonder? - I've had a grand total of FIVE (5) trial sign ups. - No buyers yet - My linode bill is currently about ~$120/month. - Still within the free tier on S3 and Mailgun. - You know, when I'm the only one using the app, I don…

A quick glance at your site, and I left with the impression that you're a more corporate version of Trello. Right now Trello serves our needs perfectly for free, so what's the value add in signing up?

Re: The Business of SaaS

#195

Post by 47 »

a13n wrote: post #74

Yikes, that was the best article on SaaS that I've read all year. So much great information. A few things jumped out to me as off: > Conversion rates of low-touch SaaS trials with credit card not required: > 2%+: extremely good Really? 2% seems awful. If a company signs up for your trial, they must have a problem they're trying to solve. If you don't solve 98% of peoples' problems, it seems like you have a problem ge…

I do not have lot of experience in SaaS. I do have experience dealing with conversion rate in ecommerce. I believe you usually cannot compare conversion rate across different businesses in different markets. Comparing SaaS businesses in different markets is like comparing apple and oranges.

Re: The Business of SaaS

#196

Post by cookiecaper »

old-gregg wrote: post #102

> Businesses and investors love SaaS because the economics > of SaaS are impossibly attractive relative to selling > software licenses. I would be careful and not over-generalize. The statement above is opposite of what many late stage investors think of SaaS companies. Their gross margins tend to be horrible. Some are basically in the business of being an intermediary mailbox for transferring money from their custom…

> maintaining a large and expensive ops team and dealing with ever-growing AWS bill

Set it up on real hardware with 2-3 good admins and you'll save 6x per year. AWS has its place, but it's unlikely that place is anywhere near 100% of everything. This truth has practically become a heresy, which means you can make good money by having the gumption to take advantage of it.

> Some are basically in the business of being an intermediary mailbox for transferring money from their customers to AWS.

Does this mean that you can win just by hiring one of the few people who can accomplish the terrifying task of, GULP, setting up a server without dragging around little blocks in a web GUI? :P

Re: The Business of SaaS

#197

Post by icebraining »

graeme wrote: post #123
icebraining wrote: post #47

Earlier quoted context omitted.

Full-featured time/use-limited trials are pretty common. Netflix, Spotify, Audible, all offer the first month, for example. Specific to your area, Coursera and Lynda both have them.

Mmm. Those are traditional, longer trials though, as they tend to be longer services. Do you think it would work on a shorter timescale for short courses?

I do think a percentage limit would make more sense in your case, but you shouldn't take my advise, since I've never built anything like it.

Re: The Business of SaaS

#198

Post by tarsinge »

jcadam wrote: post #140
pfarnsworth wrote: post #135

Earlier quoted context omitted.

He has 5 trial signups after 6 weeks. Let’s be realistic here. His time is literally valueless because he hasn’t made a single sale. Better to save money and expand if and when a paying customer shows up.

Well, you know, I'd like to think my problem is sales/marketing and not product.

Maybe you know it, but reading your comments it looks like you are treating sales/marketing as an afterthought.

For running a successful business, I think you should try to always have the others in mind when you work on one, because that’s how you can find product/market fit (otherwise it’s mostly luck, and/or you had perfect hindsight of your market).

Re: The Business of SaaS

#199

Post by jwblackwell »

newbuser wrote: post #174
raiyu wrote: post #159

Earlier quoted context omitted.

True which is why one of the more mature (timeline) SaaS companies, Dropbox, decided to in-house their infrastructure to bring costs down. While this was a massive undertaking that took many years, they were able to achieve it and are reporting various levels of profitability (free cash flow). Also if you dig in further to most SaaS companies P&L you'll see that infrastructure by and large isn't the biggest driver of…

How would you avoid blending the cost to acquire paying, non-paying, etc.?

It’s not easy to get an exact figure but you can fairly easily split out customers who arrived via an ad vs those that didn’t. Likewise it’s easy to split out those customers who arrived via cold selling

Re: The Business of SaaS

#200

Post by ddorian43 »

geordilaforge wrote: post #8
m12k wrote: post #3

I've been following patio11's blog posts since way back in the Bingo Card Creator days, and he's part of what inspired me to start my own SaaS. I hope his gig at Stripe is good for him, because I think he's supremely well suited to the role of 'teacher' and I think posts like these are great (even if they are part of a content marketing strategy for Stripe)

100%. Stripe Atlas and Increment are some of the best examples of content marketing I know of.

What's `Increment` ?
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