Honestly, building a successful SaaS business is more of hard work, long nights with coffee and the constant pressure to match up to or outperform competitors. The sad truth is that 80 percent of the successful SaaS startup stories you will hear, you never get the other side of the story. The advantages of a recurring revenue business model are clear. However, is the business model a magic pill to success?
Today, I want to share 5 facts that you believe about recurring billing business are true. If you are looking to build a SaaS product or some sort of recurring revenue business, this post is for you. Here are my top 5 misconceptions:
1. Conversions Are Easy With Free Trials
Free trials are a good way to get users to know about your product. However, getting free users to convert can be costly on your resources with low ROI. The worst thing you can do as a startup is to offer free trails simply to gain awareness rather than to convert.
Optimizing your free trial users is crucial to the numbers on your accounts book. Experiment with different pricing models with a view of getting conversions. Cheenu Madan has some great insights on why the 30-day free trial for SaaS is broken.
2. Product development is a one time job
SaaS business can make you rich. But this is after the hard work, sweat and tears. Perhaps you are seeing your SaaS business as an easy way to get rich due to the recurring revenue. This is partly true, but is not that easy. Here is an overview of what you will need to become rich with your business:
- Put hundreds of hours into coding
- Set up the infrastructure
- Get your product in beta
- Open your product to the public
- Get acquired and retire rich
Sounds fair enough.
In reality, things are more complex. Building a product is costly and time-consuming. And the hard work does not end after launch. You need to keep improving your product, take care of disgruntled customers, and stay ahead of your competition.
3. Product is important. Content can Wait
If you are building a product at this time, one nugget I want you to get from today’s post is about content. You need to create content from the start, even before launching.
There are two reasons why content is important:
- Builds your brand to your target market even before launch
- Helps you acquire customers organically, thus reducing your CAC
On building your brand, customers love to feel they are part of the service they are using. And not just because they are paying. Let your potential users follow you in your journey to creating your product. You can even get 1000 paying customers in 7 weeks like the team from Buffer App did when starting.
Yes, SaaS is all about product, but awesome products don’t sell themselves. If you do not start building awareness of the product before launch, you are in for a frustrating ride.
4. Subscribers will last forever
The overall profitability of a service depends on the cost or acquiring customers (CAC), monthly recurring revenue (MRR) generated and lifetime value of the customer (LTV). Of these three, the LTV can help you predict the life of your business.
Paying users are not guaranteed to stay with your forever. There are many dynamics that you have to contend with every day, for example:
- Better product from competitors
- Customers outgrowing your solution
These two are the major contributors of churn and can make or break your business. Therefore, there is a need to keep your product up to date with what users want, and stay ahead of your competition. Joel York has written an in-depth article on why SaaS companies fail.
5. User communities are not important
Some founders think that user communities like forums are dead, especially with other more adopted platforms like social media networks. However, nothing can be further from the truth. By initiating and participating in user communities, you can help customers get the most from your product. The result is increased adoption.
Another advantage of having a vibrant user community is that you will have an established group for real-time testing and forecasting. Moreover, community members can help each other in the forums, thus reducing your support costs. Some users will emerge as leaders in the community forums for their knowledge on using your product. You can equip these leaders with the necessary assets to help other members looking for support.
For startups that cannot invest in 24/hrs support, user communities will greatly compliment the available support.