According to a report from market research firm Gartner, spending on SaaS will reach nearly $15 billion this year and will grow to more than $22 billion in 2015.
With SaaS comes a new era in licensing and contracts. Gone are the cushy days of long term blanket software contracts. Oracle knows this – it recently lost its Federal government contract worth hundreds of millions.
SaaS providers are becoming the new norm – but they also face a common challenge: short term contracts that can be year-to-year or even month-to-month.
This leads to a significant challenge: managing customer churn.
SaaS software vendors must constantly prove their worth because if they don’t, they’ll be burned by churn.
David Skok, a five time serial entrepreneur turned VC at Matrix Partners recently hit the nail on the head with his blog “Why Churn is SO critical to success in SaaS” http://www.forentrepreneurs.com/why-churn-is-critical-in-saas/
When you have to fight to keep your customers each and every month, the impact of churn amplifies. In David’s example, imagine a SaaS provider that starts with an MRR (Monthly Recurring Revenue) of zero, books $10k in revenues the first month and increases $2k every month after that.
Now do the math on a 2.5% churn rate. In a few years, you are losing $64k a month. With a churn rate of 5%, that number is $90k.
Many SaaS Providers are turning to companies like MindTouch to combat churn rates, especially the phenomenon of “latent churn”. “Latent churn” occurs when the product actually performs a necessary function or has the features required by the consumer, but they remain undiscovered and subsequently the product is abandoned in favor of another where success is more easily achieved. As a result, the abandoned product faces somewhat widespread denunciation in social media circles, and suffers a reputational loss regardless of the fact that it would have served consumers’ needs admirably had they been afforded an opportunity to fully understand the product.
MindTouch SaaS customers like Zuora, ExactTarget, SuccessFactors and Intuit have learned that deploying social help systems:
- Reduce customer churn: Social help systems nuture product knowledge, develop user expertise and creates happier customers by improving the product help experience and naturally builds brand advocates. This reduces churn.
- Increase revenue with existing customers: Social helps systems build revenues in a number of ways. Most importantly, social help systems enable smart cross-selling of other products when the company is engaged with a customer. In addition, product managers have a direct line into customer feedback, which improved future product development.
The SaaS world has brought great efficiencies to the IT marketplace. For software vendors to thrive, managing churn is one of the biggest challenges – but it is a challenge easily overcome with social help products like those innovated by MindTouch.