While SaaS subscriptions have become the norm, it still has its own distinct set of sales and marketing challenges which can make it a tough market to succeed in. In this article Head of Strategy, Simon McEvoy, shares the key elements required to create a successful subscription model based on our expertise and experience of working with SaaS subscription services.
The SaaS subscription market has become the default model for selling software. Repeat revenues, high scalability and a low cost base make it an attractive model for software developers to follow. However, subscription comes with it’s own distinct set of sales and marketing challenges which can make it a tough market to succeed in. Customers usually have many options which aren’t meaningfully different, users are lured in by free trials, but learning new software remotely can be tricky, and when a customer signs up to one service it can be hard to lure them away from the familiar to something new.
Our experience working with SaaS subscription services like Spoka, Refinitiv Eikon, Botify and AB Tasty has given us an insight into some of these challenges and what can be done about them. We’ve collected a few here.
Acquisition only begins at conversion
Whilst many products see conversion as the moment a customer comes on board or makes a purchase, for SaaS subscription products, marketing conversion can take a month or more as a free trial is a tactic commonly used to bring new customers in.
This means that when a customer starts using your product, the sales process is only really just the beginning. Intense focus needs to be put on how to convert triallists into paying customers, employing nurture campaigns that gradually introduce customers to products and get them using the key features that will keep them engaged. These nurture campaigns need to employ test and learn techniques to continually optimise the effectiveness of them.
For example, Etsy on-boards non-technical customers to complex ecommerce software with a step by step guide to breaking down the process. The progress bar shows users clearly where they are in the process and makes it feel less demanding:
Customer service platform Groove HQ use a drip campaign of on-boarding emails to populate a new user’s email inbox. These emails can be more spread out for more complex tasks, but don’t leave too much time between contact points or users can get bored and lose interest. Drip campaigns should be a steady flow, not a long-drawn out trickle.
The period from acquisition to activation is one of the most interesting places to employ experiments to test, learn and optimise. There are an almost infinite number of things that can be tweaked – format, messaging, timing, frequency, design, etc. So many permutations mean testing needs to be done carefully and in stages, so results can be understood and isolated.
It would also be worth testing whether changing the length of free trial makes a difference to sign up / conversion rates. Three months is quite long compared to competitors and could be perceived as a discount rather than just a trial, which can harm brand strength over time.
Consider the cost of switching to you
One of the most important aspects of subscription model businesses is the degree of friction that exists to switch from one brand to another. Unlike single purchase brands where customers tend to buy from a repertoire of brands, subscription customers tend to be quite loyal, even when no contract ties them in place. This is often due to the high perceived or real costs associated with switching products which may include configuration time, loss of customer or earnings whilst systems are down, or simply the risk of receiving an inferior product.
When marketing a subscription business, it’s vital to consider the cost of switching when pitching to new customers and servicing existing ones. When speaking to new customers, consider the kind of risks they may face switching away from a familiar SaaS platform. Perhaps they have many customers using the same platform? Perhaps they have a partner or supplier who doesn’t want to use the new system? Perhaps they have spent many hours configuring their current system, or don’t want to risk losing important data.
Subscription marketers need to accept that many of their customers are not first-time buyers and are already tied into other services, so need to allay fears of switching.
Equally, you don’t want existing customers to feel ‘trapped’ in a relationship simply because they can’t leave, so working hard to ensure the relationship remains strong on both sides is a huge part of the subscription marketers role. Subscription businesses need to think about how they can grow as their customers grow – levelling up together. This means constantly thinking of new ways to build ‘reciprocity’ – news ways to give in return for customers ongoing loyalty. As John Dawes from the Ehrenberg Bass Institute writes:
“Reciprocity is a common expectation in interpersonal relationships (Perugini et al. 2003), and is a component of affective (emotional) commitment in a services context (e.g. Gustafsson et al. 2005).”
But what does reciprocity mean in practice?
For Quickbooks, reciprocity looks like a helpful directory for small businesses to find an accountant. This is a huge value add for accountants joining their partner programme, as it could provide a steady stream of new business into accountants.
Hiscox run a lively Small Business Knowledge Centre, covering many topics that can assist small business owners. Their insight into areas like COVID-19 and IR35 is invaluable, and this content can help attract organic search traffic.
Customer Experience platform Gainsight run a thriving customer advisory board where they invite customers to feedback on the product and be part of developing future iterations of the platform. This means customers are able to make requests and allows Gainsight to learn what really matters to customers day to day. It’s proven so successful they now help other companies set them up, including some of their own customers!
Financial Data business Refinitiv (an Omobono client) runs regular events for specialist professionals like Risk Managers, who have very specific concerns and issues. These include invite only panels and exclusive experiences for valued customers, as a way of showing appreciation for their loyalty. Refinitiv also carries out award winning research for Risk and Compliance Managers who subscribe to their risk data feeds, which puts them in a thought leadership position and is hugely valuable to risk managers.
There are some great examples here, but of course none of these would be right for your brand to copy outright. What’s important is to develop a reciprocity strategy for your brand, to help you and your customers level up together. Considerations would be things like:
As we have shown, subscription marketing has some unique elements that make it both a challenge but also hugely interesting. Subscription relationships are some of the deepest customer relationships that exist, where customers rely on their products as lifelines and are genuinely invested in the success of the brand they buy. But this comes with a big responsibility to deliver, to nurture, to make switching worthwhile and to level up together. It’s only through seeing the relationship as a reciprocal one that SaaS businesses succeed.
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