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How to Tune your SaaS Business Model

by Steve Crawford  |  June 14, 2017  |  Submit a Comment

Three key performance metrics, across different stages of growth, form the foundation of a successful SaaS business model. Technology business unit leaders (especially those new to SaaS) need to understand these metrics to build, optimize and scale a successful positive-cash-flow SaaS business.

The Virtuous Cycle of the SaaS Business Model

Business leaders need to understand and focus on many important aspects for driving SaaS revenue growth — regardless of whether they’re with a startup or an established software company moving to a cloud-based delivery model. But, as illustrated below, there are three essential metrics in particular that form the foundation of any successful SaaS business model.

The Virtuous Cycle of the SaaS Business Model

The Virtuous Cycle of the SaaS Business Model

The phasing and interplay between these metrics — when managed successfully — can create a “virtuous cycle” that powers a positive-cash-flow business model, where future growth is funded organically. But moving too quickly into an aggressive growth mode without putting the proper focus into optimizing the right metric at the right time can have the opposite effect. It can lead to a “vicious cycle” of increasingly negative cash flow, resulting in financial failure of the business.

There is a natural progression regarding when and where to focus on optimizing each of these metrics — that is, at which stage of a SaaS offering’s customer adoption life cycle. This research provides a business model framework for understanding this progression.

See Document:  “How to Tune Your SaaS Business Model”

Table of Contents

  • Introduction
    • The Virtuous Cycle of the SaaS Business Model
  • Analysis
    • Comparing Traditional Software and SaaS Business Models
      • SaaS Sales Compensation
  • SaaS Growth Phases and Key Metrics
    • Launch to Early Adoption Phase: Customer and Revenue Churn
      • Customer Churn
      • Revenue Churn
      • Predicting and Reducing Churn by Monitoring Usage
    • Scale-Up Phase: Customer Acquisition Costs
    • Expand the Base Phase: Customer Lifetime Value
  • Example Case Study
  • Recommendations

Read More

Access research:  “How to Tune your SaaS Business Model”

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Category: business-models  cloud  digital-offerings  saas  

Steve Crawford
Managing VP
1 years at Gartner
32 years IT Industry

Steve Crawford is a Managing VP for the Tech & Service Provider research organization, where he manages the CRM, BI/analytics and digital workplace application software analysts. Read Full Bio

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