With cloud computing, customers purchase annual or monthly subscriptions. For vendors, revenue is predictable and stable, like an annuity.
In contrast, traditional software companies earn revenue from perpetual license sales to new customers. Companies collect large, one-time, up-front fees, and need to continuously hunt for new clients. The ebb and flow of these new sales causes significant revenue fluctuations. A new, "hot" product initially generates rapidly increasing sales. Once the product matures, though, sales drop off, fostering company instability.
Renewals are essential to the SaaS business model, as they fund ongoing operations. New subscriptions are only a portion of overall sales. To ensure stable renewal revenue, vendors invest in satisfying current customers, not just chasing new leads.
With renewals integral to business, customer satisfaction becomes paramount. This is achieved by investing in product development and technical support to inspire customer delight.
In traditional software, companies must always get new deals. Since existing customers provide a smaller financial contribution, user satisfaction throughout the relationship is often neglected.Service quality suffers when customers are less valuable to the bottom line.
With SaaS companies, customer delight is prioritized. There is little financial benefit to having single-year users. Earning renewals means companies cultivate long-term relationships with customers, making ethical and profitable business synonymous.
With subscription-based business, cloud vendors aren't subject to the boom and bust cycles of the software industry. In terms of budgeting and financial planning, SaaS companies resemble utilities more than high-tech start-ups. Predictable revenues make companies stable and corporate finance refreshingly mundane.
For SaaS companies, most revenue comes from existing customers. With renewal rates typically over 90%, revenue is predictable and operations are less risky. It's easier to manage a company with loyal customers who finance existing operations.
Software companies are primarily funded by new license sales and effectively "start from zero" each year. Management predicts new sales and budgets accordingly. If revenues exceed estimates, profits are impressive. If results fall below estimates, profits drop dramatically and headcount must be reduced. This volatility means technical support, product development, and customer satisfaction suffer cutbacks during downturns.
To obtain renewals, SaaS vendors put a premium on earning customers' trust with exceptional products and effective service. Companies generally garner high levels of customer satisfaction and great references. Fostering trust becomes a competitive advantage, as new prospects seek relationships with reputable vendors. Long-term success stems from customer satisfaction, not closing hefty up-front deals.
To inspire customer satisfaction, vendors listen to customers' concerns and work to meet their needs. SaaS companies become more nimble and adaptable from this dialogue. Conscientious vendors better understand users' desires, anticipate new trends, and respond appropriately.
With collaborative, long-term customer relationships, the work experience of SaaS employees is enjoyable. With high product quality and customer satisfaction, employees rarely interact with unhappy customers. This positive work environment raises employee morale and strengthens businesses.
SaaS rallies employees around the common goal of customer delight. Frequent cross-group cooperation between technical support, engineering, and sales improves employee satisfaction. This teamwork improves collegiality and makes for a positive work environment.
In a competitive marketplace, cloud vendors have the advantage of offering highly reliable infrastructure and top-notch systems. Most prospects find cloud-based technology more appealing than installed software. This supports SaaS companies' business goals and helps them be successful.
Cloud vendors deliver premium technical support to earn renewals. Companies view customer service as a safeguard for future revenue, not a cost center.
The Cloud facilitates effective technical support. Staff doesn't struggle with customer installations spread out around the globe with varying hardware and software configurations. They never need to ask which version a customer is running. They can always access users' exact infrastructure and can log in to troubleshoot.
This responsiveness is inherent to cloud computing. Companies can quickly react to customer needs with timely system updates. This is especially helpful in responding to mid-year changes in state reporting requirements. Vendors can rapidly make changes and update the service, while software companies struggle to mass-update their user base. In the Cloud, improvements for one customer immediately benefit the broader community.