Businesses are increasingly looking towards Software-as-a-Service (SaaS) applications due to the flexibility, scalability, and cost-effectiveness they can bring.
When implemented successfully they can pave the way towards streamlined operations, increased productivity, and help deliver a competitive edge.
But to unlock the full potential of these applications and maximise return on investment (ROI), its vital leaders must adopt a strategic approach.
James Disney-May, a businessman and investor who specialises in this area, believes there are six key steps to follow.
“Every investment is different”, he says, “but there are steps I’ve found that can be replicated across multiple scenarios to help deliver success.”
Here, James outlines the key steps to help maximise return on investment in SaaS:
RETENTION:
Retention is key and should be seen as the foundation to sustainable growth. Acquiring new customers can be expensive. Retaining existing ones delivers a higher ROI than acquiring new ones. Net Revenue Retention (NRR) is an important metric to be mindful of because it captures both churn and upsell revenue. Investing in upselling and cross-selling to loyal customers can drive revenue gains without the added customer acquisition costs.
PRODUCT-LED GROWTH
It’s also vital to try and accelerate adoption with product-led growth (PLG). One great way to do this is by offering freemium or free trial models, which allows potential customers to experience a product’s value before subscribing and positions the product itself as the primary driver of acquisition and retention. This removes barriers to adoption, streamlines onboarding and creates a ‘hook’ for customers that encourages conversion to paid plans (successful models include Zoom, Slack, and Dropbox). Product-led growth can lower customer acquisition costs (CAC) by reducing the reliance on extensive marketing, which is particularly effective for products with intuitive onboarding processes.
UNIT ECONOMICS
I’d also always advise people to try and focus on unit economics. Healthy unit economics are a key indicator of long-term growth and profitability. Aim for a CAC/LTV ratio of 3:1 or higher – this signals a balance between acquisition costs and customer lifetime value. Monitor the CAC payback period, which is essential for understanding how long it takes to recover acquisition costs, impacting cash flow. Evaluate the effects of churn on LTV as high churn can erode unit economics and threaten long-term profitability.
PRICING
A fourth key step is to optimise pricing and monetisation strategies. How? Try to experiment with different pricing models – such as freemium-to-paid, per-seat, usage-based or premium feature tiers. Strive to uncover the optimal pricing strategy for revenue growth. Regular A/B testing on pricing options also allows for data-driven adjustments to maximise revenue without risking customer satisfaction and retention. Try to ensure pricing is straightforward as complex pricing can lead to customer confusion and impact adoption. Leveraging creative pricing strategies can differentiate a product in a competitive market.
DATA
It is increasingly important to try and harness data-driven insights. Leverage the significant amount of data typically available to SaaS companies to gain a deeper understanding of customers and to inform strategic decisions. Use analytics to predict churn and identify upsell opportunities to develop proactive strategies that can improve retention and drive revenue growth. Track and analyse usage patterns to guide precise feature development and deliver targeted customer support, ensuring the product evolves in alignment with user needs. Regularly analyse customer feedback to develop a customer-based approach to inform the product roadmap and enhance user experience and loyalty.
STICKINESS
Finally, I always advise building product ‘stickiness’ through integrations and partnerships. Integrating with complementary software platforms enhances product value and allows users to create seamless workflows, which increases user engagement and dependency. Forming strategic partnerships can also unlock new customer acquisition channels, drive growth through collaborative relationships and expand reach within the target market.