Author Archives: fusebill

How Lifetime Value (LTV) Affects Your SaaS Business

packs-163497_1280The lifetime value of your business is an important, if not the most critical metric, that your subscription based SaaS business should be monitoring. While the monthly income of your business is vital, the subscription model makes it hard to determine whether the acquisition of customers is cost effective.

Where Monthly Sales Will Fail Your SaaS Business

Monthly sales can cloud assessment of your success. For instance, you could have 1,200 regular subscribers who are paying $25 per month to use your system. This would create monthly revenue of $30,000. At the same time, if it costs $50 to attract and convert a prospect into a customer, then after three months you are making a profit on each customer.

This might seem like you’re in a good position; but it masks several financial facts from your accounting team.

The most important factor is customer churn. If you are turning over a quarter of your customers each month (i.e. 300) and replacing them with roughly the same, you aren’t going to gain any business growth. Yet this might not seem too troublesome, after all, by three months the customer has effectively paid back their acquisition costs through their lifetime value.

It isn’t just the lifetime value costs that are important to consider though. Each subscriber will have a delivery cost. You might have to pay for staff, hosting, administration, office fees, transaction fees etc to maintain your service.

While the average gross profit margin is approximately 95.12% and the lowest recorded margin recorded is 86.27% – this is still money removed from your profit. As a worst case scenario, the profit from each customer is $21.57 and a monthly total of $25,884.

However, gross profit does not include important measures such as marketing and employee salaries. Businesses on average spend between 40 and 80% of their gross profit on salaries. For most companies, including salaries in their profit margins would be challenging as different customers need different service levels to deliver their unique orders. With a SaaS business, it is much easier because the average cost can be spread across all the customers as they all are paying the same amount. So your company could only be gaining $8.44 per client per month.

Then we need to take off the marketing costs. This is calculated by evaluating how much you spend on acquiring each customer. If you use social media marketing, pay per click, display adverts and direct mail – you might be spending $50 or more per client.

If a client is only staying with your services for three or more months, then they are only contributing $25.32 towards those marketing costs. Your SaaS business is therefore under serious financial strain as it is spending more to obtain customers than it is collecting from them.

By not knowing the lifetime value of your business, you might have not realised why your business is not making enough profit.

Where Can Lifetime Value Help Your Business?

Generally speaking there are three main problems that your customer lifetime value can identify. Once identified, you can then find solutions. The three main aspects are:

Profit Per Customer: If your customer is providing you with limited profits, then you aren’t going to have enough to pay for salaries or marketing. Find ways to reduce costs and increase this value.

Lifetime: This is the length of time that a customer spends with your service. If this is short, then there must be an issue with your product or customer service.

Retention Rate (customer churn): The rate at which customers leave. In our example it was 0.75. This is similar to Starbucks.

How To Calculate Lifetime Value

There are three main ways to calculate the lifetime value of your customer. The best for most businesses is:

Lifetime value X Subscription Price X Profit Margin

In our example that would be:

3 months X $25 X 0.3373 = $25.30

Conclusion

The lifetime value of your customers is one of the most important metrics for your SaaS business. By using it, you can determine the health of your business and areas that need to be supported.

Do you need recurring billing and subscription management software? Contact one of our experts at info@fusebill.com, call or check out the Fusebill free trial.

Should You Offer Discounts For Long Term Agreements?

advertise-766823_1280When it comes to subscription based business models, many question whether or not discounts should be offered to those committing to long term agreements. For some, it makes sense to offer a reward for those willing to agree to a long term contract. Others believe that these offers shouldn’t be available.

So what are the key points to these arguments and should you be offering discounts when customers are willing to sign up for the long term?

Key Point Number One: It Encourages Commitment

Those who sign up for a long term contract are demonstrating that they are willing to invest their time, and money, in your brand’s services. This commitment is therefore a golden opportunity for your subscription service to demonstrate exactly what you have to offer and how you can improve their lives. This commitment can then become a lifetime association with your brand.

Key Point Number Two: It Entices Bargain Hunters

Many people are looking to save money yet receive the same great products. By offering customers a way to save money by committing to one payment for a longer time period, you are enticing those that look for offers to select your services.

A simple offer, like saving 10% for a year’s subscription, could be enough to attract some of the pickiest customers.

Key Point Number Three: It Is Less Work

When you have one payment to cover a long period, your administrative team have less work to do on a month-to-month basis. This reduced workload will help you reduce costs and improve profit margins across your business.

The better the profit you generate the happier your investors will be and you will achieve greater growth.

Key Point Number Four: It Will Guarantee Customer Acquisition Costs

When you have a customer on a rolling contract, they can cancel your services at any time. This means that you have to keep a good eye on your monthly subscribers and ensure that the number is continuously growing. If you let it fall too low you’ll end up with limited incoming revenue that will result in a loss if you don’t reclaim your customer acquisition costs.

Alternatively, by getting them to commit, you are assured of a large fee that will cover their acquisition costs.

Key Point Number Five: It Can Lower Costs

Every time a payment is made to your account it is likely to cost you a small transaction fee. By having customers pay once for a longer period you can reduce transaction costs and therefore allow for a higher profit margin over the longer term.

Key Point Number Six: It Removes Flexibility

One reason why consumers like subscription services is that they offer flexibility, increasing or reducing their plan as required. If you set them on a long term payment package it reduces their ability to adjust their package. This may infuriate customers if they realise they need a different plan and they have to pay more money to receive extra benefits.

Key Point Number Seven: It Makes Charging For Upgrading And Downgrading Difficult

When you have numerous options and your customer wants to swap plans, you’ll have to calculate what the customer has to pay. This can get complicated as the customer may not agree with the extra payment upfront and taking it a small bit at a time might be too costly for your business.

Conclusion

Offering your customers a discount for long term contracts, is one way to ensure your business can attract and retain customers more effectively, while covering customer acquisition costs. However, some businesses might find there are difficulties with offering this. You should consider your business and make an informed decision based on your consumers’ behaviours.

Do you need recurring billing and subscription management software? Contact one of our experts at info@fusebill.com, call or check out the Fusebill free trial.

5 Website Elements That Can Turn Away Prospective Customers

macbook-624707_1280If you want your online business to be a success, whether or not you are using the subscription model, your website must be good. There are several aspects of businesses websites which have a negative impact on their results; here is our run down of them and what to implement instead.

1. Website Speed

Speed is one of the most important factors for your business’ website. The faster your website the more impressive it will seem to your prospective clients. It also helps with ranking on Google and other search engines.

Research has found that it can improve conversions too. For every second it takes your website to load, your business will lose 7% of your revenue. If your website takes 4 seconds or longer to load, it will simply be abandoned by the majority of your prospective customers.

2. Annoying Pop-ups

Pop-ups that appear whenever someone visits your website or moves from page to page are not only annoying, but considered to be spam. Many internet users now assume websites that are continuously pushing pop-up ads aren’t selling anything genuine and are just using the visitors to sell advertising.

Having a pop-up to advertise your mailing list is good but only if you use it once every so often (at least two weeks between appearances) and it is easily exited by the visitor. This can be achieved on WordPress with simple plugins, or speak to your website developer if you use another website platform.

3. Social Media Widgets

They were once ‘the must have’ website element but they are literally turning customers away from websites. When they click on the widget they leave your site and go to the social media platform. Then they may or may not click to follow you, but either way, they are no longer on your website.

It is far more effective to keep them on your site and sign them up to your email marketing list. Email marketing sells more online than social media and can be properly targeted. By using free offers, pop-ups and other techniques, you can stay in contact with prospective clients more easily.

Another problem is that social media widgets can slow down your site. This can be infuriating to your visitors and look unprofessional.

4. Advertising (Especially Google AdSense)

You have no control on what adverts will display on your site when you are using third party advertising programs like Google AdSense. Often, adverts are relevant to your content and website, which means they could be competitors to your business.

When the visitor clicks on an advert they are again leaving your site. As 70% of your visitors won’t return to your website, you could be losing out on 70% of your potential revenue.

Adverts also slow down your site, ruining the user experience and losing you revenue.

This can be exceptionally bad if you are a membership site that relies on your website to deliver your service. Users will feel devalued that their subscription is not enough and not renew their subscriptions.

5. Poor Quality Images

Images and video on a website are great. They help convert customers and portray a greater message than text. However, the images and video have to be of high quality. If an image is not good then the customer will devalue your offer and think the product will be just as bad.

High quality images don’t have to be expensive; there are several places where free images are available. You just have to know where to look.

Conclusion

Your website is a great sales tool. What you need to do is ensure that it is the best it can be. This often means adding on elements that are considered good for visitors and removing those aspects from your website that can be frustrating. Then you can have a fully developed website that will convert visitors and grow your business.

Do you need recurring billing and subscription management software? Contact one of our experts at info@fusebill.com, call or check out the Fusebill free trial.

Using Different Pricing Strategies In Your Monthly Recurring Revenue (MRR) SaaS Business

money-767778_1280When it comes to attracting subscribers to your Monthly Recurring Revenue (MRR) SaaS business, pricing is an important consideration. There are probably numerous other organisations that are out there offering similar or substitute products to your own. While price isn’t always a factor in the purchasing decision of recurring customers, for new customers it can be high on their priority list.

The biggest advantage of owning and managing a SaaS business is that you have significant freedom on your pricing strategy, especially compared to other businesses.

Most business models are required to charge the customer as goods are ordered or delivered, this can create irregular revenue and can be hard to manage. However, it would be challenging for a grocer to charge a subscription as they wouldn’t know when customers would return to their store or how much they would need to purchase at any one time.

On the other hand, if your business has a regular demand that is more predictable, there are other pricing strategies that you could use to entice certain types of customers to your brand.

Here are those different pricing strategies and how they work.

1. Flat Fee

One of the most basic fees is for your business to charge one fee for access to your software. This is one of the most common pricing strategies for your business and therefore the easiest for your accounting team to calculate the revenue expected each month. An example of this would be StockUnlimited who charge a flat fee of $9.99 for unlimited downloads of their images.

This however doesn’t offer much flexibility to the customers. What if the customer only wanted a couple of images a month? There might be more cost effective options available elsewhere.

So this model is only really suitable when the customer knows they are going to be using the entire package on offer or you can only offer a single level of service.

2. Tiered Pricing

Another popular pricing model is to introduce a tiered pricing model. This is where you have at least two different price points which offer the customer something different. Netflix has the perfect example of this. Their lower level allows only one person to use the account at a time, while their second and third tier levels allow two and three people respectively to watch programmes on different devices.

There is a limited difference in the amount charged per level, but it does give the client choice on their level of use and their control.

Another example would be MailChimp. Their pricing structure is based on the number of subscribers on your list and the number of emails you send out in a month.

3. Long Term Discounts

If your services are expected to be used over the longer period, then you can sign up individuals on quarterly, six monthly or annual contracts where they will receive a discount for committing to longer term contracts. For instance, if they subscribe to a monthly plan they will pay $12 per month, but if they sign up to an annual plan they can pay just $120, saving $24.

This only works if the subscription is taken upfront as there might be those who take up the cheaper options and then cancel their subscription before paying the full amount.

A good example of this would be ShutterStock where a monthly plan costs $249 per month and a yearly plan costs $199 per month.

4. Bolt Packages

Another, less common, model is the bolt on model. This is where the client pays you a regular ‘retainer’ or consultation fee and then can add on modules to their preference. This is a great model because it gives the customer complete freedom in their purchasing decisions and they can tailor the price so it matches their ability to pay.

An example of this would be UK company TwoFeetMarketing. They charge a low consultation fee as a membership and then additional monthly subscriptions for services like social media management.

Conclusion

There are many different pricing strategies that you can use in your pricing strategy to attract new customers and keep others happy. Many of these will help grow your business’ profits and make your revenue more predicatable.

Do you need recurring billing and subscription management software? Contact one of our experts at info@fusebill.com, call or check out the Fusebill free trial.

New Startups Looking At The Netflix Model

library-488672_1280When it comes to the subscription model, there are a few giants out there that new start-ups can really admire. One of these is the film and television show provider, Netflix.

The company, which was nearly sold to Blockbusters in 2000, has since become one of the best case studies for those looking to generate a sizeable income with the subscription business model. Their own model has even been given the title of ‘The Netflix Model’.

What Is the Netflix Model?

The Netflix model is all about giving the customer what they want. It is about listening to the consumer and adapting what you offer to match their needs. This requires considerable investment in several areas of the business.

For instance, you need to have an organisational culture that believes and actively embraces change and refinement of the process. Your audience may respond better to certain offers that you may not have thought about. The Netflix model is also considerate to enticing the undecided. There are always those who are going to be unsure, but by demonstrating how you are better than your competition and how you can enrich their lives, you’ll turn them into loyal customers.

So Who Is Using This Model To Great Success?

There are several start-up organisations using the Netflix model to grow. Here is a couple of the big players and what they can teach us.

NatureBox

This subscription based snack food provider has grown by a factor of 20 since it was first launched, amassed an impressive $28.5 million in outside investment and won awards.

NatureBox provides its customers with healthy snacks that they choose from a catalogue, much like Netflix allows customers to choose their viewing from an online database, from $19.95 a month.

The company gives the customers huge choice but is responsible in its processes. All of the products are under the NatureBox brand rather than them being sourced from third party organisations. Customers can even reduce costs by signing up for three or six months at a time.

StockUnlimited

The stock image industry is not very user friendly at times. Either you are limited to what you have access to, have a limited number of downloads per month or have to pay a high price for each image you download. This has sometimes led to consumers being very frustrated.

StockUnlimited wants to end this by offering its customers an unlimited number of images for a set monthly fee. This is what it believes its core user group really wants and they could be right.

StockUnlimited don’t want to stop with vector images. They also want to offer their members videos and photos, but they are waiting on these until they have built up a strong subscription first.

Pley

Lego is one of the most popular toys in the world. In 2013 alone they saw sales reach $4 billion and the brand can be expanded beyond that to include their theme parks, films and books. However, there has been criticism that some of the sets are too expensive. This is where Pley come in.

They offer subscribers a chance to rent out Lego sets for a set price each month. The company ensures quality of service by sanitising each set before sending off to another family and claims this is the perfect solution for those families who have limited space or want to eliminate waste.

The firm does appear to be doing well with 20,000 members and $6.75 million in funding. This has helped fuel its expansion with 15 openings in recent months. In the future, the company hopes to expand its offerings to include other toy brands.

Where Has It Failed?

Not all subscription businesses succeed. One such example of a Netflix model failure is Artify. The company, which rents art to subscribers, seems to have a very positive business model and it has seen a huge rise in competitors, namely Turning Art, RiseArt, GetArtUp and Artsicle.

However, despite funding of $800,000 and a model that has been so successful in other industries – Artify didn’t succeed. According to their main funding source, Peter Tiel, their biggest challenge was finding and nurturing leads that understood the benefits of renting art rather than paying for it. This could be an important lesson for others to learn, that will make the art subscription industry a huge success.

Conclusion

The Netflix model has been highly successful for the majority of businesses who use it. Yet there are some basic business activities you must always follow no matter what business model you use and one of those is sales.

Do you need recurring billing and subscription management software? Contact one of our experts at info@fusebill.com, call or check out the Fusebill free trial.

How To Alert Clients About Price Increases When You Use Auto-Renew

ID-100243363The auto-renew billing model is a time saver when it comes to generating revenue from your subscription business. However, when it comes to increasing the price of your subscription service, there are several issues that can arise.

Normally customers are resistant to changes in price, especially when the price increase is high and they don’t see value for money. Alternatively, the perceived value of your service could lessen and this could impact the customer churn rate of your business.

Therefore you need to alert your clients about the price increase and do so in a way that allows you to retain as many of them as possible. So here is our advice on how you can alert your clients about the price increase for your subscription services.

Step One: Identify Those Affected

You could be offering numerous different services to customers and the price increase might not impact all your customers. Some of your customers could be on special deals that have a guarantee in their contract that the price will not increase during a certain period. By identifying who is going to feel the impact of your higher prices, you can concentrate your efforts on those clients and achieve a better, more in-depth conversation.

Step Two: Analyse The Reasons Why

Your clients might not mind so much about a price increase if you can provide them with a good reason why they need to take on the costs. For instance, do you have a supplier who has increased their costs too much that it is financially unsustainable to maintain your current pricing? Or have you added on additional services that are driving up the cost to deliver your service?

If you can find out how the price increase will benefit your clients, they’ll be less resistant to the change.

Step Three: Strategically Plan When To Implement The Change

As part of your strategy you need to clearly identify when you want to implement your price increase. This should be done at least two or three payments ahead to give your customer service team a chance to contact and inform all those clients who will be affected by the change; you should never just increase the price.

Step Four: Communicate With Your Clients Via Email

Almost everyone who is a subscriber will have an email address and you should have that as part of your customer database. Send an email to your customers detailing the price increase, why it has to happen and when it will occur. This will give your clients a chance to make the necessary funds available when the price increase comes into effect or allow them to consider their options.

Step Five: Send A Letter Detailing The Price Increase

Sometimes emails don’t work, therefore, it is always best to send a letter about the price increase to your clients as well.

Step Five: Make Available A Specialist Customer Care Team

Customers care about their experiences rather than prices. If you create a specialist customer service contact team that can speak to your clients about the price increase, you might be able to increase the retention rate of your clients. If they feel they have had the best customer support, they will be happy and this may lead to more brand advocates, giving you greater marketing power even when you increase the price.

Step Six: Implement The Price Increase

On the agreed date, increase the price. Be prepared to receive calls from clients who have not read their email notifications or letters. There will always be one or two. They may be angry, but if you can advise them of when you informed them – you can often calm them down.

Conclusion

Increasing your subscription charge is bound to happen at some point. This could annoy your customers if you don’t have the right processes in place to reaffirm your commitment to their happiness. Therefore, follow the process above to create contented customers when you increase prices.

Do you need recurring billing and subscription management software? Contact one of our experts at info@fusebill.com, call or check out the Fusebill free trial.

Image courtesy of hywards at FreeDigitalPhotos.net

Is Your Accounting Team Using Customer Churn For Forecasting?

calculator-453792_1280Customer churn is an important metric for your accounting team to measure. Losing customers isn’t just damaging your revenue by a declining income; it can also cost your business money in real terms.

When you have to say goodbye to a customer there are significant costs involved. Firstly, many subscription businesses often spend time and money on unsuccessfully trying to retain the customer. While there are no direct payments, the wages of the customer service agent is an expense that needs to be tracked. Also, the resources used may be minimal but there is still an associated cost.

Another cost is the administrative effort into ensuring their account is closed and that all charges are up to date. While for the majority of software businesses this is often automatic, for some this may be manual. And you could have to pay back some of their fee if they haven’t finished a subscription period.

So Why Is This Needed In Forecasting?

Forecasting is an important business activity. You need to know exactly what funds are being generated and spent throughout the business. This helps you create a budget that is accurate and can help you grow your business. If you don’t include the costs of something this can be devastating. For instance, say you forget the customer churn is at 5 customers per month and each customer costs you £500 each – then the expenditure on customers leaving the business (£2,500) isn’t being accounted for.

This means that another area of the business, normally marketing, will have a reduced budget. If this is taken from your marketing budget then you risk not signing up enough members to replace those lost and therefore your business can start to shrink fairly quickly. This could contribute to your subscription service failing.

Another important aspect to consider is that when you are predicting growth you must remember to remove those leaving the subscription service at the same time. This is because when you are charting business growth it is not the number of new customers that you are signing up that is important but the net increase of customers. If there are more customers leaving than joining, then again, your business is shrinking rather than growing, even if you’ve signed up 100 new customers in the past month.

Why Does Your Accounting Team Need To Know This?

Your accounting team needs to be proactive when it comes to customer churn. They see the effects of customers leaving where it hurts businesses the most – the bottom line. If they see that customer churn is costing the company too much, then they need to inform management and start looking at the budget to see if they can reduce the cost to manage departing customers, or improve efficiency in other areas.

For instance consider marketing techniques, for example, is PPC costing your business too much and should it either be made more effective or dropped altogether? If your accounting team isn’t aware of the customer churn or does not present you with the best options for you to remedy the situation, then they are putting your business at risk.

It is essential that your accounting team carefully looks at the figures and informs you immediately what the charges are for customer churn in your business. Then they need to develop a plan to make it more cost effective and to improve results on retaining customers.

This way, your accounting team will become an active part in your revenue generating machine and help your business move forward and grow.

Do you need recurring billing and subscription management software? Contact one of our experts at info@fusebill.com, call or check out the Fusebill free trial.