politicnewsbusterinsiderpostreview: SaaStr

Sunday, 2 January 2022

SaaStr

Dear SaaStr: What is a Good Refund Policy for a SaaS Product?
Your (Belated) SaaS New Year’s Resolution: Add a Layer
The Law of Attach Rates, And Why Partners Usually Can’t Really Move the Needle For You — Directly

Dear SaaStr: What is a Good Refund Policy for a SaaS Product?

Posted: 01 Jan 2022 05:00 AM PST

Dear SaaStr: What is a Good Refund Policy for a SaaS Product?

SaaS startups, especially those that sign customers to annual customers, will have customers that want to cancel those un-cancelable contracts and get a refund. Even customers that pay monthly on credit card will sometimes ask for a pro-rated refund for the most recent month.

Almost every vendor says "No" to any refund request. No refund for any part of the month. And no refund for any part of an annual, signed contract. "You signed the contract". "You got a big discount for pre-paying." Etc. etc. And Sales especially hates this. They don't want their commission clawed back.

I didn't give refunds, perhaps in part because we weren’t asked for that many. But even so, whenever I saw one asked for, I also saw a ton of internal energy expended around them.

Now, I say generally speaking — Just Do It. At least, for whatever portion of the term they didn’t actually use your product for real, in production.

Just give any annual customer a refund for the unused portion of the contract, and so on, or at least a partial one. Or give them a credit for coming back later. (And yes, I know there are accounting issues here. Take a reserve. Such is life). Even though your terms of use and contracts probably explicitly say No Refunds.

Why?

* Because that way, you may get them back, and they will remain a brand advocate. Treat folks better than they expect on the way out, they are more likely to come back.

* It's never that much. Refunds hurt at the time, but they don't amount to any material amount of your long-term revenue

* They take too much internal time and energy to discuss. Folks feel so passionately about the topic, you waste too much energy discussing a partial refund.

And if you burn them … those few nickels you'll keep aren't worth it. Most SaaS vendors with happy customers don't get that many material refund requests. You have bigger issues to deal with.

In SaaS, you constantly have to re-earn your customers' business anyway. No matter what the contract says.

Interestingly, Expensify recently IPO'd at $200,000,000 in ARR selling all to SMBs. Until they got ready to IPO, they always offered refunds on annual contracts.

That's probably the right approach. Be flexible on refunds until the IPO at least.

5 Interesting Learnings from Expensify at $140,000,000 in ARR

The post Dear SaaStr: What is a Good Refund Policy for a SaaS Product? appeared first on SaaStr.

Your (Belated) SaaS New Year’s Resolution: Add a Layer

Posted: 31 Dec 2021 02:20 PM PST

I agree with most Start-Up Truisms. One of the best ones is Don’t Chase the Shiny Penny. Double Down on What Works.

For sure this is true in SaaS. If you’ve got a good thing in a certain vertical, double down there. If you have mid-market customers but not many in the enterprise or low-end, focus there even more this year. Etc., etc.

And yet …

What tends to happen for most SaaS businesses even as early as $2m ARR or so, is that they get a core engine that’s working. At least at 20,000 feet. It’s hard, yes. But assuming you execute, and the leads continue to come in, etc. … you should grow, say, 100% over the next 12 months. Based just on the velocity rate from the past X months.

I completely agree you should spend 90%+ of your time just doing what’s working, only better, if you are at $2m ARR or higher and growing 80% or more YoY.

But here’s the thing. SaaS Compounds (more on that here). Imagine if you just added one extra layer, one extra segment, one new way to sell, one product extension … that just might add another 10% growth this year.

Now, that won’t mean cr*p next year, and it may be distracting. But look what happens as SaaS compounds:

The difference is epic down the road, as you march toward the Big M&A offer or IPO. Epic. Just from one little new initiative. Imagine if you do this every year, and half of these initiatives work …

So the last thing I am suggesting for Your SaaS New Year’s Resolution is to get distracted, or take your eye off the ball. But I am suggesting, as founders and execs, you think about doing (x) one new thing that (y) builds on your core, doesn’t fundamentally change what you’re doing but (z) could inflect the curve 10% and not be terribly distracting.

Let me suggest some ideas:

Add an Outbound Sales Team if You Don’t Have One. I know in-bound is all the rage. But let me tell you, if your ACV is high enough, outbound can work. We’ll do a post on this soon. Have you tried it? It doesn’t have to make the company. A small team just has to generate enough new business to add 10% to the top line. More here.
Add Professional Services, for Real. Yuck, you say? Professional services? Well, enterprise customers are happy to pay for them. You can pack another 20-30% of revenue onto any enterprise deal if you do it right here. Yes, I know it’s not recurring. But you’ll get it in new deals every year. Hire a Head of Professional Services and charge for Pro Services. It will work in any six-figure deal, and many five-figure deals. More here.
Add a More Enterprise Edition. Add a few more features, more security, more whatever, so you can make your product More Enterprise. And charge for it. It will probably work. A bit more here.
Add a Real VP Business Dev. I know you have partners. But are you taking them seriously enough? Do you have someone whose full time job it is to make your partners successful? It will probably pay off.
Add A VP Customer Success Earlier. Your churn may be low. But what if it were 10% lower? It’s not that hard. Hire a seasoned VP of Customer Success. Your churn will go down, and your upsells will go up. A bit more here.
Add Someone to Own Upsells. Even if the Customer Success thing is working, do you have someone, or a team, dedicated to maximizing land-and-expand and/or upsells? No? You can easily inflect the curve another 10% here.
Add A Second Core Product. You probably aren’t ready before $10m-$20m ARR to do this, but by then it’s worth thinking on. We’ve learned that the key to success in later stages is being multi-product for almost all SaaS leaders. The question is just when. It’s probably by 1,000-10,000 customers (a wide range, I know).
Add Proactive Customer Success / Retention for Your Smallest Customers. You probably shower your largest customers with love. But do you do such a great job with the smallest ones? Probably not, even if you have a Customer Success team. Add someone to just focus on the very smallest of your customers. Show them respect, and some love. Churn will go way, way down here too.
Start Doing Customer Marketing for Real. Yes, you’re doing a lot to market to new prospects and potential customers. But how about to your existing base? Over time, they’ll be the source of most of your new leads, and your growth. More on that here.

None of these initiatives requires any sort of tilt, or in most cases, any really dramatic change. And I bet at least a few of them might work at your company.

The key to all these potential initiatives is to just try to get $1 back for every $1 you spend. It’s an investment. Your core engine does need to have positive unit economics. Your extra efforts at the incremental customer really should just cover costs (more on the incremental customer here). Expecting profits here is being way too conservative.

I know you barely have time to service the leads and customers you already have. I know you have a 3+ year feature backlog already. I know.

But take a pause in the New Year. Find a way to add a relatively low-stress, low-dilution layer to what you are doing now. It won’t materially change your MRR at first. But it will have a magical effect by year-end.

(note: an updated SaaStr Classic post)

10 SaaS New Year Resolutions For You. Pick a Few.

The post Your (Belated) SaaS New Year’s Resolution: Add a Layer appeared first on SaaStr.

The Law of Attach Rates, And Why Partners Usually Can’t Really Move the Needle For You — Directly

Posted: 31 Dec 2021 06:20 AM PST

I want to spend a little time on some learnings about Strategic Partners in SaaS. First, let me be clear — to make it in SaaS, you’re probably going to need to achieve Strategic Partners of some sort to achieve real success. Because it takes a Village. And because your partners will likely, through integrations in particular, make your product better and strong. And because all together, as a group, your partners probably will have a material impact on your revenue.

Screen Shot 2013-06-15 at 3.40.55 PM

But if you’re just getting going, or even if you are just past First Traction, and you are hoping / assuming some Magic Partner is going to lift your business dramatically and generate/create a ton of new business for you on its/their own — it's tough. That’s pretty unlikely.

Because of the Law of Attach Rates.

This is a lesson I first learned early on in the days of Adobe Sign / EchoSign. I met with the VP of Marketing of a medium/large SaaS company, with 100,000+ VSB customers, that then went on to be acquired for nine figures. At this point, this prospective partner company had already been going for 5 or 6 years, and the team was a bit tired, and the VP of Marketing probably a bit jaded, and she just cut to the chase.

“Look,” she said. “We could integrate you into our product, and a year or two ago we might have. It’s probably a B+/A- integration. Our users would like it, appreciate it, but we’d do just fine without it. So it's not really worth our time”.

Bummer, I thought.

“Here's the thing,” she went on. “Neither of us can really make any money off it. The best attach rates of one product to another are maybe 2% in my experience. So since this is a B+/A- affinity, let’s say 1% best case. So maybe of our 100k customers, we’d eventually — after time — get 1,000 paying customers. Even if we split the money 50/50 … that’s only $100k each a year. That doesn’t even pay for one engineer.”

Yikes.

And she was right. One small or medium partner can’t move the needle. And now let’s do the math for a Large Potential Partner. Let’s take the biggest SaaS company of them all – Salesforce.

Let’s do the math on Salesforce:

Salesforce is running at about a $20 billion ARR. (Wow!)
Salesforce has about 150,000 distinct customers.
OK let’s assume you get 1% of those customers somehow — that’s 1,500 customers. Which is terrific.
Except that will probably take 2-3 years to get to that penetration.
If your ACV is say $4,000 x 1,500 customers = $6,000,000 in ACV.

Now $6m in ACV is a great business after 2-3 years, don’t get me wrong. But if that’s it — then alone, it’s not enough to build something big. And it will take years, and a ton of work, and most importantly, a really great attach, to build that up.

And believe it or not, this attach rate really is a close-to-best-case scenario. The truth is, of the 10,000+ applications on the Salesforce AppExchange, my guess is less than 1 percent even have > 1000 Salesforce customers. I’m pretty confident of that, based on how you used to be able to force rank AppExchange apps on # of installs. We see this also now on the Shopify platform as well.

So if most of us can’t really make it on Salesforce and Shopify alone — can you make it anywhere?

Well, you can. First, I’ve taken a few shortcuts. Your ACV may be much higher on a partner platform in certain cases which makes the platform give you a boost (for reasons we’ll discuss in the next post) — though in general the higher the ACV, the fewer the # of customers. Second, imagine you had several of these partners … then it starts to get more interesting. Third, sometimes, rarely, there’s a Super Attach. Where you fill a big hole in a partner’s platform. But even then, the attach rate might be 2%-3%. Fourth, if the denominator is truly epic, sometimes even a relatively small attach rate can still work wonders. See what happened when Adobe Sign integration launched in Adobe Reader and you can see in the image to the right/just above — the new user acquisition rate literally tripled overnight. But that’s an outlier — Reader is on 1 billion devices, and Adobe Sign is the only web service fully integrated into it. And finally, most importantly, there are a lot of Indirect benefits from Strategic Partners. You can grow a lot of revenue out of a Strategic Partner’s platform, even if directly they don’t generate an epic number of leads for you. We’ll talk about all of these in the next post on the topic.

>> But the simple point is — in SaaS, rare outliers aside — one seemingly great strategic partner simply cannot, alone, Move the Needle. At least not for more than a handful of vendors. It’s nothing personal. It’s just The Law of Attach Rates.

And finally, remember that even the handful of partners with high attach rate on the Big Platforms mostly had to earn the customers themselves. Generally, only a relatively small percent of the "joint" customers come from the platform itself.

This doesn't mean don't do the integration, and don't list on the platforms. Do that. It's tablestakes today. And if you have even a little traction on a platform, invest on the people side. Hire someone, and later a team, to manage those relationships. They matter. It's just, they usually aren't magic on their own.

Understand this Law, how it works, and how it applies to your product, and you’ll know how to think about the direct revenue side of strategic partnerships.