July 26 2017

Why Service Matters More for SaaS Companies

Customer Service is important for every company, of course. Bad customer service erodes your ability to get referrals and eventually your reputation permeates your industry, putting a clamp-down on sales. This is true in pretty much any industry. But if you are shopping for new business software and your choices are between a SaaS company and a traditional licensed software company, there are some things you should understand about what motivates good customer service.

A SaaS company wants to make it super-easy for you to sign on and get up and running. Their whole sales and onboarding system is designed to reduce Customer Acquisition Costs. So, as part of the model, they set the initial payment very low and simply charge monthly in perpetuity. That charge typically incudes everything – service, upgrades, etc. SaaS is really a subscription model. Licensed software usually requires a big upfront payment. Sometimes you can spread payment over quarters, but then you also have separate services fees.

In other words, the licensed company is grabbing your money up front. The SaaS company is hoping to make its money over a longer period of time. Seems like SaaS isn’t too smart, right? Wrong. SaaS companies are based on the principal of Customer Lifetime Value. It has already cut its customer acquisition costs, but now it must keep the customer over a longer period of time to make its money. SaaS is invested in maximizing customer value and to do so they need to keep that customer for a longer period of time.

A high churn rate, where customers are leaving faster and more frequently than acquired, is the death of SaaS companies because they never adequately recover their costs. So what is the SaaS secret weapon? Great Customer Service! The best way to retain customers is to make sure their overall experience, not only with your software, but with your company, is excellent.

The first few months of an engagement are particularly important. SaaS companies are very focused on configuration and training – and hopefully reducing the time required for both. Then as the customer is up and running, responsiveness is critical. In the hotel industry, we all know when budget season is, so the SaaS company wants to get through the process with flying colors. Bain and Company noted in their blog, “[Customer retention] requires attention to customer touch points after the initial sale, where end users have a stronger voice.” They want to provide great customer support AND great customer success.

The licensed software company operates on somewhat different principals. It is in their best interest to make it technically difficult for you to leave. Bain and Company continued, “Vendors often sold a vision of the product’s future possibilities rather than the reality of the day-one experience, and they charged a substantial amount upfront for the product. Once a buyer had decided on a vendor, it was difficult to switch, even if the actual customer experience after installation was poor.” If you are unhappy with the responsiveness of your licensed software contacts, it is pretty difficult to simply unplug the system and go somewhere else. Also, they want to make ancillary revenue through service fees. In fact, some larger companies make more on service fees than they do on license fees. The more you call, the more they make. So even if the customer service is good, the cost is difficult to stomach.

In summary, SaaS companies rely on providing great customer service because their lives depend on it. That said, there are also some softer benefits that also motivate this stance.

Frequent, quality customer interfacing begets more up-sell opportunities. It is true that upgrades are typically part of the monthly fee; however, many customers only initially purchase a limited portion of the complete feature set. Many are dipping their toes in the water, software-wise. Good service fosters trust. Trust fosters willingness for a greater commitment to the product set available.

Also, most of these SaaS companies are cloud-based. Like with your iPhone, they can roll out new features and functions much more easily than their traditional counterparts. But where do these innovative ideas come from? Customer service requests often initiate or validate new feature ideas. Customer service acts as a sort of research laboratory. And to speak frankly, if there are ever any problems with the software, a history of good will generated through excellent customer service will minimize frustration and anger on the customer’s part.

Making that software decision for your business? Just know that when the SaaS company talks about their great customer service, you can believe it. It is baked into the fundamentals of the SaaS business model.