3 minute read / Mar 17, 2017 /
The Three Types of SaaS Value Propositions
There are three kinds of software value propositions. Software that increases revenue, software that reduces cost, and software that promises improved productivity. To maximize the effectiveness of your customer success efforts, you need to understand which type of software company you are building.
Software that increases revenue is the easiest to sell. For most companies, growth is the most important priority. Growth trumps cost-reduction because growth increases the value of the business more. As a result, products that grow revenue enjoy shorter sales cycles and larger budgets. Most sales acceleration and lead generation software falls into this category.
Software that reduces costs rely on an efficiency value proposition. “Buy the software and you will save thousands or millions of dollars.” The sale is straightforward and the buyer justifies the purchase easily and has created some enormous businesses. Typically, startups capture 10 – 15% of the customers’ savings. This is the upper bound of the business’s pricing power and market size.
Productivity software often looks like cost-reduction software. But the cost savings or revenue increases are less clear and quantifiable. Reduce meetings. Collaborate better. Understand your business better. Hire better. Insure your company’s risk. These value propositions are at least one step removed from revenue increases or cost reductions. Collaboration products, productivity tools, business intelligence software, human resources information systems, security products. All of these fit into this category.
Revenue increasers need to continue to increase revenue over time. Customer retention hinges on proving the continuous marginal revenue the software delivers.
Cost reducers must reduce costs further and further. Each year, the customer will ask, how much more efficiency deliver to my business?
In both of these cases, the value proposition will asymptote at some point. There are only so many more leads the software can surface or only so much cost software can excise.
The productivity value proposition, though murkier, provides customer success teams more room to grow accounts and sustain them over time. Salesforce’s CRM provide sales leaders visibility into their pipeline. This value proposition is eternal. At no point will a VP of Sales declare, “I no longer need to forecast my pipeline.”
There are two trade-offs. First, the pricing power of the business is less clear. How much is the VPS willing to pay? The startup must establish that through price discovery.
Second, customer success efforts are less obvious. CS teams must suss out the customer needs, build an account plan, and help the customer achieve their goals.
But, the nature of these relationships lend themselves to broader product footprints. The deeper a startup understands a customers challenges, the more products and services the business can sell.
Each of these approaches can lead to enormous businesses. The key part is understanding the type of value proposition your startup offers, and matching the GTM and customer success strategy to it.