
The Business of SaaS - geordilaforge
https://stripe.com/atlas/guides/business-of-saas
======
old-gregg

      > Businesses and investors love SaaS because the economics 
      > of SaaS are impossibly attractive relative to selling 
      > software licenses.
    

I would be careful and not over-generalize. The statement above is opposite of
what many late stage investors think of SaaS companies. Their gross margins
tend to be horrible. Some are basically in the business of being an
intermediary mailbox for transferring money from their customers to AWS.

Sure, if you can charge, say $1 for processing one Kb of data, you'll love
being in the business of selling SaaS subscriptions. But it's not always the
case: for many SaaS companies selling more and more subscriptions means
constantly re-writing (AKA "scaling") their codebase, maintaining a large and
expensive ops team and dealing with ever-growing AWS bill. Some SaaS companies
only have ~10% of their R&D allocated to evolving the product, the rest are
struggling keeping it running and it's not cheap.

Compare that to selling a recurring subscription to a downloadable license
file. Stripe is a great fit for SaaS, but TWLO will have to face a much
tougher reality than MSFT had.

SaaS can be awesome, or can be hell, take it from a co-founder of Mailgun.com

Stock market seems to agree: the 1st wave of software explosion produced lots
of highly valued tech giants: MSFT, ORCL, etc. The current crop of public SaaS
companies pale in comparison, the new giants don't sell SaaS, they sell ads.

P.S. The billing model is very loosely related to how a software is delivered.
Look at Adobe who're happily selling monthly billing plans for good old
photoshop.

~~~
raiyu
True which is why one of the more mature (timeline) SaaS companies, Dropbox,
decided to in-house their infrastructure to bring costs down. While this was a
massive undertaking that took many years, they were able to achieve it and are
reporting various levels of profitability (free cash flow). Also if you dig in
further to most SaaS companies P&L you'll see that infrastructure by and large
isn't the biggest driver of losses, but sales & marketing is.

Personally I think companies still continue to overspend in sales in marketing
and with SaaS they use a blended average of CAC which includes their
organically acquired customers so that the blended CAC looks extremely low.
But the reality is you are paying 10x more for "paid" customers than organic
and adding an only incremental amount of growth (5-10%). I think that's where
the real profitability of SaaS companies lies.

~~~
newbuser
How would you avoid blending the cost to acquire paying, non-paying, etc.?

~~~
raiyu
For starters I would separate them out.

Paid I would consider traditional forms of advertising and marketing such as
TV, FB, Google, ads, etc.

Organic or community driven advertising has it's costs as well but I would
separate that out to a different section. This would include budgets like
meetups, some conferences (though many I would actually lump into traditional
ad spend), t-shirts, stickers, credits to customers, community expenses and so
forth.

Then for non-tracked customers I would assume that percentages work well.
Meaning if 25% of my customers come from community, then 25% of my non-tracked
organic customers are from community. If 5% are from paid, I would say 5% of
my organic non tracked are paid.

If you do the break out this way you will see that old-gaurd paid advertising
is 80% of the cost of the entire sales and marketing function, but brings in
an overall 5-10% of net new sales.

Now if you are profitable, or near profitability go for it, but if you are
losing a sizable portion of yearly revenue, say 50% or more due to sales and
marketing and you see it broken out this way you will immediately realize how
false this spend is.

Just because something is done a certain way and accepted, doesn't mean that
it's correct.

~~~
charizardd
Most of the public SaaS companies around today spend a significant part of
their S&M expenses on sales reps, and their associated selling commissions,
not advertising and marketing. There are exceptions like Atlassian however,
where they have managed to make the economics work at scale without a sales
rep or any implementation assistance.

------
a13n
Yikes, that was the best article on SaaS that I've read all year. So much
great information.

A few things jumped out to me as off:

> Conversion rates of low-touch SaaS trials with credit card not required:

> 2%+: extremely good

Really? 2% seems awful. If a company signs up for your trial, they must have a
problem they're trying to solve. If you don't solve 98% of peoples' problems,
it seems like you have a problem getting people engaged with your product.

Our (bootstrapped low-touch B2B SaaS's) trial -> paid conversion is closer to
8%. This doesn't feel "extremely good". I think we can do much better.

> Virtually no low-touch SaaS business achieves net negative churn; their
> churn rates are too high to outrun.

What about Intercom and Front? Are they just outliers?

I would guess that this is actually true, but only because most low-touch SaaS
business don't have scaling pricing - they have fixed plans. If you have
pricing that scales with usage/value, you'll make much more each month from
expansion revenue.

Overall I loved the article, and wish I could have read it a year ago before
we launched our SaaS company. Thanks patio11 and Stripe.

~~~
jcadam
Well, I've had my little SaaS up and running for about 6 weeks.

\- The landing page gets about 30-70 hits per day (excepting the occasional
spike) -- how many of those are bots and crawlers, I wonder?

\- I've had a grand total of FIVE (5) trial sign ups.

\- No buyers yet

\- My linode bill is currently about ~$120/month.

\- Still within the free tier on S3 and Mailgun.

\- You know, when I'm the only one using the app, I don't place much stress on
the infrastructure.

Now, I can't really say one way or another if I'm getting to that 2% because
I'm just not getting enough trial sign-ups :)

EDIT: Oh, yea, link for the curious:
[https://www.contabulo.com](https://www.contabulo.com)

Bah, I've posted it here before.

~~~
tinymollusk
I can help you increase your visit-to-signup conversion rate for free, if
you're interested. Just soft launched my own service (www.leadnexus.co), where
I will split test your signup forms to find more effective options. Your
volume might make it a little tougher to optimize, but I bet I can improve on
that ~0.3% conversion rate for you.

(That goes for anyone reading this -- happy to see if I can help, to test out
my own idea. Not ready for a bigger announcement, but ping me via the site or
travis@leadnexus.co if you want to give it a shot.)

Link - [https://www.leadnexus.co](https://www.leadnexus.co)

~~~
jcadam
Nice site :)

Might want to fix this passage:

> We use an emphasis on optionality, machine learning, and a _dedicate_ to
> results to get you more users and leads. We don't want you to pay _us for_
> unless we improve your results.

~~~
tinymollusk
Good catch, thank you! I've got to update the copy tomorrow, will make a pass
through this as well.

------
m12k
I've been following patio11's blog posts since way back in the Bingo Card
Creator days, and he's part of what inspired me to start my own SaaS. I hope
his gig at Stripe is good for him, because I think he's supremely well suited
to the role of 'teacher' and I think posts like these are great (even if they
are part of a content marketing strategy for Stripe)

~~~
alex_hitchins
Can you give some info on your SaaS? Any tips/hints/tricks? I'm always looking
to hear stories from people who have shipped a product. Keen to make this year
the year I create something small.

~~~
bitL
Try to take "The Build a SaaS app with Flask" course on Udemy:

[https://www.udemy.com/the-build-a-saas-app-with-flask-
course...](https://www.udemy.com/the-build-a-saas-app-with-flask-
course/?couponCode=NJ_1099)

I found it very well made and you might ship a simple SaaS within a week,
including Stripe subscription. You'd also learn about Docker deployment there.
Themeable using Twitter's Bootstrap as well.

Now just get an idea for a profitable offering and you are golden! ;-)

~~~
nickjj
Hi,

Course author here. Thanks a lot for posting this (and for signing up).

But, it's worth noting that if you buy the course on my platform at
[https://buildasaasappwithflask.com/](https://buildasaasappwithflask.com/)
there are additional perks you won't get on Udemy.

For example I'm in the process of adding a new bonus section to the course
that goes over building RESTful APIs with Flask. I've already released the
source code and 1 video for it on my own platform but this will never make its
way over to Udemy.

I'm going to be adding some front-end related bonuses too (only on my
platform). Plus you get better support and I'm even thinking about doing
things like recorded office hours.

If you don't want the bonuses / updates and only care about the cheapest price
possible, please use my Udemy link[0] below for $10.99 because otherwise Udemy
takes 50%. I don't want to sound like a complainer, but yeah, it took me 4
months of real life time and years of experience to create this course. I
can't afford to keep making courses on Udemy when I see $3-5 per sale.

It's also worth mentioning those Udemy "discount tricks" are out of my
control. I can set the price to anything within reason, but ultimately Udemy
pushes courses out for $11 all the time. It's partly why I'm looking to remove
all of my content from there in the future, but building my own audience is a
long process. :)

In either case, any support is much appreciated. Thank you in advance for
anyone who signs up.

[0]: [https://www.udemy.com/the-build-a-saas-app-with-flask-
course...](https://www.udemy.com/the-build-a-saas-app-with-flask-
course/?couponCode=NJ_1099)

~~~
mrisoli
Found the course very interesting and it's something I intend to build upon.
However, I've done similar stuff with rails since it has more batteries
included and found it easier of course.

However, this comes to mind: [https://elsyms.com/the-art-of-over-engineering-
your-side-pro...](https://elsyms.com/the-art-of-over-engineering-your-side-
projects/)

This was followed by a discussion on HN which a lot of people enjoy over-
engineering side projects because they use it as a sandbox to learn or test
different things, and I relate, so I was looking for as much material on
including as many buzzwords as possible on a saas app/business/tool
set(microservices, kubernetes, docker, UI frameworks, mobile app, graphQL,
whatever else is out there), I'm pretty sure I could get each piece from
different sources, but is there someone who covers overblowing everything? Or
maybe one could build a curriculum out of several different online courses?

~~~
nickjj
Thanks a lot for signing up.

In your case, I think you're best off learning each of those things from
separate courses / learning material. Mobile app development and Kubernetes
are simply not related at all.

This Flask course focuses on building a classic web app using server side
templates. It happens to use Postgres and Redis while also performing
background jobs with Celery.

To me that's the bare minimum for building a web app with Ruby or Python. Web
app + DB + background worker + sprinkles of JS on the front-end. We use Docker
Compose to get it all running because the alternative is rolling your own
Python environment from scratch which is IMO more time consuming than using
Docker.

That's also a good article you linked and I agree with pretty much everything
they wrote.

I think it's more important to ship your app than try to incorporate every
buzz word for the sake of doing it. I'll admit, sometimes learning new things
is highly motivating but at the end of the day, the tech wins REALLY need to
be there for it to make sense.

For example I choose not to use Kubernetes in production because 1 server
deploys with Docker Compose is very easy to reason about and it works well,
even for decently high traffic. I treat ops like I do code refactoring. It's
important to get something working, and if you ever get to the point where it
becomes a problem, then refactor.

The interesting thing there with ops is, if you have a SAAS app running with
800 customers and 50 of them are on concurrently, do you really need a self
healing auto scaling Kubernetes cluster on multiple regions?

Probably not. Those 800 customers might be generating you $49 / month each or
$39,200 per month in revenue and something like that could be running on a
single $40-80 / month server with a Flask set up (or even Rails for that
matter).

In my mind, I'd rather spend my time figuring out how to grow from 800
customers to 8,000 and even then you could probably vertically scale your
server, but at this point you're rolling in so much cash that it's all
irrelevant. You could just pay someone $100,000 to fix your scaling problems
over the course of a few months (without outages) and continue growing your
business.

Basically, front load your time in making your product really cool and
successful, then invest the time (or money) into scaling when you need it.

~~~
robodale
"...front load your time in making your product really cool and successful,
then invest the time (or money) into scaling when you need it."

I agree 100%. ~premature optimization is the root of all evil~

------
dayjah
While running Heysan (YC W-07) we were having a hard time hiring; startups
were a hard sell back then, and given we were building a product aimed at
feature phones it was harder still to convince folks to join. We faced a
meaningful decision: whether to buy a subscription to a product or build it
ourselves. The notion of SaaS clearly existed back then, but it had not yet
developed into what it is now; it was more akin to buying software licenses
per CPU than the sort of products and pricing that we have now. Also,
pertinently, I was a young and inexperienced CTO who had no real framework for
how to approach this problem, so I took it to the board, the answer was
resounding: pay for it.

In 2011, while deeply ingrained in converting justin.tv -> twitch.tv, the same
sort of decision came up: should we build our analytics or should we buy it
(mixpanel in this case). This time it was obvious: buy it.

In the time from that first decision and the later decision at Twitch I was
able to fully appreciate why you buy, and Patrick nails it in the first few
sentences:

> Unfortunately, many entrepreneurs discover this body of practice the hard
> way, by making mistakes that have been made before, rather than by spending
> their mistake budget on newer, better mistakes.

also:

> Customers love SaaS because it “just works.” There is typically nothing to
> install to access it. Hardware failures and operational errors, which are
> extraordinarily common among machines which are not maintained by
> professionals, do not result in meaningful data loss.

I've often retaught these points to folks: "Our job is to deliver a product to
our users, they don't care about the ancillary product we use to deliver them
our primary product. Buying Saas is like hiring pro's to do a job at the
fraction of the cost of hiring pro's to do that job".

Or as Matt Brezina (Xobni & Sincerely) likes to say: Hire via API (
[http://www.mattbrezina.com/blog/2011/08/hiring-via-
api/](http://www.mattbrezina.com/blog/2011/08/hiring-via-api/) )

------
jwr
Fantastic article. I wish I had access to that sort of knowledge before I
started my own SaaS [1].

I'd like to underline two points, in case anyone reading this is thinking
about starting their own bootstrapped SaaS (I guess many HN readers are):

* The long slow SaaS ramp of death is true. SaaS businesses, especially bootstrapped (and cash-starved) ones do not grow quickly. It takes years, as in more than one, and possibly several years.

* Apart from product-market fit, the biggest problem is marketing. Contrary to what one might expect, it is extremely difficult to get one's product in front of customers.

So, set your expectations accordingly.

[1] [https://partsbox.io/](https://partsbox.io/)

~~~
ultrasounder
Technical details, for those so inclined: the software is written in
ClojureScript (compiled to highly optimized JavaScript) on the client side,
using React.js for user interface updates, and Clojure on the server side,
running in a JVM (Java Virtual Machine). It uses the RethinkDB distributed
database for data storage. Interesting choice of Tech stack. Care to explain
why you went with Clojure backend and ClojureScript for react on the Front end
instead of much more traditional choices?

~~~
jwr
Those are very pragmatic choices. I don't think I could a) tackle the
complexity and b) achieve the performance I wanted without Clojure and
ClojureScript.

RethinkDB is used for two reasons:

1\. It's the only database that provides changefeeds that I need to implement
real-time updates for users. Complete changefeeds, as in: get an initial state
and then updates.

2\. I wanted to easily solve replication, fault-tolerance and scalability,
RethinkDB gets all of them right, at least for the levels of scalability that
I require.

~~~
dankohn1
As someone involved in re-licensing RethinkDB and finding a new home for it at
the Linux Foundation, I'm thrilled to hear your use case.

[https://www.cncf.io/blog/2017/02/06/cncf-purchases-
rethinkdb...](https://www.cncf.io/blog/2017/02/06/cncf-purchases-rethinkdb-
source-code-contributes-linux-foundation-apache-license/)

~~~
jwr
Thank you for your work! I think RethinkDB is underappreciated and
undervalued, mostly because people tend to act based on hype and seasonal
fads. RethinkDB brings down the cost of developing apps with real-time push
updates to manageable levels. Similarly, there is no other distributed
database out there that can be deployed so easily.

------
mooreds
So, this quote is my key takeaway:

"There are, broadly speaking, two ways to sell SaaS. The selling model
dictates almost everything else about the SaaS company and the product, to a
degree which is shocking to first-time entrepreneurs. One of the classic
mistakes in SaaS, which can take years to correct, is a mismatch between a
product or market and the selected model to sell it on."

From helping build a SaaS company for the last couple of years, I can tell you
that knowing which kind of "touch" your product is very very important. Really
important.

There are a lot of SaaS markets where the customer needs high touch but can
only pay low touch prices. That's not a fun place to live, though it can be a
good place to start and then move upmarket. I remember seeing that grid of
high/low touch and high/low ACV outlined somewhere, but I don't remember
where.

~~~
ams6110
> There are a lot of SaaS markets where the customer needs high touch but can
> only pay low touch prices. That's not a fun place to live, though it can be
> a good place to start and then move upmarket.

This just seems like a really bad place to start. Do you have an example where
it worked?

~~~
mooreds
Hmmm. Maybe mind body? QuickBooks? Any saas product that is a crucial part of
a business will necessarily be high touch.

The reason why it might be a good place to start is because you can find
enthusiastic customers that are ill served.

~~~
goatherders
There is a LOT of experiential knowledge out there around QuickBooks so even
if the SaaS version needs extra hand holding it is rarely the case of the user
being completely lost.

ONE example that I think applies and is Interesting: domain name registration.
The entire business model at GoDaddy around domains is the hope that they
would be registered and left unused. At such a low price point ($1/month
billed annually) the cost of cancelling was often not worth it. But if even a
fraction of those domain registers decided to need a website or email...Jenny
bar the door. The support required to walk clients through DNS updates and MX
records would flip the business on its head. GD has invested a ton to making
these processes more seamless but it wasn't long ago that if you didn't know
how to use FTP or cPanel (as example) you had to get help from an actual
person.

------
gfodor
patio11 refers to subscription based software as a "financialization" of it,
but I'd argue it runs deeper: it turns software from a single, large "opt-in"
transaction, to a small "opt-in" transaction followed by a series of "opt-out"
decision points for customers, putting more of the burden on the customer to
disengage vs the business to sell the customer on the latest version every
couple of months.

This runs into some tricky ground. Consider the fact that many customers who
do not churn may also have not used the product, at all, in a given month.
Given the difference between "existential risk" and "profitable enterprise" is
a 5% change in churn rate, these customers may make all the difference!

How does a company balance reducing churn with ensuring that customers who
(perhaps temporarily) have dis-engaged can easily turn off the software? For
example, how long of a period of inactivity should a company wait before
asking a customer if they would like to unsubscribe? Do any companies actually
do this? Should we expect them to do this given that doing so may kill their
entire business?

~~~
biot
Slack does this via their Fair Billing Policy [0] and it’s completely
automatic. You only pay for active users, so those who go inactive are free.

[0] [https://get.slack.help/hc/en-us/articles/218915077-Fair-
Bill...](https://get.slack.help/hc/en-us/articles/218915077-Fair-Billing-
policy)

~~~
repple
I love this about Slack. It puts me into a different mindset. I'm less
defensive and therefore more creative, productive, and happy. Most other
services put me on a constant lookout. How are they going to "get me"?

------
aresant
Outstanding summary Patrick, was prepared for a piece of dry content marketing
but many gold nuggets as usual!

I would add a couple of supplementals unique to 2018 for those of us raising
capital in a SAAS or looking to liquidate:

1) The "SAAS Napkin" for 2018, a survey of ~50 Series A / Series B funded
companies that have shared with regard to growth / churn / etc. Links here
[https://www.producthunt.com/posts/saas-funding-
napkin-3](https://www.producthunt.com/posts/saas-funding-napkin-3) and
explanation here [https://medium.com/point-nine-news/what-does-it-take-to-
rais...](https://medium.com/point-nine-news/what-does-it-take-to-raise-
capital-in-saas-in-2018-204d0a46cb23)

2) The fascinating rise of Private Equity companies as a liquidity / funding
option outside of larger co Acquisition / VC money as observed by the founder
of Pardot (~$100m exit to SalesForce) -
[https://davidcummings.org/2017/10/03/private-equity-as-
the-s...](https://davidcummings.org/2017/10/03/private-equity-as-the-saas-
savior/)

------
lettergram
Well.. after reading those conversion rates - I feel pretty happy with my
conversions :D

I've been using Stripe and Stripe Atlas since 2016, and it's helped me grow my
business well. Slowly iterating. My particular tactic is to give users a full
refund - every month - they give me feedback via a survey:

[https://projectpiglet.com/](https://projectpiglet.com/)

It's actually been super nice because people are _super_ willing to pay after
I build out the system the way they want. They then tell their friends and so
on.

Then there are websites I built like:

[https://easy-a.net/](https://easy-a.net/)

Which only has a 3% conversion rate form registered users to paid users.
Apparently, that's pretty good as well... People love it and I haven't touched
the website in 18 months -_-

It's clear why SaaS is superior in that aspect, because it's 100% automated,
makes money, and I don't even touch it. Updates are nearly completely
automated on Easy A, and
[https://projectpiglet.com](https://projectpiglet.com) (being completely in
development) requires a bit more, but also completely automated.

~~~
Sir_Cmpwn
>My particular tactic is to give users a full refund - every month - they give
me feedback via a survey

Nice, I'm gonna steal this idea!

~~~
lettergram
By all means! It's also nice because often people forget so one month I'll get
feedback, the next I'll get $X, then the following I'll get feedback again.

Customers tend to blame themselves for forgetting the feedback and eventually
some users are like, "Hell, this is exactly what I wanted" and they'll pay
full rate.

------
phlowbieuq
If anyone was curious about Inovalon's $70M customer, it appears to be Anthem.
It isn't explicitly called out that way, but from page 23 of that report:

    
    
      Our largest client, Anthem (formerly known as WellPoint), represented approximately 
      17% of our revenues for the year ended December 31, 2016, while no other clients 
      represented greater than 10% of our revenue.

------
graeme
The free trial section gave me an idea. I have a product (a course) which can
be used in 2-4 weeks.

This isn't exactly SAAS, but there's some overlap. Has anyone ever seen (or
tried) a full free trial which lasts 2-3 days?

I currently just have some demo videos, but it occurs to me I might increase
conversion if I just let people into the full thing, let them have a taste,
and then ask them to pay if they want to keep access.

I could limit it by time or percent watched.

~~~
nomel
2-3 days probably means your'e a sales company, and it will continue to be a
hostile relationship. I much prefer buying from product companies, trying to
show me why I need their software.

It's just downright ridiculous/shady.

Ridiculous since there's no way I'll be able to make an informed decision in
2-3 days, especially since there's no chance I'll dedicate 100% of my time to
those 2-3 days. When I'm done looking at the several options available, I'll
have a meeting showing my findings and running through a guess which software
isn't going to have a live demo.

Shady, because I know I'm not going to get a full picture in 2-3 days, but
more importantly, they know I'm not going to get a full picture in 2-3 days.
My assumption will always be (and is usually correct) that on the surface
things are fine, but if you try to use any of the more advanced
features/integration/whatever actual use, you'll run into trouble.

If you actually have a good product, why fear letting people see how good it
is? Let them try it out, integrate it into their workflows enough and see
enough of an improvement that they don't want to go back.

~~~
graeme
Please actually read comments before replying.

I sell 5-24 hour long online courses. A two week trial would let someone see
_everything_ , and would leave the user with no reason to purchase.

This is why I haven't done full free trial yet. Because 2-3 days seems short.
But I'm wondering if it counterintuively might be optimal, by removing
friction to trying the course.

~~~
dothis9
There are many merchants who have found that _increasing_ the generosity of
their refund policy leads to decreased refund rates.

I.e. a 6 month refund window may have a lower overall refund rate than a 1
month window.

It gives users who are on the fence about the value of a product more time to
see how they've gotten value out of it. It also gives people longer to forget
to ask for the refund.

The only reason some companies have a "1 year" refund policy instead of
"lifetime/anytime" is because of issues like credit card merchant processors
being uncomfortable with the credit risk that creates.

------
intrasight
I've been plugging away at my SaaS app for many years. Have bounced around on
the "low-touch" vs "high-touch" spectrum as well as on pricing. I am in
agreement with most of the article. If I could do it over again, I'd focus on
finding a good niche of "low-touch,high-price". Sure you say "that's obvious",
but if so, why are there so many people trying SaaS companies that are not? If
you are considering Stripe, you are already off the mark. You should be having
Quickbooks send quarterly or annual invoices for at least $10K. Companies will
happily pay if you are solving some problem that is costing them $50K per
year.

There are still so many opportunities to reduce IT costs through SaaS. I've
been in software a LONG time, and I think this is a golden age, with things
like AWS and Azure and third-party horizontal services for pretty much
everything. Just find your niche of companies that have issues that nobody is
addressing. Help them automate tedious and time-consuming things like
reporting and dataflow. Help them with regulatory compliance. Think of it as
consulting where they also pay for platform services.

I also take issue with "investors love SaaS". The margins just aren't high
enough to make it worth the risk. You might find an investor willing to do a
deal for cash flow. But I think this is like Stripe - if your thinking VC
capital, you're already off the mark. Your customers need a solution and they
will be your investors.

~~~
laverick
I'd expect $10+k/quarter to require high touch sales & account management in
most cases.

~~~
intrasight
Hasn't been my experience. Sales cycle can be long, but doesn't demand a lot
of cycles.

------
yazr
The article is excellent, but ..

> [SAAS..] spend less than 5~10% of their marginal revenue per customer on
> delivering

This is really, really not realistic. Just billing through Stripe will cost
you 2-3% commission.

I was involved with a financial SaaS and I couldn't believe how many sub-
services they needed just to keep the product alive

------
pilingual
Product/market fit wasn’t coined by Marc. It was Andy Rachleff:
[https://a16z.com/2017/02/18/12-things-about-product-
market-f...](https://a16z.com/2017/02/18/12-things-about-product-market-fit/)

------
erikrothoff
Great read! The "Churn rates" section was super interesting. Our SaaS has
hovered around 4-5% churn rate. Glad to see that's doing pretty OK!

Interestingly enough in December we increased our prices by quite a lot
(percentage wise, $2/month to $6/month). That month we saw an 8% churn rate,
and January 6%, and this month looking like a bit less. It's going to be
really interesting to see what happens in the future.

The jury is not in yet, but it feels that the voluntary churn is a lot less
for the customers paying more, compared to the lower price point.

~~~
PerfectElement
> The jury is not in yet, but it feels that the voluntary churn is a lot less
> for the customers paying more, compared to the lower price point.

I noticed the same. Our $29.90 plan churn is 3x higher than our more expensive
plans.

~~~
janlukacs
Since they pay more, they value the service more, so they tend to stick around
more :)

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nateburke
Great article.

Bill Janeway offers a well-written deconstruction of the "impossibly" part of
the author's "impossibly attractive" characterization of SaaS here:

[https://wtfeconomy.com/enterprise-software-death-and-
transfi...](https://wtfeconomy.com/enterprise-software-death-and-
transfiguration-99eb1d3fc4c0)

(from 2016)

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danschumann
Do software products like adobe photoshop for $20/month count as SaaS, or
merely a subscription based software product?

~~~
samstave
Technically, if its an app which runs in your browser, and in the cloud only,
it would be SaaS, regardless of function. But it also qualifies as a software
subscription. So, yes.

~~~
danschumann
Well.. photoshop runs on your computer.. but it requires you to be logged in.
It used to be a 1-time purchase, but now it is monthly subscription.

~~~
samstave
Ah, then nope, just a subscription... and lame one at that. Have you seen
this? [https://www.figma.com/](https://www.figma.com/)

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konschubert
Slack kind of found the holy Grail of SaaS sales where they get a foot in the
door like a low-touch SaaS product where employees just start using it. But
then they convert this into a high-touch business with low churn after the
employees convince their boss to start paying.

They basically have outsourced enterprise sales to their customers.

~~~
andkon
They didn't have an enterprise division until about a year and a bit ago, so I
think it's more accurate to say that they found a channel that normally only
works for low-touch SaaS, but for a product and business model that can charge
SMB rates.

As someone else stated in another thread here, $100k+ deals don't happen
because some employees use your product. It requires an enormous amount of
sales and marketing infrastructure — and just plain old time — to rally
someone else's organization around the change that adoption of your product
entails.

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wiradikusuma
Even though SaaS model has matured, and many SaaS are created by software
developers (who are familiar with open source), I have not found a "Bootstrap
for SaaS projections/financial modeling", probably in the form of shared
Google Spreadsheet.

------
ryanianian
Coming from somebody who doesn't really know anything about business or how to
make SaaS work (despite working as an IC for a SaaS company) this article is
very enlightening. In particular I never really grokked how to think about
"churn rates" until reading this. It's actually pretty simple when it's
explained well!

It's also written very clearly and candidly (although admittedly it's a bit of
a self-congratulatory pitch for Stripe).

------
statictype
What are some examples Of high touch SaaS (besides Salesforce)? And any that
have successfully deployed both low touch and high touch?

~~~
curuinor
High touch SaaS sees much... much.... much... less benefit from marketing. So
many don't market themselves as often, or market in specialty places.
Salesforce isn't even that much of a household name.

~~~
trjordan
The benefit enormously from marketing, but they don't benefit from high-
visibility brand marketing.

Trade shows, performance marketing, affiliates, content marketing,
retargeting, account-based ads ... those all work well.

------
seizethecheese
How do people "flatten" churn to a single number? In my experience churn is
very high in the first month, then falls as time goes on.

My current (consumer) startup has a churn of around 25% the first month, then
dropping to almost nothing after a few months. Using a single churn number
doesn't even come close to approximating real behavior.

~~~
janlukacs
This is a sign that there might be something wrong with your
positioning/marketing/messaging. The initial high churn means your customers
think they will get X but they get Y - so they abandon the product. The ones
that "get it" stick around. For now i would just remove the 1st month from the
stats and look at it independently and then try to tweak the perception.
Talking to the people who drop out will give you a better picture (it's hard
but very much worth pursuing).

ps: we sell project management at
[https://www.paymoapp.com](https://www.paymoapp.com) \- every time someone
cancels or deletes an account we show them a form where we collect data.

------
amelius
Nice article, but the most interesting question remains unanswered: how/where
to find SaaS business ideas?

~~~
bfred_it
Hang out with people and hear their problems. Usually these are not as clear
as "I wish I had a way to access my home PC files from work" but more like
"damn, I left by USB card at home!" (hinting at Dropbox)

~~~
mooreds
"Hang out with [regular] people, [preferably those controlling budget at a
business]" is how I'd put it :).

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cdevs
Every word on high touch was true about where I work and I hate it.

------
theunixbeard
This is by patio11, in case it wasn't apparent.

------
k__
How do these numbers relate to bootstrapped SaaS?

------
taherchhabra
Wonderful content marketing strategy :)

------
fairpx
Fantastic article patio11. I work with a lot of SaaS companies on a daily
basis (designing their product with our team [1]) and get to see the thought
process of the founders. The part about product market fit is super crucial. I
can clearly see that the founders that keep an ongoing feedback loop between
customers and product always end up building a more successful business. Will
def. share this insightful post. Tnx for the writeup.

[1] [http://fairpixels.pro](http://fairpixels.pro)

