Learn the levers of growing the top line for your organization
In Part 1 of this blog series, we discussed the importance of having a growth orientation for all product managers. We discussed that growth can be top line or bottom line. In this part, we will discuss the components of top line revenue and the levers product managers can use to grow top line.
Types of revenue in B2B Saas
Let’s first discuss all the major sources of revenue for a B2B Saas company.
Subscription fee – this is a fee customer pay based on some parameters e.g. Salesforce users pay by the number of seats, AWS charges customers based on API usage, some companies charge based on data volumes. For most B2B Saas companies, this is the major source of revenue.
Professional services fee – this is a fee that companies may charge if there are any services involved especially in the beginning such as design, rollout, migration, custom implementation, onboarding, change management and so on.
Advanced support fee – Software companies usually provide support at no additional cost especially in the beginning stages. Customer can opt to receive premium service e.g they may want 24 x 7 coverage of support or they may want a better SLA (service level agreements) such as faster response times or higher availability. Sometimes advance support team may be required to work with customers to address complex issues. All of these are generally clubbed under advanced support or services fee.
Training – Software companies provide basic training and documentation on their web sites. Many also provide tons of how to videos and guides. Complex implementations may required more hands on training such as for ERP or CRM. Customers pay for attending these training whether in person or virtual.
Partnership fees – Many software companies rely on partners to provide add on capabilities. Some are resellers or distributors. Some are software companies whose products are add on to the platform. Salesforce, Microsoft, Netsuite, Google Cloud and others charge an annual fee for the privliege of being in the partner club.
Developer platform fee – Similar to partnership fee, developers of 3rd party products also pay fee to access the platform.
Certification Fee – Some companies like Cisco offer certification for professionals, who pay fee to be certified e.g. Cisco certified network admin certification.
Event registration fee – Annual events are a big draw for customers and other vendors. Almost all companies have thehir annual events in big cities like Las Vegas, and they charge for customers to attend these. They also require other vendors and partners to cough up sponsorship fee in exchange for a booth and other resources.
B2C Saas companies also have varied sources of revenue. For example, YouTube earns money from ads, premium subscription, sponsored channels, YouTube TV, YouTube music etc.
As a Product Manager, you will likely influence one more more sources of revenue. Let’s focus on the main source of revenue which is subscription or license revenue. There are numerous ways you as a product manager can influence the growth of revenue.
Create new products – Established software companies can unlock a brand new revenue source by creating new products. This is the stage of the company where they already may have mature products and reaching a stage where growth starts to slow down. At this stage you can help influence building a new product line. The new product could be sold to existing customers or to an entirely new segment of customers. Amazon started with books, but soon started seling other categories of products. AWS would be considered a brand new category. Adobe sells publisher tools but now has products in marketing automation. Of course, you can also choose to influence new revenue by acquiring a company. As a product manager, your job is to find gaps in your offerings or find adjacent opportunities, and then figure out the strategy to fill the gap i.e to build or buy.
Create a new customer segment – You can take your existing product and create a version of it for a different segment. Let’s say you have a fraud detection software for financial services but with some tweaks you could create something that could work for say, an insurance company. You now have unlocked a new customer segment.
Cross sell to existing customers – Cross sell means selling new products, or product add ons to existing customers. For example, if you sell Sales software to customers, you can add marketing automation or service automation. This will create a new set of users within your customers. Cross sell could also imply selling add-ons to the same set of users e.g. selling an MS Outlook add on to the main product you are selling, or perhaps a mobile add on. As a PM, look for adjacent set of values to your customers and prioritize.
Upsell to existing customers – Upselling means extracting additional revenue from existing users. For example, you have sold 100 user licenses but the potential is 1000. Or, the customer is on a Silver plan and the goal is to move them to Gold Plan. As a PM, you should research the motivation of the customers and how you can create value that would compel them to buy more
Free to paid conversions – A variation of the upsell is to improve conversion rates. Let’s say you have a free plan for customers who sign up on your site. How do you motivate them to move to a paid plan. Moving from free to paid is quite challenging and is vastly different from moving from say Silver to Gold. Conversions from free tend to be lower than 10%. Evernote has a free plan with less than 5% on paid version. Dropbox also has a free plan but they offer enough value for customers to move to a paid plan. They realize at which point the free users will stick to the service and move additional value to the paid plan e.g more storage beyond the 50MB in the free plan.
Reduce Churn – Reducing churn or retaining customers is the life blood for SAAS companies. There is a simple economic argument for reducing churn. It costs more to acquire a new customer than to retain one. As a PM, you should relentlessly research the root causes of churn and aggressively address them. Sometimes the reasons can be as simple as improving the usability. In other cases, there could be complex reasons that require significant investments. Reducing churn is an ongoing effort of experimenting and tweaking and should never stop. For a $ 100M ARR business, a reduction of 1% in churn is $ 1M ARR that is not lost and likely costs less than acquiring the same revenue from new customers.
Faster onboarding and time to value – Onboarding and the initial experience has a direct correlation to retention and satisfaction. Successful SAAS companies pay careful attention to the onboarding process and make sure customers get value early on. As a product manager, you can help streamline the onboarding process by adding features that help with better onboarding, configuration, migration and whatever is required in the initial stages of implementation. This would also include the measurement of progress e.g number of users onboarded, number os entries created etc. There may be a specific onboarding team who possess the customer skills to execute but as a PM you can help shape the process. There is also an accounting reason for faster onboarding that helps get more revenue in the books. You can read about it in this post.
There may be additional levers that may be specific to your business. It also depends on the stage of your company. Early startups are laser focused on acquiring new customers. Later stage companies start focusing on cross sell, upsell, retention. Mature companies grow by finding new revenue sources from new segments of customers or creating new products.
Figure out what metric or revenue source you want to move the needle on and find ways to optimize on that. There are a variety of ways to influence revenue and as PM you should be front and center on that.
