How customers use ladder of pain points to spend on solutions
In today’s digital landscape, Software as a Service (SaaS) solutions have become essential tools for enterprises across industries. With a plethora of options available, enterprises face the challenge of deciding where to allocate their budget and resources. In this blog post, we will explore how enterprises prioritize their SaaS spend based on a hierarchy of pain thresholds.
As a product manager, your main job is to solve customer pain points. If you have taken courses or read books, they all start with identifying and solving customers key pain points. Some say don’t love your product, love the problem.
And those are absolutely true. Do not waiver from that. Start with the problem you want to solve and then build a solution around it.
However, from a customer’s perspective, there are many pain points and they are not all at the same level. Some problems simply have a low tolerance for pain and need to be solved right away. And they would be willing to pay anything for that. And some problems, while thorny, could wait.
And they change based on the stage of the customer, their financial performance and the economy. For example, in tough economic times, customers will only spend on products that can get them more revenue or save costs. When times are good, they can afford to invest in products that improve the productivity of employees.
Let’s use an analogy.
Imagine you operate an oil rig. In one rig, you pump out 1000’s of gallons oil per day. One day the drill bit breaks. No bit, no oil. What is the loss for this customer? They are losing revenue. They will pay an arm and a leg to buy a new bit.
(This was a case study on pricing in my MBA.
Qs was – how much will you charge them now? )
Now let’s say you have a product e.g. a lubricant that runs the machine a bit smoother and claims to be 17% efficient. The efficiency claims could be real or dubious. Is this urgent? Maybe, maybe not. If the customer is in a good economic situation they may try it. But if the economic conditions are not good, they will likely not gamble on this expense just yet.
We as consumers apply a similar analogy at home. Imagine, there is a leak in your roof and water is dropping in to your living room. You will likely fix this problem ASAP regardless of your economic situation. However, if you have leak in backyard shed and is not really damaging anything. You may fix this but you will take your time. And if your economic situation is not great, you may even decide to postpone the repair. Or do a patch.
Think of all the situations when you had to buy or repair something at home. You are prioritizing your expenditure.
Customers also use a ladder of pain points to determine their motivation to invest in solutions or products.
As a PM or a founder, it is really critical to determine where in the ladder is the pain point you are trying to solve for the customer. This is something you would need to uncover at discovery time.
Customers will prioritize spend on pain points for which there is a low pain threshold. That is, they cannot bear the pain and will want to fix the pain at any cost.
1. IncreasesRevenue
For enterprises, revenue is the lifeblood of their existence. When evaluating SaaS solutions, the first consideration is how it can impact revenue generation. Will the software enable new business opportunities, increase customer acquisition, or improve sales conversion rates? SaaS investments that directly contribute to revenue growth are often given high priority. The example above of repairing a drill bit illustrates that.
As a founder or a PM, find a way to help the customers generate more revenue. There are many ways that customers can generate revenue which you can read about in this article. If you can find a way to frame your value proposition to revenue, you will have an easier time to convince your customer.
2. Decreases Cost
Cost efficiency is a crucial aspect of any enterprise’s decision-making process. Customers will definitely spend on solutions that help them reduce their cost. When considering cost reduction, you need to look at the full cost of implementing your solution. Let’s say you are selling SAAS to a customer that replaces their existing systems with the promise of 50% cost savings. Customers will look at two things before they commit.
i) The cost savings are real and demonstrable. One clear way to demonstrate cost savings is purely mathematical i.e. comparing old vs new licensing cost. If a customer spends say $ 100K per year on a legacy software and your product costs $ 20K per year then that is a true savings.
ii) Consider the total cost for customer. Your product is one element of a cost. You also will need to factor in change management, training, documentation, migration etc in the overall cost. And if your software adds any additional burden on the users in terms of productivity, then you have to factor that in.
While SaaS solutions offer flexibility and scalability, enterprises must assess whether the investment aligns with their budget constraints. Evaluating the return on investment (ROI) and the total cost of ownership (TCO) of a SaaS solution becomes imperative before making a commitment.
3. Lowers Risk
Customers will spend on applications that help them reduce risks. These risks could be security, regulatory or privacy related. If you are a D2C provider, then you probably will invest in solutions that protect the security of your customers information. If you are a financial institution then you will be spending on security software and prevent breaches.
For certain industries like fin tech and healthcare or even retail, the risk tolerance will be low. Which means, customers will likely spend on solutions to reduce their risks. Risk tolerance varies by industry or customer type or even individual buyers. You will need to uncover the level of risk tolerance in your discovery process.
4. Improves Quality or Experience
Customers will invest in improve in quality in cases where the product quality is a must to generate revenue. Think of automobiles or microprocessors or medical devices. A poor quality is extremely costly for a company. If you have a product that helps companies build better quality products, then these companies will spend.
How relevant is quality? It varies by industry and by company’s philosophy. Companies like Apple spend significantly on quality while stodgy industries like banking, airlines, credit cards, telecom give it less importance (exceptions are there).
Find markets or companies where quality is critical.
Related to quality is customer experience in the case of B2B SAAS. For example, onboarding is a crucial step for B2B customers. If you are building solutions that helps customer onboarding, then you will need to find customers who will be willing to improve their onboarding process. Support or customer success related applications also improve customer experience.
5. Increases Productivity
Enhancing productivity is a key objective for enterprises, and they seek SaaS solutions that streamline operations, automate repetitive tasks, and improve collaboration. Time-saving features, scalability, and integration capabilities play a vital role in determining the value a SaaS solution brings to an enterprise’s productivity goals.
In my observation, customers will spend on productivity only when their economic situation is good. Which is contrarian because when there are less people due to lay offs, you might want to spend on productivity.
In western economies, labor is expensive. Any solution that can reduce labor costs by significant factors will be worth spending on. As of this writing, many companies are planning to cut labor costs and increase productivity by using LLM solutions like ChatGPT.
But in asian economies like India, labor is cheap and there are barely any productivity enhancing solutions. It’s cheaper to get labor than spend on solutions. There are exceptions though.
If you are building productivity solutions, select markets where the productivity benefits are significant. And just like cost savings, the productivity savings needs to be proven and real.
6. Employee experience
There are many solutions enterprises spend on for the benefit of their employees. These could be software to manage applause awards or training solutions. In the hierarchy of spend, these solutions will only get investments during good economic times. Here are some categories of spend for employee experience :
- Productivity and Task Management Tools
- Collaboration and Communication Tools
- Learning and Development Platforms
- Employee Engagement and Recognition Platforms
- Well-being and Employee Assistance Programs (EAP)
- Employee Feedback and Pulse Surveys
During recession, many companies cut down on these types of solutions. Have you heard of companies reducing training costs when things are going south?
If you are building a solution or service for employees in enterprises, then be cognizant that this is a discretionary spend.
In addition to the aforementioned hierarchy of pain thresholds, it’s important to note that economic conditions can significantly impact how enterprises prioritize their SaaS spend. During times of economic prosperity, enterprises may have more flexibility to invest in innovative and cutting-edge SaaS solutions, with a greater emphasis on revenue generation and employee experience.
However, in times of economic uncertainty or downturns, cost becomes a more critical consideration, leading enterprises to focus on optimizing expenses and ensuring a favorable ROI.
As a founder or a product manager, it is critical to understand where in the ladder lies the pain point you are trying to solve for. And why they are worth solving for now. This will help you better position your solution in their minds.
