Service Revenue and Upsell Marketing

Much of my consulting lately involves on-demand services (aka software-as-a-service, or “SaaS”). I’m seeing ever-growing interest from business customers in subscription pricing and online services, especially since they pay much less “up front” versus software licensing. This necessarily slows down early revenue to the vendor and intensifies the need to upsell your installed base.

Why Do Customers Like On-Demand Services?

Nearly every software niche has a dozen service-model start-ups scrapping for attention and market share. This reflects real customer interest with obvious benefits:

1. Immediate access to working applications
2. Ability to start with small increments of service (cost)
3. Passing responsibility for software, systems, operations and capacity planning to a vendor
4. Avoiding up-front licensing fees and capital costs
5. No need to hire and train application experts
6. Outsourcing of end user application support

This means that there’s less upfront revenue for vendors. Customers want minimal commitments and pay-as-you-go, so service-model vendors may take 2-3 years to recoup a traditional license fee.
Plus, there are more up-front expenses. Vendors not only have to write great software, they also have to built high-availability hosting centers, staff 24*7 operations, and manage network security.

Which puts even more emphasis on upselling… getting customers to add users, trade up to advanced features, and buy more capacity. Unlike traditional “dump and run” software sales models, you need to coax customers up the revenue ramp.

How About a Live Example?

Replicate Technologies is a new Silicon Valley start-up. They have recently entered the marketplace with a subscription-based service for on-demand, rapidly reconfigurable test systems. Replicate provides hosted servers that customers can quickly configure (and reconfigure and reconfigure) for software testing and technical support.

A typical Replicate client is a software company that needs to test its code on a range of operating systems, patch levels, and assorted customizations, or one that releases new versions frequently. Replicate lets the client quickly load one system configuration and run tests, then load a different system image for new tests or troubleshooting. Technical support teams can keep a wide variety of system configurations “on the shelf.”

By offering this as a service, Replicate saves 90%+ for customers versus licensing and running virtualization software in-house, with:

1. An instantly working solution
2. No need for customer to hire or train skilled virtualization engineers
3. No need for customer to buy, maintain or manage dozens of servers
4. No upfront capital expense
5. Ability to add capacity (servers, configurations, storage) when needed
6. Easily sharable test resources for geographically distributed teams
7. Ability to “snapshot” systems with software defects and “replay” the defects for software developers

But, since Replicate’s early customers each have one specific testing project in mind, their initial subscriptions are small. The executives believe there is triple the initial revenue if they can uncover more users and opportunities. Marketing and selling, therefore, have to continue post-sale to capture full account value.

There is also a timing issue. Replicate’s solution is most valuable at the beginning of a testing project, when QA infrastructure choices are made. If a customer project has implemented a different testing approach, switching takes extra time and energy

So What Should I Do?

The upsell challenge, then, is to maintain awareness among current users and identify new opportunities within the installed base. Here’s a starter mix of friendly marketing tactics:

1. Precisely identify your current users. Double-check that your privacy policy allows opt-in marketing, then mine the email addresses in your users’ online profiles.
2. Create a monthly usage-focused newsletter. Include practical tips, new features, and one customer success story. A link to Tech Support goes near the very top.
3. Scan transaction logs for high-volume users. These are your best internal champions, so call them to ask for success stories. While you’re on the phone, ask if there are new projects needing your service.
4. Scan your transaction logs for inactive users. They may have left their companies, or simply given up on your service. Have Sales call to identify issues and verify contact data. (You can also use newsletter bounce-backs to spot ex-users.)
5. Keep users involved. Put up a blog or moderated discussion board. Let users edit your “help” information. Give away t-shirts for novel application ideas.

None of this is new, but it now has more urgency. Licensed software firms spend scant time on active users, concentrating instead on hot prospects. As a service vendor, you need to build a relationship while prompting for upsell opportunities.

SoundBytes

Service-model companies have a slower initial revenue ramp, so make sure that your installed base upselling and marketing are in place as early as possible.