The Performance Imperative in SaaS

June 22, 2020 Written by Jake Sorofman

There was a time when suppliers could get away with claims of transformational business impact that were accepted by buyers largely at face value or validated only with third-party customer proof. But, as budgets come under closer scrutiny and companies reevaluate their posture on overall tech spending, SaaS companies will be held to a much higher standard. 

What SaaS giveth, SaaS taketh away. Subscriptions make it easier to purchase and adopt software, but the inverse is equally true. The reality is that most SaaS companies aren’t ready to prove attributable impact down to dollars earned and dimes saved, but there’s a lot they can do today to start laying the groundwork for a more resilient relationship with customers by demonstrating that they’re making good faith investments in proving their impact on outcomes. 

To understand the implications of these growing performance expectations on SaaS companies, look no further than the world of digital advertising. As a duopoly commanding over 50% of a nearly half trillion dollar industry, Google and Facebook are the two largest digital advertising platforms in the world. There are many reasons they’ve grown to such massive heights, but I’d posit that the real rocket fuel in their engines is proof of performance. Marketers are all too happy to throw dollars at the bets that are paying off. The digital advertising industry, of course, is well aware of this, so they make proof of performance central to their promise and perfectly visible to the customer to give them the confidence that their investments are yielding adequate returns.

By contrast, in the world of SaaS, there is no such construct. Today, SaaS companies sell on the promise of real business impact, but very rarely show actual attribution to outcomes. While I strongly assert that the arc of this industry bends inevitably toward such transparency, it won’t happen overnight. Nor does it have to. What’s most important is that SaaS companies are making investments today to show this sort of attribution tomorrow. 

This journey follows five levels of maturity:

Level 1: Collaboration. The first step enroute to achieving measurable outcomes for customers is ensuring that the supplier and buyer are aligned around a shared definition of success. Every purchase begins with one or more outcomes in mind. Level 1 on the journey focuses on documenting and validating these target outcomes with the buyer as a foundational first step toward both closing a deal, and creating the conditions for a lasting and profitable partnership.   

Level 1

Level 2: Delivery. Too often, the goodwill and momentum created in the sales cycle doesn’t convert downstream into the implementation and onboarding phases because of a fumbled handoff. Level 2 of the journey focuses on coordinating this handoff to ensure all of the stakeholders are oriented to the same set of target outcomes, and organized to get the solution deployed, delivered to the customer, and getting them using it as efficiently as possible.  

Level 2

Level 3: Adoption. The obvious but sometimes overlooked reality is that your customers can’t get value from your product unless they use it–and use it in the right ways. Level 3 focuses on measuring adoption and understanding usage patterns to ensure your customers are taking advantage of the capabilities that help them unlock value.

Level 3 PNG

Level 4: Impact. Enroute to demonstrating attributable ROI are various leading indicators that show positive impact in the right directions. Level 4 is where you start to start measuring impact for your customers by looking at the metrics that signal positive trends directionally aligned to attributable ROI.

Level 4 PNG

Level 5: Performance. Finally, Level 5 focuses on the attributable ROI that your customer cares about most. These are generally expressed as some combination of increased revenue, reduced costs, or mitigated risks. Since these are lagging indicators, measurement of these things often requires data from your customer–either directly from their systems or manually provided to complete the picture.

Level 5 PNG

Levels four and five are the current state of digital advertising platforms and the future state of SaaS. Over time, these two categories will converge and SaaS companies will be held to the exact same standard. 

But every journey has a starting point and every journey requires a plan. SaaS companies without one will find themselves increasingly vulnerable as the subscription economy gives way to the performance economy.

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