OfStartups

Author: ofstartups

  • Why is the dollar the reserve currency?

    Have you ever seen what most of the global products are priced in? It is in dollars. It is the most widely used currency in the foreign trade. Most of the countries in the world have significant forex reserves in dollars as compared to other currencies.

    dollar is the world's reserve currency for more than 60 years

    Strongest economy post the world wars

    The First and Second World Wars cost major economies like England, France, Russia, and Japan a huge amount of money. They significantly invested their budget in financing the war. This led to an increase in the debts of many. The debt levels were very high compared to the GDPs of these nations. The participating countries suffered heavy destruction in their infrastructure. A lot of money was spent on the reconstruction of the infra after the wars.

    Unlike the European nations, the United States did not experience much of the war on its own land. It did not suffer the destruction of the infrastructure because of this. The wartime spurred significant technological advancements for the United States. It boosted the manufacturing capacity and emerged as the leading supplier of military equipment.

    Being the leading military supplier for the world during the time of long-lasting wars, the United States earned an unequal amount of money. It held a significant amount of gold reserves during this time. With its technological advancements and strong manufacturing and being a major creditor for the allied nations, its large amount of gold reserves strengthened its economic position on a global stage.

    The Bretton Woods Conference

    Most countries paid for the military supplies and weapons in gold to the United States. This was because gold was the standard against countries that valued their currency. This led to an accumulation of large reserves of gold in the United States. This eventually made gold as a standard for currency valuation only stronger with time.

    However, this led to problems for other countries as they started to see depletion in the gold reserves. A new system for currency exchange was the need of time. To solve this problem members of the allied nations came together at Bretton Woods in the US. The aim of this was to establish a standard system to promote a new international monetary policy and encourage global trade.

    In the Bretton Woods Agreement, it was decided that all the participating countries would peg their currencies against the United States dollar, which would eventually be valued against gold. The dollar-to-gold value was fixed at $35 against one ounce of gold. This made the economic position of the dollar stronger as every country could do the trade in dollars, as it was insured against the standard of gold. Other countries maintained the exchange rate fixed against the dollar which contributed to the economic dominance of dollar in the international trade.

    The Bretton Woods Conference also founded the International Monetary Fund (IMF) which was established to address the issues of international monetary cooperation, exchange rate stability, and balanced economic growth. Member countries contributed funds to the IMF which could be used to address the problems of international trade.

    The fall of gold and the rise of oil

    After the Bretton Woods Agreement, countries began to accumulate dollars as it was directly pegged against gold. The United States experienced a net current deficit. This slowly led to pressure on the gold reserves. They became vulnerable and began to deplit faster. This threatened the whole international currency system.

    This was the era where the rise of oil had begun. Middle Eastern nations found a large number of oil reserves which became an essential commodity for the world. Saudi Arabia was the largest of the oil exporters and the most influential nation in the Middle East. The United States made an agreement with Saudi Arabia against military commitments that the trade of oil would be made in dollars exclusively.

    The world was flooded with dollars due to the Bretton Woods Agreement. But to maintain the stability of the gold reserves and with the Saudi oil trade agreement, the United States removed the Bretton Woods Agreement. The dollar was no longer pegged with gold, but with oil now.

    Since oil was an essential commodity and its demand only rising, the dollar became stronger and stronger. Most of the nations import oil and pay in dollars. This has made the dollar a stable currency over the past decades and is seen as the reserve currency of the world.

  • How do you decide product pricing?

    Product pricing is the direct factor that shapes your revenues and profits. Pricing a product involves decisions based on the value to the customers, cost to the company, and competition.

    Pricing a product involves decisions based on the value to the customers, cost to the company, and competition

    Here’s a step-by-step guide to pricing your product.

    Understand value to customers

    To calculate the value delivered by a product, you need to assess the benefit experienced by the customer to the cost incurred by them in getting the product.

    1. Identify customer needs – Recognize what problem or pain point of the customer you are solving by the product.
    2. Identify the key benefits – Recognize the features or parts of the product that are directly addressing the problem of the customer
    3. Calculate tangible benefits – Identify how much tangible value the customer is gaining with the product. This can be calculated in different ways. For example – how much time is the customer saving with the product? How much revenue is the customer increasing with the product? How much cost is the customer saving with the product? In the end, everything translates to money. Calculate the total money saved or the total extra profit generated with the product.
    4. Calculate intangible benefits – Along with the quantitive benefits, there can also be qualitative benefits with the product. Recognize such benefits. For example – how better has the user experience been with the product? How has the brand reputation increased of the customers by using the product? These qualitative benefits may not directly translate to monetary effects, but they do help in improving the efficiency or branding of customers.
    5. Conduct cost-benefit analysis – Understand the cost the customer incurs in acquiring, adopting, and maintaining the product. This includes the direct cost spent and human resource costs. Compare this cost incurred by the customer to the actual benefits that the product is providing to them.
    6. Calculate the return on investment – A customer (especially a business-to-business customer) purchases a product so that they expect to make a return on it after some time. With the cost incurred to the customer and the benefits the product is providing, calculate the time required to make the return on the investment made by the customer. This should be as little as possible.
    7. Feedback – To understand the value to the customer better and make a stronger model of value delivered by the product to the customer, take feedback from customer success and support teams. Regularly assess customer feedback, usage data, and market trends to refine your understanding of the value delivered.

    Understand the cost to your company

    Accounting for all the costs is required to calculate the cost incurred by your company to develop a product. By development, I mean everything from research, development, marketing, sales, and support.

    1. Salaries – Expenses on human resources is one of the major portions of the total cost for a company to develop a product. Salaries include the total compensation for all the teams like development, marketing, sales, and legal. This also involves payments to external contractors and experts.
    2. Material costs – This is the total expenditure spent on the tools that enable various teams to perform their tasks efficiently. These include costs spent on things like software, devices, infrastructure, etc.
    3. Overheads – These are the expenses spent on office space, utilities, and office supplies. These are the expenses that are directly not involved in the product development but are important to keep the company running.

    Understanding the competition

    In a competitive market, understanding the competition is an important part of deciding the pricing of the product.

    1. Understand the competitive landscape – Identify the value propositions given by the competitors. Identify your differentiation and positioning in the market. The differentiator is the point you ideally should bank on. Emphasize features or benefits that competitors lack or don’t offer.
    2. Understand the competitors’ prices – Know how your competitors are pricing their products. Understand whether are they conveying the pricing in the market.
    3. Understand the pricing models – How are the competitors modeling their prices? What is the market trend in general? This is an important factor to know how your potential pricing model will be. In a competitive market, typically there are a couple of pricing models that the competitors have.
    4. Customer feedback – Gather feedback on the perceived value by the customers using competitor’s products. Get to know about a general perception of their brand image in the customers’ minds.

    Deciding your pricing

    With the above points studied in depth, it is now the time to make an informed decision about how your pricing would be. Always remember the customer should perceive a value more than the cost they have incurred to get the product. The product pricing must cover the costs and profits.

    1. Choose a pricing strategy based on your cost and profit expectations. These can be but not limited to –
    2. Cost-plus pricing – Pricing based on cost and a fixed profit margin
      Value-based pricing – Pricing based on the perceived value by the customer
    3. Competitive pricing – Pricing comparable to the pricing of customers

    Remember in any case your pricing must always justify the value you are providing to the customer.

    Choose a pricing model. This can be but not limited to –

    1. Fixed pricing – Single pricing for all the customers
    2. Dynamic pricing – Pricing based on the demand or customer segments
    3. Bundled pricing – Pricing based on packages of products or features

    After choosing the appropriate pricing and the model, continuously test what is working well and what is not. Based upon the feedback, iterate.

  • How to write effective cold emails

    It is not easy to get customers in the early days of a startup. It is often an experiment to find the best way to get customers. Email marketing is one of the successful ways when it comes to business-to-business marketing.

    cold email is an effective marketing method

    How to write an effective cold email?

    I have written 1000s of cold emails. Here are my learnings to make them effective and increase the response rate.

    Catchy subject line

    Just imagine your email inbox. It is typically filled with thousands of emails, of which most of the emails are not opened. Why do you think you do not open them? This is mostly because you are not interested in the email based on the subject of the email. Either you know what kind of email it is or you may not be able to read the complete subject line.

    The subject line is the entry point for the receiver to open the email or no. If not interested, the receiver does not open the email at all. So irrespective of the content inside the email, there is no use of the email.

    Hence a good cold email has a very short subject line, typically of two to four words. It should have a clear and interesting message that stands out from the other boring subjects. A personalized subject line is a good way to raise the interest of the receiver. Eg; “Hey Amy!”

    Personalization

    Always remember you are writing to a human.

    Before writing the email do good research about the person you are sending. Based on it, write a personalized email so that it delights the receiver. For them, it signifies that for the offering you are proposing, you have gone a step further to actually study the prospect well.

    Try to compliment them at the start of the email with maybe the latest achievements they have made in their field or some important milestone in their personal life. This gives them the motivation to read the mail further even if the reader doesn’t know you.

    Short body

    While cold emailing, you are communicating with somebody whom the receiver doesn’t know. So they would not invest too much time in reading longer emails. By chance, if the receiver tries to read it and finds it not interesting at first, he or she won’t make an effort to read the further content.

    Hence it is very important to keep the main body short. Typically if you can communicate your message in less than 5 sentences, it would be more attractive. While writing the main email body get straight to the point. Directly address what is in it for the receiver. This would help the receiver to know what is the actual message in the email, and if valuable they would make effort to reply.

    Clear call to action

    A personalized start to the message and a short and on-point body have to be finished off well with a clear call to action. What is the use of an email which does not have an action item at the end? The receiver will not again make an effort to figure out what he or she should do next.

    You should sign off your email with an urgent-sounding yet positive action. Ending the email with action items like “Can we have a call this week?” or “Are you available tomorrow for a meeting?” creates this urgency. Avoid generic terms like “Looking forward to hearing from you” in the FIRST cold email.

    Detailed signature

    Finally, at the end of the email must have all the required contact details.

    Add every required detail in the signature, typically contact no, website & social media profiles. By this you are achieving two things – showcasing your credibility and keeping all the possible communication means open for the end prospect to contact you. Interested leads can sometimes need to check your details or make direct phone calls instead of replying to the mail for which the signature is crucial.

  • Service business to product transformation

    Starting a service company can actually be a better starting point to build a product-based firm. They are relatively easy to start, with lower initial costs. They are flexible and focus on purely generating revenue from the start.

    Service can lead to a path in building a product company

    Understanding customer needs

    You interact with a wide variety of customers while delivering a project. This helps in understanding the needs, choices, preferences, and habits of customers. It helps how a customer thinks about a particular problem.

    Relationships

    Services help build relationships with customers and establish credibility. Especially in a B2B scenario, it helps in establishing a strong trust. These relationships can be a good base for selling products further.

    Networking

    To get projects, it is essential to establish new networks and nurture the existing ones. These networks of clients and industry connections can later support product launches or collaborations.

    Revenues and cash flows

    Typically, one does not focus on a specific niche of industries or technologies strictly while in a service business. This helps in acquiring quick customers and securing good revenues and cash flows.

    How to productize a service?

    When a solution that has been offered as a service has the potential to scale, it can be productized. Often similar types of industries or similar types of personas may have a similar set of pain points. Hence when a solution that has been developed for a particular customer can be a pain point for a similar type of customer segment. Productizing a service involves turning a service-based offering into a scalable and repeatable product.

    Understand the pain point

    Assess the pain point behind the solution that you are offering to the client. Go to the root of why your customer is needing the solution and why do many similar customers will need the solution.

    Understand the core value

    Once the pain point of the customer has been identified, understand the core value proposition that your solution has offered or should be offering. Break down your service into its fundamental components. What are the key features, benefits, and deliverables?

    Optimize on the features

    Your solution might be offering a large number of features to the client. This is because it has been developed as a custom solution. After you have identified the pain point and the core value proposition of the part you want to productize, identify what are those features that are helping to achieve the value to the customer. Cut down the features that are not required, and add features that may be potentially required to build a scalable and valuable product.

    Standardize and scale

    Once you have recognized which features are to be present to make the product useful, determine which aspects of the service can be standardized or turned into a template. Define processes and standard operating processes. Ensure the product can be replicated without losing quality. Define clear processes and guidelines.

    Pricing

    Decide the pricing model and strategy for the product. Determine the tiers of the pricing based on the needs, value propositions, and pricing.

    Marketing

    Identify the channels to propagate the value proposition of your product. Develop a sales strategy that educates potential customers on how your product solves their problems or fulfills their needs.

    Conclusion

    To build a product company does not necessarily mean to start a company in that way. Starting a service company and executing a variety of projects in various industries can be a good way to understand the customers and the market and collect good initial revenue. This can be the much-needed fuel to build a product. Rather, building a service company can be a very safe way to establish a product firm.

  • Porter’s five forces

    Thousands of startups are started and shut down every year. Though every industry in which they operate is different, the basics of drivers to making profits remain the same. Porter’s five forces is a model that analyses competition and helps determine an industry’s weaknesses and strengths. This model recognizes looking beyond the direct competition that is up in the market and thinking of other indirect possibilities of competition.

    The purpose of this for a company can not be to check and make strategic decisions once at all but to continuously keep a look at the five forces and analyze how they stand in the market.

    Existing competition

    With the intense rivalry there is always great spending on customer acquisition, customer retention, and the threat of price downs. It can be more competitive when industry growth is slow.

    If you do not have much of competitors in the market, the market is very much controlled by you. There would be huge competitive power and good profits.

    Eg; The airline industry. Since there is a large competition, no single company has the power to control the prices on their own.

    Bargaining power of buyers (or customers)

    It is the potential customers have to bring the prices down.

    A smaller and more powerful customer base translates to a huge bargaining power for the buyer. On the other hand, smaller and independent customers give the company an upper hand in pricing and hence profitability.

    Similarly, if the number of customers is lesser than the number of suppliers, the bargaining power of buyers increases. This is because they have a pool of options available for buying the product.

    Eg; the airline industry where customer loyalty is too low and customers tend to go to the one offering the lowest price.

    Bargaining power of suppliers

    Every company has to purchase inputs from different suppliers for making their products or services. Again like buyers, powerful suppliers negotiate a higher price. Especially if the input is a niche and suppliers are less.

    If you have a wide range of suppliers, you always have the option to purchase the goods from the best or the cheapest ones. If the number of suppliers is less, they have a huge bargaining power where they can reduce the supply or increase the price as they want.

    Eg; the semiconductor chip designers whose suppliers (the chip makers) are limited and powerful.

    The threat of new entrants

    How likely and frequently can a new competitor enter the market? This is an important factor as every new competitor can force existing players to bring pricing down and spend more on acquiring customers.

    This boils down to how strongly your product is based. How easily can one replicate your product? What are your unique propositions that are hard to copy?

    Eg; the Indian telecom industry Jio changed the way it worked with Jio bringing down the prices.

    Threat of substitute products or services

    When a new product meets the customer’s demand in a different way, the industry’s profitability decreases.

    The new products might not be exactly your competition as we saw for the existing competition, but it solves the purpose of the customer’s problem.

    Eg; video conferencing products are substitutes for the travel industry.

  • How does venture capital work

    Venture capital is the investment made in high-growth potential startups and growing companies where regular banking institutions are shy of investing. The venture capital is on a broad level worked out in three processes.

    venture capital is the investment made in high-growth startups and growing companies

    Fundraising

    Venture capital firms are responsible for the end-to-end ownership of the funds. VC firms do not have the required funds within them. They get the funds that they want to invest by raising from various sources, primarily institutional investors and high-net-worth individuals. These entities from where they raise funds are called limited partners. Institutional investors are entities like insurance companies, endowment funds, and pension funds. High net worth individuals are the people who are wealthy individuals and are looking to invest their money.

    VC firms go through a fundraising process, where they pitch to potential investors showcasing their strategy, previous track records, and exits. They showcase the investment focus and have a target fund size. Different VC firms have different investment focus. It can be but is not limited to, sectors, geographies, or industries. This is similar to a startup raising money.

    The conclusion of the fundraising process is the limited partners committing a specific amount of money for a time period. This capital is given to the VC firm when an appropriate investment opportunity is recognized. This process is called capital calls.

    Fund management

    A typical VC firm has analysts, associates, and partners who consist of their investment team. An analyst supports the investment team with research, data analysis, and administrative tasks. An associate supports the investment team in sourcing deals, conducting market research, and performing due diligence on potential investments. A partner leads the investment and negotiates the deal with startups. A managing partner sets the overall strategy and is responsible for fundraising.

    A venture capital firm has a typical investment period. They invest in startups during this time according to their strategy of investment. After they have made the investment in a company they offer their expertise in various parts of a startup’s journey like marketing, development, and legal. For this active management and guidance to the investee companies, they have a whole network of experts in their fields.

    To manage these expenses, a VC firm charges a management fee for the operational expenses. This is typically a percentage of the committed capital. They also receive a carried interest which is a percentage of profits generated by the fund.

    Fund exits

    All the VC funds have their lifespan. Within this lifespan, they help with all the support for a company that is required for them to grow. A typical lifespan of a fund is about 10 years, after which the exits are expected. There are various types of exits that the VC fund makes from a startup like IPO, acquisition, or direct profits. While a startup raises funds from the VC, these potential exits are discussed, as it is an important part of the strategy. As the portfolio companies grow and mature, the way to plan exit for the VC starts.

    VC firms regularly demonstrate the progress of the fund to the investors. Reports and performance status of the fund’s progress are updated to the investors at a regular cadence. Once the investments are successful, they are distributed between the limited partners and the VC firms according to the agreed terms.

  • How do movies make money?

    Entertainment and film is the most glamorous industry of all. We always see the popular stars on red carpets, in the news, in publicities, and in controversies as well. But one thing – they are never out of focus. The film industry carries a huge following behind it. But at the very core, it is a huge and complex economy.

    It is a high-risk and high-reward industry. This is because there is no straight formula to earn money. Its success depends on factors like the reception of the audience, critics, and release dates to name a few. There are too many and not-so-straightforward risk factors and opportunities involved in filmmaking.

    a movie has various sources of revenue generation

    Where is money spent on filmmaking?

    The three-hour film that we see has an effort of months and years to put in front of the audience.

    Pre-production

    Pre-production is the initial phase of filmmaking that occurs before the actual movie shooting. It is the process where the groundwork for the film production to start is laid. It involves script development, hiring key members (like directors, and actors), hiring the rest of the crew, finalizing shooting locations, budgeting, and getting the permissions for shoots.

    Production

    This is the actual shooting of the movie. The cost during this phase is spent on salaries, rents, set building, and location expenses. The types of costs vary depending upon the type of movie. For eg; a historic film might spend relatively more money on building the sets of the historic era whereas a multi-starrer film will spend most of the production money on the salaries of the actors.

    Post-production

    Once the actual filming of a film is completed, the next steps are editing, and adding visual effects, and sound effects to the film. It’s the phase where the raw material is turned into a polished product. This is where a film gets finalized and is the version that the audience sees. The money is spent on salaries for the artists, engineers, and equipment rentals.

    Marketing and distribution

    Like any product, marketing is a crucial part of filmmaking. This investment is critical for creating awareness and attracting audiences, especially for wide releases competing in a crowded market. Marketing involves campaigns like paid promotion, advertisements, TV show appearances, etc.

    How do films earn money?

    Films have multiple sources from which they earn revenue.

    Box office

    This is the revenue collected from the sales of tickets. It is the most known source of earnings in general. The revenue from the ticket sale is distributed between the cinema owner and producers

    Streaming rights

    OTT platforms like Netflix and Amazon Prime Video have changed the way audiences view content. Prior to this, cinemas and televisions were the most common medium to view content. But OTT has become an essential part of the entertainment ecosystem. OTT platforms pay the producers to purchase the film and show it exclusively on their platform. This trend has risen more since the Covid-19 pandemic. Many films are actually only made for OTT platforms and it is their primary source of income

    Television rights

    Television channels pay to film for broadcasting rights. Like OTT, these are exclusive rights. Television channels pay the films to showcase on their channels eventually to attract and retain audience.

    International distribution

    Not all films earn through international distribution. Films released internationally generate revenue through box office sales in various countries. The rights to broadcast the films are sold to the distribution houses of those geographies. This is the case for popular and big-budget names. Consider a movie like Marvels’ Avengers. It has an audience all across the globe. These kinds of films earn through international distribution.

    Merchandising

    Successful and widely popular films earn through merchandising. They can be by the sale of t-shirts, toys, gift accessories, etc. Like international distribution revenue, this revenue is not earned by all the film. Generally, popular film franchises have merch sales associated with them.

    Endorsements

    Have you ever seen a brand shown in a popular scene or a song in a movie? That is the endorsement the movie is doing for the brand. Companies pay for their products to be featured in the movie, which can generate additional revenue.

  • Product Engagement

    Product engagement is the measure of how much the users interact with your product. Product-led and software-as-a-service (SAAS) products can have thousands to millions of users using the product. The quantified data of how many users and how often they use the product is the product engagement.

    What is the importance of product engagement?

    Simply put, you cannot improve what you cannot track. Product engagement tells the intensity of how users are using it in a quantified way. Based on the engagement, one can perform actions to optimize the usage.

    How is product engagement measured?

    There are multiple methods by which engagement can be tracked. A business has to decide its primary engagement metrics on which it can focus. Naturally, there is no use in going behind each and every possible metric as it can lead to distractions and a lack of results. A business decides what engagement metrics have to be tracked based on the nature of the product, pricing, number of customers, their needs, etc. The primary set of engagement metrics defines the north star metrics of the product.

    Some common product engagement metrics –

    1. Usage metrics – This is used to track how many users are returning to a product at a particular frequency. This metric has significance as it tells if is there a good motivation and value added to the user so that he or she can return to the product again. Daily active users or weekly active users are examples of usage-based engagement metrics. Eg; for Instagram, the number of users coming to view stories on a daily basis tells the engagement of the product.
    2. Transaction metrics – For high volume and high transaction-based products, how many transactions have been made is a good measure of engagement. Consider the example of Amazon. It sells thousands of products online daily. It makes sense to measure the transaction completion for them, as it directly adds to their revenue.
    3. Value delivery metrics – For businesses like Adobe selling a suite of products as a package, measuring the number of actual value delivered to the users can be a good sign of engagement. For eg; a user completing editing a photo in Photoshop or completing the scanning of an image is a sign of value delivery. How many such events occur tells the level of engagement of users with the product.

    Characteristics of product metrics

    Product engagement metrics are defined by the company. Good product metrics always put the customers in the center. It takes care of the value delivered to the customer rather than any benefit to the company. For example, revenue earned can be a bad choice of engagement metrics. This is because it focuses on the benefit of the company and not the value delivery to the customers. Customers pay only when they find value. Rather, in the above example of Adobe, the value completion is a better choice as it focuses on the customers.

    Product engagement metrics should always be a leading indicator of revenue, but not the revenue itself. As we saw in Adobe’s example, when a customer has been delivered with the value and is satisfied, it increases the chances of him or her coming back to the product and eventually paying for it, or if paid continuing to pay.

    To summarize, good product engagement metrics are those who
    1. Bring value to the customer
    2. Are leading indicators to the revenue

  • Customer Activation

    Customers might pay for your product at first. But often it is the case for product-led companies that they do not use the product at all or might use a minimal part of the product. These customers are at the risk of churn. This is more serious for the products who charge annual subscription charges. Customers might not understand the value but if they have paid for an annual plan it would lead to a great frustration and eventually a negative image of your product in the mind of the customer.

    This can be because customers might not have activated your product. Customer activation is the time when a user realizes the value of a product. It is when a customer learns the benefits of the product and goes ahead in the process to actively engage in it.

    The goal of customer activation is to move customers from a passive state to an engaged state.

    How to define customer activation?

    Activation is different for different products. Companies define activation based upon their product use case as every product provides a different value to customers. Here’s how you can define customer activation:

    Define Key Activation Metrics

    Identify the core actions that represent activation for your product. This might include creating an account, completing a profile, initiating a trial, or reaching a certain level of product usage. Establish measurable metrics that indicate successful activation. For example, you might track the percentage of trial users who convert to paying customers within a specific timeframe.

    Understand user journey

    Define the onboarding process for new users. Consider the essential steps users need to take to experience the full value of your SaaS product. Measure the completion rates of key onboarding steps. A successful onboarding process increases the likelihood of user activation.

    Establish funnel

    Understand the funnel towards the completion of the activation. Analyze the step wise performance for the activation funnel. Act upon the steps which have the highest drop in the funnel.

    Examples of customer activation

    Activations will be different for different types of product.
    1. For a messenger app, like whatsapp, it can be when a user sends first message
    2. For a CRM, like Salesforce, it can be when a user adds their first lead
    3. For a payment software, it can be when a user completes their first payment
    4. For an ecommerce product, it can be when a customer makes their first purchase

    Common strategies implemented to increase customer activation

    Onboarding

    Providing a frictionless and most obvious user onboarding process helps realize the value to customers easily. Once the value has been realized quickly it is highly probable that the customer can stick to the product.

    Promotions

    By promoting or by offering discounts or added incentives can motivate the user to sign up to the product and explore.

    Education

    By educating the users about the product and the value it offers helps understand the user clearly about the product. This helps build a smooth frictionless experience for the user. Guides or education materials when kept at the right places inside the product also helps the user, as they get to know about the feature when they are actually trying to do it.

    Personalization

    With personalized user experience, a user better understands how to use the product based upon their preferences. For example, an onboarding process designed for a particular industry.

    Support

    Customer support is one of the most important touchpoints in a product. When a customer is stuck at a point and does not know what to do, it is a highly probable thing that he or she might contact support.

  • Understanding the SaaS Customer Lifecycle

    Software-as-a-service (SaaS) is on a rise. This is because SaaS products are flexible to use in terms of pricing. A typical SaaS product works on a monthly or annual subscription and is based upon the usage of customers.

    What is a SaaS Customer Lifecycle?

    A customer lifecycle for a software-as-a-service product is the continuous journey from knowing about a product to using the product to becoming a promoter of the product for others. This is a continuous cycle as by nature it has to continuously deliver value to customers. It is not something that a customer buys and forgets at one time.

    Companies always have this challenge to continuously prove their value to the customers. This is what makes the customers stick to the product and pay subscriptions every month or year. A SaaS lifecycle has different stages that deal with different customer mindsets.

    Awareness

    This is the first step of the life cycle. Probably the most crucial one. Customers have requirements for which they try to search on the internet for possible solutions. Companies put their best efforts into making potential customers aware of their products via different kinds of marketing.

    The goal of this step is to maximize the impressions of the potential customers to let them know about the product.

    Metrics tracked – the total impressions and clicks.

    Acquisition

    A typical SaaS product has a freemium or limited-time free trial or a free trial of a part of the product. This is meant for the customers to try their hands on the product first and get to know how it works. This is an important part of the SaaS process because in most cases there are no manual salespeople explaining about the product. A customer has to figure it out on their own.

    Acquisition is the step where the prospects are converted to trial users. This is closely related to the awareness step, as after the appropriate education only a prospect signs up for a trial.

    Metrics tracked – Conversion rates, number of sign-ups, trial registrations.

    Onboarding

    Once a prospect has signed up for the trial, the acquisition is successful. The next step is to make a conducive environment for the prospect to realize the value of the product. This is where the user experience comes into the picture. How easy can you navigate the users from one point to another? How difficult is it for them to figure out what they are looking for?

    Metrics tracked – Onboarding completion rates, time to first value, user engagement during onboarding

    Activation

    Activation is when the user realizes the product’s value for the first time. The goal is to encourage users to take key actions that indicate they are getting value from the product.

    Customer support and the knowledge base regarding how to use the product are important for a customer to get activated. This step is crucial as it is the very point when a customer can decide whether to continue using the product or not. It is not only about providing value to the customer but also how easy you make them to realize the value. Often users can get stuck at a point in the product exploration journey. But whenever there are blockers, they should be able to figure out how to go past them. This is done by quick & responsive customer support, and knowledge base at the right places.

    Consider a case where a user tries two different products. They eventually figure out the value that both have to offer. The user gets to the value of one product in a few minutes but requires a few hours to get the value of the second product. The user would prefer the first one.

    Metrics tracked – Time to activate, feature adoption rates, successful task completion

    Engagement

    SaaS products have to continuously prove their worth to the customers. Once the users are activated and find the product to be satisfactory and purchase the product, they need to be continuously engaged with it. Engagement is when they are using the product regularly. This usage frequency can be different for different types of products.

    Companies have to empower the customers with the right tools to let them know about the different features of the product.

    Metrics tracked – User activity, session frequency, time spent in the application

    Retention

    Retention is encouraging customers to a point where they are ready to purchase the subscription in the next month or year. This is where the power of SaaS lies. If customers are satisfied, they pay for the product regularly. The crux of retention is to master the art of onboarding, activation, and engagement.

    Metrics – Churn rate, customer satisfaction scores, customer support interactions

    Expansion

    In any business, it is more difficult to acquire new customers than to retain older customers. The goal of expansion is to generate more and more revenue from the existing customers than the previously paid price by them. This is done by cross-selling different products or upselling the existing ones to a higher tier of pricing. A great help from the customer support and customer success teams is the deciding factor for SaaS expansion. The expansion opportunity is more with large enterprise clients as their ticket size is very large.

    Metrics – Expansion revenue, upsell conversion rates, average revenue per user