Going forward, the SaaSification of IIoT it will infuse much more flexibility and innovation within the industry. Here are three things IIoT companies, especially startups and growth-stage companies should consider as they build their business or make the strategic transition to SaaS:
How Efficiently are you Acquiring New Customers:
When IIoT startups transition from a single transaction model into a SaaS model, there is usually a significant hit to the bottom line as the business is no longer funded by large, one-time upfront payments. Rather, the company’s growth is driven by more customers paying smaller, recurring revenues over time. As a result, the price of acquiring each customer is a fundamental consideration that determines the company’s ability to scale. Tracking Customer Acquisition Cost (CAC) Payback will be key to understanding how quickly and predictably your company can recover its sales and marketing costs and sustainably increase its customer base to fuel top line growth.
How Loyal is your Customer Base:
Just as importantly, IIoT startups must successfully retain and grow the customer base. If you acquire new customers productively only to see them churn after one year, you need to reinvest sales and marketing dollars to acquire another customer to replace this lost revenue. This trend quickly becomes unsustainable. An effective indicator we use to gauge the health of a company’s customer base is its Gross and Net Revenue Retention Rates. The higher the retention rate, the longer the customer will be generating revenues to drive growth in the business. Low retention rates indicate a “leaky bucket” problem and should compel companies to evaluate its customer success function, the strength of its product-market fit, and pipeline qualification processes.
How to Reimagine Your Sales Compensation Plan:
Because larger, one-time transactions will no longer form the bulk of your business, you’ll need to reformulate how you compensate your sales team. Some companies calculate sales team compensation using Annual Contract Value (ACV) while others use Total Contract Value (TCV). The right option for you depends on how you want to manage your cashflow. Also, consider how you can incentivize multi-year deals to build a recurring revenue base. Finally, you’ll need to change the culture of your sales team. Customer management and success become infinitely more important when you need to renew and upgrade contracts on a regular basis. Your sales team will need the resources and expertise to nurture closer relationships with customers over time.