Services – 1
During a recent customer meeting, I received valuable feedback from a CMO that highlighted the growing demand for integrated services in SaaS offerings. The CMO stated: “Netcore should offer managed services under its own control and ownership. We’ve purchased your SaaS solution, but that alone doesn’t guarantee adoption or, more importantly, effective usage. Your team knows the product best, having built it. Why not provide a team that can work directly with us to ensure we achieve our desired outcomes? Without this support, in a year or two, we might question the effectiveness of what’s been delivered and start looking for alternatives.”
This was the third time in a few weeks that I had got this feedback from a CMO. As I reflected on the conversations, I realised that SaaS companies like Netcore need to consider going beyond just providing software. Clients are increasingly seeking partnerships that ensure they derive maximum value from their investments. By offering managed services, we can bridge the gap between software capabilities and real-world implementation, fostering stronger, more enduring client relationships.
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SaaS and Services have traditionally been viewed as fundamentally different business models, akin to chalk and cheese for most companies. The mindsets driving these two approaches are indeed quite distinct. SaaS companies typically focus on scalability, product development, and recurring revenue, while service-oriented businesses emphasise customisation, client relationships, and project-based work.
The economic metrics for these models also diverge significantly. SaaS companies are often valued based on their high gross margins and the predictability of their recurring revenue, resulting in higher valuation multiples. In contrast, services businesses generally have lower gross margins due to the labour-intensive nature of their work and are typically valued at lower multiples.
However, in today’s challenging business landscape, where competition is fierce and customer expectations are ever-increasing, software companies must be open to exploring new avenues for growth and customer satisfaction. This is where a thin layer of services as an add-on capability can prove invaluable.
By introducing a carefully curated set of services, SaaS companies can:
- Enhance product adoption and customer success
- Deepen client relationships and increase stickiness
- Generate additional revenue streams
- Gain valuable insights for product development
- Differentiate themselves in a crowded market
The key is to strike a balance – maintaining the core SaaS model while leveraging services to augment the overall value proposition. This hybrid approach can help SaaS companies navigate market challenges, meet diverse customer needs, and create a more robust, resilient business model.
There are three types of approaches that SaaS companies could take for adding the services layer:
- Professional Services involve providing expertise to help clients implement, customise, and optimise the SaaS solution. This could include initial setup, integration with existing systems, and training. Professional services are typically project-based and have a defined scope and timeline, aimed at getting the client up and running effectively with the software.
- Managed Services offer ongoing, hands-on management of the SaaS solution on behalf of the client. This approach involves taking responsibility for the day-to-day operations, maintenance, and optimisation of the software. Managed services can include regular updates, performance monitoring, troubleshooting, and continuous improvement of the solution’s use within the client’s organisation.
- Bundled Kaizen Services refers to an approach where the SaaS provider offers services aimed at constantly enhancing the value derived from the software. These services are bundled with the SaaS offering and focus on regularly analysing usage patterns, identifying areas for improvement, and implementing changes to boost efficiency and effectiveness. Bundled Kaizen services create a partnership where the provider is actively invested in the client’s ongoing success and evolution in using the software.
