SaaS 2.0: The Evolution to ‘Software And Also Services’

February 04, 2024 4 mins read
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Dear Reader,

For SaaS startups, services aren’t the enemy of SaaS – they’re the growth catalyst. Your SaaS offering is the core, akin to an assembly line. Your goal is to get it as commoditized, efficient, optimized, lean and profitable as possible. (𝕏 Tweet This)

This core will never fully align with the unique needs of your ‘snowflake’ clients. The alpha profits are in customizing & supporting this core to fit the specific use cases or industries of your customers.

Services are the bridge to unlocking unparalleled adoption, retention, market expansion and enable you to bootstrap to scale.

TLDR; If you sell software, also sell services!

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The dream? A seamless, frictionless platform that epitomizes efficiency, keeps the team lean and drives product-led growth. That’s the core, always will be. Services doesn’t f’ with that.

The fear is fair — we’re software purists at heart. Services could dilute our core, Monthly Recurring Revenue (MRR) is the valuation holy grail, the strain on our tiny team, and the technical debt on our fragile codebase.

Services cover everything that boosts your solution value & impact. From client-specific configs, hyper-care support, data migration & cleaning, implementation & onboarding, training, strategic advisory, integrations and roadmap feature acceleration. Any specialized activity your team delivers to make your platform more effective for customers…. that they are willing to pay a premium for.

Reality Check: Services in Action

You’re likely already providing services for free. From client onboarding & configuration by support staff (probably you) to compensate for missing features, emergency patches by your dev team or custom integrations. Your product roadmap is inevitably shaped by your biggest logos, and your SLA likely exceeds typical support (your big logos probably text you). Earning from this chaos? That’s services.

The Enterprise “MCD” Budget

If you have enterprise clients, they likely have budgets set aside for the exact services you’ve been providing for free, known as “MCD’s” (Modify/Change/Delete). They expect you to offer services that complement your software, which you might have assumed are included in the MRR.

5 Benefits of “Software And Also Services”

  1. Technical Excellence & Partner Ecosystem: The features designed for a frictionless user experience are the same as the ones that enable a partner ecosystem. Platform scalability, API first, seamless integration and clean onboarding aren’t just for users. This is the core of a model accessible to third parties to build/extend/integrate/implement.
  2. Non-Dilutive Capital: Services revenue is real cash, often up front; it’s a cash infusion that doesn’t dilute equity and can be a path to bootstrapping, bit harder, but your terms.
  3. Customer Retention & ROI Acceleration: Services means you are closer to your customer, it deepens the relationship, speeds up adoption and can pre-prevent churn. Being closer means you get a front row seat to how the customer thinks about success.
  4. Product Excellence & Expansion: Feedback and insights from delivering services are gold. They guide the roadmap, refine market fit, and identify both horizontal and vertical expansion plays.
  5. Strength Through Diversification: A second revenue line on your P&L via services is a reality, way before you are ready to introduce a second SKU.

What Now?

As you scale, services will increasingly become a thing, whether provided by you, or as part of a partner program. Whether it’s the HubSpot playbook, subsidizing services to protect subscription revenue, or where services stand as a mega profit center, the choice is yours. What’s clear is services from SaaS is worthy of investigation.

Deciding how to implement services, through pricing tiers, à la carte options, Statement of Work (SoW) driven, Time & Materials (T&M) packages, or other models is a readiness question.

As always, you are welcome to grab time with me.

(LinkedIn | Twitter | Tiktok)​

James

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