The dirty little secret behind most successful online SaaS businesses

Did you know that the dirty little secret behind most successful online SaaS businesses is that they are highly reliant upon the apathy amongst their subscribers when it comes to canceling their recurring subscriptions?

It’s no secret that in the last few years online SaaS businesses have completely transformed the way we build and scale new businesses. By “online SaaS businesses” we mean any service you use to operate and manage your business. All your recurring online products that you use for your daily work: from a variety of Google Apps, to mailing list providers like Mailchimp and other online services like Dropbox, Github, Zendesk, Slack, Photoshop and more (lots more!).

Disclaimer: We (really) love SaaS

Despite everything, we can not emphasize enough how much we love online SaaS businesses.

When we would build our first startups a few years back, we would do everything in house and build all the services we needed internally. It was an amazing experience, using tools that we created ourselves and integrating all our services together; the only thing is — it almost killed our business. Luckily, today this is no longer necessary. Building everything internally means spending a lot of money on developing tools instead of focusing on how to scale and grow your business.

There is a clear correlation between the agile & lean startup movement and the shift towards online SaaS. As SaaS has become the dominant business model for software, more and more businesses are relying on subscriptions to work faster and scale quickly. While in the past it was mainly SMBs who took up these subscriptions due to their inability to produce the necessary products in house, nowadays subscription services are reshaping the entire face of enterprise IT, with large enterprises relying on them too.

That’s why we love SaaS so much — we get to use the best tools in the world, while we can focus on our core business and scale faster than ever before. It’s also why we are building our new startup around online SaaS businesses :)

My SaaS (subscriptions) are running loose

While businesses are relying more and more on online SaaS, we have begun studying the different service usage habits of businesses and how they manage their online recurring subscriptions.

To be honest, in the beginning we just did it for completely selfish reasons: we had lots of business subscriptions, a lot of people with corporate credit cards and it became harder and harder to manage them. When we tried to understand why we didn’t have control over our online SaaS, we discovered the following things about our favorite SaaS subscriptions:

1. The dirty little secret

Back to the dirty little secret behind most successful online SaaS businesses: online SaaS businesses are designed to be forgotten. It sounds obvious when you point it out, but it’s not so simple.

When your business is growing, it’s very easy to lose track of your subscriptions. Online SaaS are highly reliant upon our apathy when it comes to canceling our subscriptions. Think of how many times you were not sure if you needed a subscription anymore or forgot you were paying for something you didn’t need.

We’ve all been there, nobody has time to login to all the different accounts, start collecting all the invoices, figure out who bought the subscription in the first place, check how much the company is actually using it and then consult with everyone to see if they still need the service; it’s a huge mess!

When it becomes harder to keep track of their SaaS, people develop an apathy towards their subscriptions. So, while online SaaS are growing and we heavily rely on them to scale our businesses, our apathy towards them is also on the rise.

2. The company credit card and expenses

Once your business starts growing, more people in the company have a company credit card. When it comes to US based business, even the smaller ones have several company cards from day 1. With a growing number of managers, departments and teams, it becomes nearly impossible to keep track of all the subscriptions.

The ease of taking out your company credit card and expensing these monthly subscriptions means that most businesses don’t know how many subscriptions they have and what they are paying for — sometimes even resulting in particular subscriptions being paid for multiple times.

To add to the problem, company subscriptions been taking privitally by staff or freelancers make it harder for the company to have real time control over the monthly expenses.

3. The scalable pricing model

Another element that contributes to SaaS being forgotten is their successful business model around online SaaS subscriptions. The SaaS business model is commonly based on scalable pricing, which means you can continue to use the service as much as you need and the SaaS platform will (in most cases) automatically adjust your tier/ plan according to your usage. Most of the time, this is great for both sides. Your company can enjoy a scalable service that sits your needs as they change, while the SaaS business is charging you more benefits from your company’s growth.

But that is exactly the point — having control over your expenses and predicting your usage is essential for growing businesses. What happens if this is not case? While customers can have the flexibility to scale, it creates the problem of overcharges and limited cost visibility.

Exception — Slack’s “Fair Billing” Policy

One of our favorite online SaaS, Slack, is really changing how the scalable pricing model works, by billing only for the seats that you’re actually using, which is pretty innovative. Not only you just get billed for what you use, but Slack will refund your account for any unused seats.

We do love those guys :) but unfortunately they are an exception and not the rule.

The post payment (“Ouch!”) moment

Because of the scalable pricing model and the dynamic adjustment of the price, most of the time we find out too late that our online SaaS subscriptions tier/ plan has changed and that we are now paying for plans we didn’t want to take and get overcharged. While not all online SaaS businesses will keep you in the dark about your new tier, it’s a huge Ouch! moment when it happens during scaling.

Nobody wants to pay for subscriptions they don’t use and, even worse, get unpredicted extra charges. In the end, all those extra costs mean we are making less money and we have less runway for our business, which can be quite frustrating. If you feel that you are the only one who is paying extra for SaaS subscriptions, you’re not alone!