In my first blog post, I discussed the importance of being tenant-aware — that is, looking at your SaaS business from the perspective of each tenant. We dove into the technology and methodology of tracking tenants with metrics and quickly solving problems caused by tenants on the platform. In this post, I would like to switch over to focusing on the business aspects of being tenant-aware
Like any other business owner or executive, you are no doubt hyper focused on your top and bottom lines. For the top line, that means growing your revenue by improving customer usage and satisfaction. For the bottom line, that means optimizing your spending, which can only be done if you can accurately identify and reduce the biggest expenditures. In a SaaS business, this can be done well only if you have accurate usage data on your customers, i.e. your tenants.
In the last blog post, we saw how engineering can provide you with metrics that show how much each tenant is using the various services on your platform. Now let’s see how this knowledge will help you improve your top and bottom lines.
You are already tracking your costs. I’m sure you know how much the hardware, software and hosting is costing you. But how much does each customer cost? If you don’t know this, how can you know which customers are responsible for most of your costs? How do you know if a customer is even profitable?
Cost per tenant is one of the most important metrics to have on your business dashboard When you can see for every given time period (hourly, daily monthly, etc.) how much each tenant is costing you in terms of platform cost, you have gained actionable information on which you can then make critical cost-reduction decisions.
Prior analyses may have shown that database usage was eating up a big chunk of your profit. But by analyzing cost per tenant, you might now realize that actually just three small customers are responsible for half that database cost. Or you might determine that the cost of running one of your services isn’t really expensive, but rather that a few tenants are overusing it.
Possessing granular cost breakdowns like these lets you avoid a common, costly, and ultimately futile attempt at changing your architecture because budget folks think it’s too expensive. Instead, you can focus your efforts on actions that will improve both the top and bottom lines, as discussed below.
Without tenant utilization detail, companies usually just look at customers by revenue. But this often leads to focusing on the wrong customers, as bigger customers may be draining much of your resources. That is, while they might contribute a lot to your top line, they might detract from your bottom line.
A much more useful metric is customer profitability. Are you even making a profit on a customer, and if so, how much? For customers that are highly profitable, you should focus more human resources on interacting with them, encouraging more usage of your platform, ensuring renewals, and so on.
Now what about customers that are not so profitable, or even ones you are losing money on? Those should require a different kind of focus; after investigating why these customers are so costly, you may have a number of options:
If you are not already doing so, you might also want to consider the tenant-aware billing model discussed next.
Most SaaS companies charge their customers based on a simplistic model , such as number of users or per module, etc. But once you know the true cost this customer is placing on your platform, the billing model can be more sophisticated. For example, you can add additional billing for customers that have low profitability.
As shown above, smaller customers sometimes pay less but put a lot of strain on your platform. If you charge those customers more, you can improve your bottom line without raising costs on all your customers, which could risk attrition from your most profitable customers. Regardless of where your platform is hosted, you can use this more advanced cost-based billing model to ensure that each customer pays a fair share of your costs.
Related to all this, of course, is the age-old favorite sales tactic of discounting. Finance is always worried about sales reps giving too large a discount to customers and hurting the bottom line. Now with precise data on a customer’s costs, finance can allow discounts for highly profitable customers and not offer them to customers with low profitability. This data-driven approach can align sales and finance to work together to find a balance between customer acquisition and maintaining the bottom line.
A less obvious but equally critical area to monitor is how your tenants are using your product. While you already carefully analyze how much activity there is on your platform, understanding how each customer is using your product can be quite powerful.
For example, overall usage of your platform may be normal and even growing, but that simple metric may not reflect the fact that particular key customers are actually lowering their usage of your product. Deeper analysis may also show that customers are not using key or new features. Information on how much each customer is using your product — and more specifically, which features they are or are not focusing on — becomes highly actionable to several key stakeholders in your company.
One last topic relating to this discussion is trending. Not only do we want to see what each tenant is doing right now, but we also want to look into the future and make projections. While the operations and finance teams already do this without any tenant visibility by simply looking at overall product and platform usage, they are missing the individual customer trends. Once they have tenant-specific data, they can make this data actionable by projecting the velocity of various customer types.
If a large number of smaller customers are growing quickly, this can be an early warning sign that capacity will need to grow and might grow exponentially once the customer gets bigger and continues to grow. Alternatively, if only a handful of very large customers are driving your usage growth, you will be able to increase your capacity more carefully.
Of course, everything I’ve discussed so far is only a sampling of all the ways in which your business can leverage tenant utilization data to improve both the top and bottom lines and improve the overall product and satisfaction for all of your customers. Hopefully your business teams can work side by side with the engineering staff to leverage all this new data and make sure it’s actionable within your organization.
Once your organization embraces the value of carefully tracking tenant data, I’m sure you will come up with many more valuable ways to leverage this data and improve the business. As you start doing this, I hope all of you share your more creative and consequential ways of leveraging this data with me!