Improving revenue streams from existing customers is a holy grail for hosting providers. Andrew Garney, Global Partnerships Manager, BaseKit explains how it can be achieved in the SMB segment.
Customer churn is a big issue in the web hosting industry. The strategy for addressing this so far has been to keep adding features to services in order to entice customers. This results in basic, feature-heavy services that actually add complexity, and result in higher churn, rather than reduce it.
At the same time, expanding the feature set while maintaining the same price point is simply not sustainable for providers, but given the market competition and customer’s expectations, maintaining the same price point is important which leaves providers in an unenviable position.
SMBs don’t care about technical details and they certainly don’t want steep learning curves when they adopt a new service. SMBs are busy running their business and only care that their hosting platform works, is simple to manage, reliable, and doesn’t distract from their core business. That being said, there is also great variation in the SMB market in terms of technology maturity.
For instance, SMBs tend to choose single supplier sourcing because it simplifies everything; they don’t want to get tangled up in managing complex services. Furthermore, micro-SMBs have no problem using cloud-based services if they see value in it and they’re able to save time with minimal learning curves.
SMBs are looking for minimal hassle and greater compatibility with mobile devices. The latter point is important because SMBs in general are at the centre of the mobility wave and make great use of mobile enabled working.
Adding a raft of features to their web services is not perceived as a plus point. Rather, it is seen as a downside because the learning time and frustrations that occur when getting to grips with new features outweighs the benefits, and it detracts from core business.
In short, if a service demands more learning time than they are prepared to give, they’ll simply abandon the service, leading to higher customer churn.
If the service is stripped down and consists of core features, it will be welcomed, simply because it enables SMBs to get on with their business without distractions.
In this approach lies the opportunity to increase the average revenue per user. When a customer is familiar and comfortable with the basic service, other value-add services can be added, strengthening relationships and providing extra revenue. It’s the opposite of today’s situation where basic services are built out with extra features.
Offering add-ons like service set up prises open new opportunities. For an SMB, a website is just one component in their business. By reducing the ‘pain’ in setting up a website, a platform for upsell is created.
While on the surface this may imply lower price points for the service, the opposite is actually true. Many potential customers are willing to pay more if they perceive ‘best value’ in the service and importantly, if they see the service as addressing a problem.
It’s inevitable that software-as-a-service providers will experience some level of churn. If service delivery is modelled according to the points mentioned above, upsell opportunities are dramatically increased, and it’s certainly possible to achieve negative revenue churn.
Ultimately, the way to increase the average revenue per user in the SMB market is to attract customers with simplified feature sets that can be learnt very easily; retain them by offering customization as they grow and at the point of need; and support them as they increasingly move towards mobile-centric operations.
About the Author
Andrew Garney is Global Sales & Partnerships Manager at Basekit. He is an experienced IT sales and commercial account manager with a passion for creating and optimising new Global business partnerships in the Service provider. space. He has worked for the likes of BCSG and HP in the past.