In the Software-as-a-Service (SaaS) world one of the questions investors love to ask is, “what’s your annual renewal rate?” The idea is that products with a higher renewal rate, and thus a lower churn, are more desirable, everything else being equal. After the renewal rate question comes questions around why customers leave and under what circumstances. Not all products and markets are created equally — there’s a product stickiness spectrum for SaaS products.
Here are some example SaaS product categories with levels of stickiness:
- High
Ecommerce (switching costs, SEO, payment gateways, product catalogs, etc result in many moving parts)
Content management (especially with a high number of pages integrated and users trained) - Medium
Marketing automation (CRM integration, scoring + grading rules, email templates, landing page templates, tracking code, etc)
Payroll (the nuances of electronic deposit, vacation days, risk of error, etc make people less likely to switch) - Low
Email marketing (CSV file of contacts, email templates, DNS changes, etc)
Virtual meetings / webinars (event sign-up form, URLs, etc)
As with anything there are tradeoffs. Typically, categories with higher levels of stickiness have higher integration and consulting costs to make the system work, so there’s going to be a heavier people component, and lower economies of scale.
What else? What are some other SaaS categories and where do they fit on the stickiness spectrum?
David Cummings on Startups 