David Cummings on Startups

Economics of Customer Onboarding Programs

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David Cummings

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After talking about The Importance of a Customer Onboarding Program, it’s now time to talk about some of the economics of customer onboarding. Many Software-as-a-Service (SaaS) entrepreneurs don’t realize that customer onboarding costs have to be amortized over some period of time and that they affect the cost of goods sold (here’s a separate primer on SaaS cost of goods sold).

Let’s say the customer onboarding costs are as follows:

  • 10 hours of manual labor and hand-holding, on average, for each new customer onboarding
  • $60 per hour fully burdened cost for the implementation team
  • $600 in total onboarding costs for each new customer
  • One year amortization period for the customer onboarding costs (this length of time is debatable)
  • $600 total cost, divided by 12 months, equals $50 per month for the first year in additional cost of goods sold

So, if the SaaS service is $1,000 per month, the gross margin is reduced by 5% per month for the first year due to the onboarding program costs. Of course, customer success and happiness is much more important than gross margin, but it’s important to understand how onboarding programs play into the economics of the business.

What else? What are some other thoughts on the economics of onboarding programs?

 

Comments

2 responses to “Economics of Customer Onboarding Programs”

  1. jmrueda1 Avatar
    jmrueda1

    Hi David,

    Right now we can see a whole trend of new startups (or not so new) making online SaaS for managing projects or companies. i.e. the last one I’ve met it’s Wizeline and I have already used in our startup basecamp, pipeline, and others.

    I am curious about the on boarding costs in these kind of online SaaS business models (do they exist? / should they exist?) and in the case they exist, if it the on boarding costs should be included in the Client Acquisition Cost value (CAC = advertisement + on boarding costs ?).

    Thank you for your time,
    José Manuel.

    Reply
  2. jason Avatar
    jason

    Very important metric to consider in the operation of the business. But keep in mind if done correctly it helps reduce attrition significantly. And one thing I make sure we do after the completion of this process: “Would you give me the name and contact info of 2 other business that you know who could benefit from our solution?”…..It works!

    Reply

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