Put the Fries Down: What do SaaS and Fast Food Chains Have in Common?

Tami Reiss is the founder of The Product Leader Coach where she works with product leaders and teams to realize their potential by focusing on their strengths.

*this piece was coauthored with Kevin Broom who will be publishing this on LinkedIn and we will both be attributed authors when it is posted on the Insight Partners blog, but Medium doesn’t allow that.

The promise of SaaS is that by paying for a subscription, customers are investing in future innovation of the product which they will get to use with no additional cost. The goal of SaaS companies is to increase valuation through revenue growth, which is often includes cross-selling additional products. This is because there has been an evolution of SaaS metrics for valuation that has shifted from revenue to profitability, then to LTV/CAC ratio, and now heavily biases?Net Retention. This emphasis on “land and expand” sets SaaS Providers at odds with their original promise to their customers customers.

As a CPO, you have to find a balance between these two competing priorities. How can you satisfy the need to get net retention above 100% while also not creating friction with existing customers who think they are already paying for new functionality through their subscription?

A simple, real world way to think about this is packaging and positioning at your favorite fast food restaurant, like Burger King. The hamburger is your core product and the fries represent the cross-sold one. We can take the analogy a little further and say that upgrading to a double burger is akin to upselling. You may also offer milkshakes, drinks, and desserts… more cross-sell opportunities.

The potential for friction occurs when a SaaS customer feels every few months they are being offered a new menu item to purchase alongside their burger. They may begin to feel nickel and dimed and may start looking for alternatives where the full services are available at a consistent price. This is frequently the case with the new entrants to your category who will frequently over promise how full-suite they are to steal your customers. This situation increases risk of churn, which has a cascading impact on revenue growth and company valuation in very negative ways.

So how do you minimize churn and improve Net Retention?

Option 1: Increase the price

Keep advancing your product and charge everyone a little bit more each year. This is NOT a good idea. There is no segmentation or levels in this approach. Your price will average towards a mean that will price you out of the conversation with some prospects who will conclude your product is out of their budget and / or too robust for their needs. Others will say it’s not enough. And a third group will think it’s a bargain, which means you are leaving money on the table. None of those situations sets you up for a good metrics that lead to good company valuation.

Option 2: Ala Carte menu

Offer fries and milkshake as separate items if there is a (stand alone) market for that. This can also open doors to customers who like someone else’s burger to start coming to you for fries and eventually shift because you now have a relationship.

Be careful though as for each ala carte option you have to decide where you want to be in the market (leader, low cost etc) and that you’ll have to invest in maintaining that position for every item you add on the menu!

As a warning, if the item doesn’t always fit nicely on the menu, it often distracts from the position of the core product. Therefore, you should pick ancillary items that are directly adjacent to your core product. Ones that you are comfortable maintaining or increasing investment based on customer demand. Think of this as Burger King or similar burger-centric restaurants offering the Chicken sandwiches instead of starting to sell tacos, which is too far from their specialty.

Option 3: The Combo

What do fast food chains do so that when you order they don’t ask five questions about what additional items you’d like to order? They put them all together as a meal. By combining a burger, fries, and drink into a package targeted at a specific customer they sell all three together. They offer the ability to ‘Super Size’ which is similar to adding users and storage. They also bundle milkshakes, pies and double burgers for other target customers. Just want a basic burger? It’s available, but relatively hard to find on the menu.

If you’re a smart product leader, you’ll create similar bundles designed for targeted segments. They are purchasing a?solution?at that point, not a product. If a prospect chooses to only subscribe to your core offering, they know the rest of the package is available as their needs grow, and that they’ll need to pay for it. Your Customer Success team can always follow-up to make sure they are satisfied or hungry for more.

The impact of bundling is first that it increases your Average Selling Price (ASP) and therefore each booking increases total revenue more than selling a single product. Beyond that, if a customer has bought into using your product to fulfill multiple jobs, it is harder to leave because they will need to find two competing products. This means your products become stickier, and your LTV generally increases at a faster rate than your CAC. Win-Win for everyone.

How to do create the best combos?

First, think about your segments. What additional needs do they have which you are qualified to address? Build additional products for those segments. Cross-sell them like you would fries or a milkshake, and target the existing customers that are most interested in the add-ons. Bundle them for new prospects who fit the profile. Soon you’ll have a significant group of customers who are paying you for more than one product.

Over time, you must continue to advance your core product?and?these ancillary ones (those expectations about paying upfront for SaaS tools apply to fries and milkshakes as well).

If in the future so many of your prospects are selecting that additional product (and you have a newer thing to cross-sell, aka dessert), consider making the older add-on part of the core as default. There first hamburger probably didn’t have ketchup and mustard.

As you are creating your combo, be sure to look out for opportunities for M+A and partnership to get you best in breed and best in suite capabilities faster than building yourself. Think about how Burger King now sells the Impossible Burger; they didn’t develop a plant-based protein on their own, but they are capturing the market trend away from animal meats and new customers.

Finally, it’s imperative to stay on top of trends in packaging and to keep innovating on your pricing and packaging as much as your products. You must be consistently focused and committed to updating your menus, pricing and packaging. They are never “done”. Your competitors are also constantly trying to find the right balance. They have the same challenges. They are adding menu items and bundles that will attract new customers and?your?customers. And remember, just because one of them randomly adds taco’s to their menu, doesn’t mean you have to follow their lead.

Hi! I’m Tami, the founder of?The Product Leader Coach?where I work with product leaders and teams to realize their potential by focusing on their strengths.

If you enjoyed this post, I am available for product leadership coaching or team training. Learn more about?my services?and upcoming?children’s book.