Software-as-a service has been the new trend in IT for a while now, but not all of it can provide customers with low SaaS TCO. Many companies have to spend more on SaaS than they would if they were using their own software and hardware infrastructure because that’s what is promised by most vendors. We’ll know more about SaaS TCO as we go on in this article.
When it comes to SaaS TCO, you may have saved your customer money by using multi-tenant architecture, but it’s time to start thinking about the Total Cost of Service (TCS) for your business. TCS is calculated as total cost of delivering service and if you want a profitable cash-positive company then lifetime customer value must exceed this number.
In SaaS TCO, the value of the customer to you is not just their purchase price, but how much they will spend with your company over time.
Bear in mind in SaaS TCO that when you think about the value of your product, it is easy to see that some costs are on one side and others are on the other. If there were no cost at all for either party then any new innovation would be worth its weight in gold because everyone involved with a disruptive technology gets their money back from lower prices.
Many people are not aware of the total cost to own a product, but there is also the Total Cost of Service (TCS). This includes all costs that go into keeping up with warranty claims and servicing
The margin delivered by the sales operation, or the difference between revenue and fully loaded costs is more important to a SaaS vendor than simply maximizing profit. They should look for ways of lowering TCS (Total Cost Structure) in their company across every function, not just through multi-tenant architecture.
in SaaS TCO, SaaS vendors should lower TCS by increasing the efficiency of their business model.
It is important to examine every business activity for the potential of applying cost-eliminating techniques.
- Standardization
- Mass Customization
- Process Automation (internal and external leveraging the Internet)
- Customer Self-service
It is important to find a balance between standardization and customization when you are developing your product. Standardizing the core parts of your business will help achieve economies-of-scale across all departments, while customizing specific areas that meet customer needs will increase revenue in those sections.
Customers like self-service because it automates tasks and lowers costs. Sometimes customers would rather do things themselves, which saves them money.
