I just researched few business operation challenges that are faced by SaaS (software as a service) provider & cloud provider, I am sharing what I found here:
- SaaS and cloud computing companies have wafer thin margins (a.k.a lower margin businesses). According to SaaS update (April 2011 2008, pg 15), Their operating margins are just about 3%. You can do quick search to know past operating margins for the SaaS and cloud provider of your choice.
- SaaS and cloud computing companies have to manage the customer churn rate which means these companies have to put efforts in retaining customers. Churn rate is a measure of the number of individuals moving into or out of a collective over a specific period of time. Now managing churn rate is a challenge because retaining customers is difficult and time-consuming. And customer retention is important because in the pay-as-you-go nature of subscription businesses, the customers pay only if they continue to use the service. Thus managing customer churn rate is a challenge for SaaS provider and cloud provider.
- Cloud provider and SaaS provider needs an upfront investment to build sales capacity needed to grow the business over time. And so if they invest less, they do not have enough sales capacity and hence they will miss growth opportunities. Thus they have to make a careful trade-off between fast growth and high cash burn rate.