B2B vs B2C SaaS - Which Is More Profitable?

in this video I'm going to talk B2B versus b2c SAS and talk about which one's more profitable it's going to be a bare knuckle cage match between B2B and B to C and if you hang out to the end of the video I'm going to tell you a third type of SAS that I believe might be the best of all I'm Rob Walling I've started six companies had multiple exits written three books about building startups and I've invested in more than 100 companies so let's talk about it B to C what is that well it's business to Consumer so it means your business is selling to Consumers B2B is when my business is selling to other businesses and in the case of SAS that we're going to talk about today software as a service you've heard of B2B SAS companies like slack Salesforce MailChimp zapier drip sign well savvical castos Squad cast some of those are huge massive public companies and others of those are bootstrapped and mostly bootstrap startups that are in this microcomp Tennessee ecosystem what's interesting is when we think of a B to C subscription apps not SAS just subscribe encryptions we think of things like Netflix Spotify HBO Max those are content companies right you're not paying for the software you don't care that there's software there what you want is the music or the new season of Bridgerton or the next episode of House of the Dragon so those are not companies that we consider SAS and in fact be to see SAS is actually quite rare most SAS is aimed at other businesses small B2B SAS is extremely extremely rare in fact I struggled to come up with a SAS app that truly caters to Consumers that's because b2c SAS if it works works at really large scale I mean where you have a million or five million customers the reason that it's so rare and that it really only works at Scales because building and managing SAS is expensive right and finding customers is expensive and onboarding them and keeping them around and consumers are cheap consumers don't want to pay a lot and they're gonna churn you're gonna have a high churn so really doing it at a small scale we'll take a look at some numbers in a minute of how that actually looks very very difficult and most people who start in b2c at a small scale they quickly turn and start selling to businesses is usually what happens here are some examples that I was thinking of that you might think of as B to C SAS but really they all kind of switch to B2B or they have the bulk of their revenue comes from B2B so the first is Dropbox and it really did start as selling to individuals but these days if you go look at their public filings because they're a public company now eighty percent of subscribers use Dropbox for work so you are effectively selling it to businesses and if people are not using it for work I know that I would not have upgraded I didn't have the need to upgrade until I started using Dropbox at my day job Apple's iCloud is another one right it's built on top of a hardware business and it's estimated that less than two percent of Apple's revenue is from iCloud it's a service and it is storage service but it's apple right and they're making it work at scale this is not a 10 000 or 5 million dollar business this is something at massive massive scale and frankly the economics of it wouldn't work without the fact that they sell all this Hardware so if you're not in the position where you're going to sell hundreds of millions of phones you probably don't want to go down that path another example is Microsoft Office right because they sell Word and Excel as a subscription to Consumers it is a business but again it's at scale right this is not what we're talking about when we're talking about folks watching this Channel and I even thought of two examples I'm intimately familiar with which are castos which is podcast hosting and Squad cast which is podcast recording because they have consumer tiers for folks hosting Dungeons and Dragons podcast or fly fishing and they do make some money from those the tiers are whatever 14.19 a month but I'll be honest I know the end how their company works because I'm an investor and they make their real money from the more expensive folks the cheap consumer tiers with their churn and with their low price just do not make up a substantial part of their business so I might sound down on b2c SAS and I kind of am I ran a couple b2c companies one was a software company one was a physical Products company and very different economics than a B2B company and so let's just take a look I thought of a true relatively small scale b2c sets it's one of the only ones I could think of the business is called roll 20 and they have two pricing tiers of six dollars and ten dollars a month and it is a Dungeons and Dragons virtual tabletop get on Zoom with your friends you pull up roll 20 and you can move tokens around roll dice and can basically play a tabletop version of d d in roll 20. let's do some quick math based on their six dollar and ten dollar a month price points they also have a free plan we're gonna average that to eight dollars a month so if they get a thousand customers they're at eight thousand dollars mrr that won't even pay salary plus benefits for a single employee thousand customers since they have their free plan let's assume a pretty high free to paid conversion rate over six to 12 months and we'll say it's a three percent conversion rate so they need 33 000 free users to get 1 000 paid customers to be at that 8 000 mrr I'm gonna assume seven percent churn consumers churn higher than businesses almost without exception I bet their churn is higher than seven but I'm trying to give them the benefit of the doubt in this example every month at a thousand customers they're losing 70 customers so they need another 2300 new free users every month to replace their churning customers in additionally let's say you have 20 conversion rate from visitors to free plan you need 11 500 qualified visitors a month and that's just to keep your head above water at 8K mrr when you really can't afford an employee you can't afford to pay for any of this traffic because a payback period of four months is 32 dollars and that's not enough money to invest in paid ads or invest in a lot of acquisition channels in addition just to get to a thousand customers you would have needed to drive 165 000 qualified visits to your site at a 20 conversion rate the economics are just really really bad and I haven't even talked about profitability right this is just top line revenue but you can imagine that trying to build a profitable business on top of these bad unit economics are going to be challenging challenges that consumers are cheap and so six and ten dollars is what they're willing to pay so think about what Netflix Spotify and Hulu and HBO Max are priced at consumers don't want to pay more than 10 or 15 dollars whereas businesses will pay fifty dollars a hundred dollars a thousand dollars a month if it solves a pain point for them consumers also churn more often than businesses and you have basically zero marketing costs to work with them because the average revenue per account is so low I'm talking a lot about b2c so far I'm gonna dive into a B2B example in just a moment give you my conclusion at the end of the video but there's a companion video to this one and if you're thinking about profitability you should go check that one out it's called microsass products are they actually profitable where I dive into the economics of what it looks like to build a micro SAS all right so let's take I'll say a hypothetical B2B SAS but these numbers are pretty typical for pricing of 50 100 150 a month pricing plans so with this let's assume the average revenue per account per month is eighty dollars so you need 100 customers for that same eight thousand dollars of mrr that we looked at with roll 20. and let's assume one percent visit to trial and fifty percent trial to paid you have credit card up front you need 20 000 qualified visitors total if you were called with roll 20 you needed 165 000 and I'm gonna assume your insurance since its businesses is a little lower let's say three percent so you're turning about three customers a month so that means you need 600 uniques a month to replace them as opposed to that eleven thousand five hundred number that I talked about above and in this case you can pay for traffic because you have budget with a four month payback period you can spend three hundred and twenty dollars to acquire each customer the economics of this business are just completely different and and this is an average B to small medium-sized business SAS app there are businesses with much better economics that have net negative churn so you grow even when you don't add customers it really is night and day in terms of the amount of Revenue that you compile on without going through the headache of supporting thousands of customers and the high churn you're plateauing which is often what happens with folks who have these low price points in terms of profitability both could be profitable of course because your bring bringing Revenue in and as long as you watch your expenses you can have a profitable B2B or b2c SAS company my opinion B2B is far better because you can charge more because your churn is lower and for all the other reasons I went through as I walked through those examples in a minute I'm going to give you my bonus tip and talk about the third type of SAS that I think is the best of all but before I do that I host a podcast every week called startups for the rest of us and you can head to startups for the rest of us.com or go into any podcast app And subscribe I really encourage you to do it each episode is me talking either with a guest sometimes answering listener questions sometimes I have solo Adventures where I talk about SAS theories I've shipped that podcast every week since 2010 and I love it if you'd come and join the community over there startups for the rest of us.com and now for my bonus tip there's B2B there's b2c and then there's B to both which is when you have a dual funnel and maybe this isn't technically b2c but there are so many companies that I see that are crushing it they're growing really well and have a very stable growth curve because they sell not only to more higher end customers who are paying 500 or 2 000 a month but they also have a funnel of prosumers or consumers castos and Squad cast who I mentioned earlier who both cater to podcasts one is a hosting provider and the other is recording software they have this dual funnel where they have folks on the 15 to 20 a month plan they're obviously consumers and or prosumers and then they have these big podcast networks or these companies that are willing to pay them thousands a month and when you have that dual funnel you have the power of having a lot of customers which is good in the sense that it builds a brand people talk about you online people talk about you in Facebook groups and slack groups and in forums but you also have that power of the high average revenue per account because you're Landing these big deals that give you these level steps these level UPS in mrr that the small Deals they pile up over time and they turn a little faster and they give you a consistent growth but not these big jumps that the high end of a dual funnel can give you thanks so much for joining me today I hope you enjoyed this video hit the like And subscribe if you did and next week I'll be back with another video on building launching and growing your SAS [Music]

Channel: MicroConf

Views: 29,842

Keywords: MicroConf, Saas, b2b saas, b2b vs b2c, what is b2b sales, b2b sales, b2c, b2c marketing, b2b meaning, what is b2c, b2b marketing, business to business, business to consumer, what is b2b and b2c, b2c saas, saas for beginners, saas for small business, saas strategy, saas startup strategy, saas profit, saas revenue, saas sales, saas b2b vs b2c, saas b2b business model, saas b2c, saas b2c ideas, saas b2b ideas

Id: CW5N1KjwJlc

Length: 10min 26sec (626 seconds)

Published: Mon Oct 31 2022