How to Avoid the Trap of Diminishing Returns in Scaling As-A-Service Business

How to Avoid the Trap of Diminishing Returns in Scaling As-A-Service Business

The as-a-service model has transformed how businesses operate, providing flexible and cost-effective solutions for a wide range of needs. Whether it's Software as a Service (SaaS), Infrastructure as a Service (IaaS), or any other as-a-service offering, these models have allowed businesses to scale and adapt more efficiently than ever before. However, as more businesses embrace these as-a-service models, competition increases, and prices become more competitive. This intensifying competition leads to diminishing returns for companies that have not adapted their strategies to maintain their edge.

What are Diminishing Returns?

Diminishing returns, also known as the law of diminishing returns or diminishing marginal returns, is an economic concept that describes a situation where the addition of one more unit of a specific input while keeping other inputs constant, results in a progressively smaller increase in output or returns. In other words, as you continue to increase one input factor, such as labor or capital, in the production process, there comes a point where the additional output gained per unit of input starts to decline.

To illustrate this concept with a practical example, consider a company with a dedicated team responsible for processing digital marketplace orders and interfacing with customers. In response to an increasing customer base, the company has decided to increase its workforce by five additional personnel. In theory, such an expansion might be expected to yield significant business growth. However, in practice, the actual profitability of the business often experiences far more modest increases, or in some cases, even declines. This phenomenon can be attributed to inefficiencies within the company's operational processes, where manual labor and associated costs consume a substantial portion of potential profits.

The Role of Business Process Automation

To counter diminishing returns in almost any sector, businesses need to look towards business process automation as a vital solution, especially in managing the business in high competition with a large customer base. It involves the automation of repetitive and time-consuming tasks within an organization, allowing employees to focus on more valuable and strategic activities. Here are some of the processes where operational excellence can help to thrive for vendors or other businesses that sell their products through digital marketplaces or e-commerce solutions.

Product Management & Pricing: We are all aware of the complex nature of as-a-service vendor pricing structures – a vast array of SKUs, pricing tiers, product editions, billing modes, price dependency on end-customer infrastructure, etc. As businesses expand their product portfolios and SKU offerings, manually overseeing and optimizing these aspects can become increasingly complex and resource-intensive. Automating the product management and pricing product gains massive efficiency improvement for managers to streamline the quoting, and inventory management, track SKU performance, and adjust pricing strategies dynamically throughout all channels. Furthermore, the implementation of a product and price management system offers businesses the capacity to seamlessly integrate this logic across various marketplaces and distribution channels where their products are marketed and sold.

Customer Self-Service: Self-service empowers customers to independently access product information and pricing, make purchasing decisions, and manage subscriptions, reducing the strain on customer support resources. Similarly, partner self-service in the channel ecosystem equips business collaborators with the tools and functionality necessary for efficient work with their respective customers. This reduces the need for constant handholding and support from the vendor or distributor. By enabling both customers and partners to navigate and interact with the digital marketplaces autonomously, businesses can scale their sales without proportional increases in operational costs, thereby avoiding the trap of diminishing returns. This streamlined approach not only enhances user satisfaction but also optimizes resource allocation, fostering sustainable growth and profitability in the digital marketplace ecosystem.

Subscription Management: By implementing subscription management systems or platforms, businesses can not only streamline the process of acquiring, renewing, and tracking subscriptions in an automated way but also ensure seamless integration of subscription data with other critical business systems like CRM and billing systems.

Billing and Invoicing: The manual administration of subscription billing and invoicing processes is prone to errors, time-consuming, and resource-intensive. In contrast, automation brings unparalleled efficiency and accuracy to these tasks, significantly mitigating the risk of diminishing returns. Moreover, the billing automation can handle the most complex billing logic encompassing diverse global currencies, taxation, billing cycles, subscription plans, and pricing structures, including usage-based services derived from customer usage data, all executed seamlessly through an entirely automatic process.

Data-Driven Decision Making: Automation solutions generate vast amounts of data, providing insights that can inform strategic decisions. This data-driven approach can help businesses identify areas for improvement and innovation, allowing them to stay competitive.

As-as-a-service businesses continue to grow and evolve, they must confront the reality of diminishing returns due to increasing competition, low product margins, and the large number of customers to serve. To thrive in this environment, businesses should prioritize business process automation as a strategic solution. By automating processes, improving efficiency, reducing costs, and enhancing the customer experience, as-a-service providers – vendors, telcos, distributors, sellers, and MSPs, can not only weather the challenges of diminishing returns but also stay competitive and innovative in an ever-changing market. Business process automation is the key to ensuring that the as-a-service model remains a driving force in the business world for years to come.