As SaaS has become the standard for software providers, it’s easier than ever for both enterprises and SMBs to access a range of solutions, and to swiftly onboard their personnel across teams and locations. However, while these benefits have been a massive windfall for vendors, it’s important that those selling SaaS solutions be aware of the flip side: it’s also extremely easy for customers to switch providers if they’re dissatisfied. As such, the providers who are seeing the most success in the field are not just those who focus on acquiring new customers, but those who invest in retaining the clients they have. Every day, the bar is set higher for what you need to do to delight your customers.
The best practices of what you can do to meet these growing expectations were a central theme to Akmazo Capital’s CEO Roundtable. On September 15th, Akmazo brought together three industry luminaries to discuss the issues that SaaS businesses face as they look to optimize customer retention–and the practices that are vital to overcoming them. Jaime Ellertson, Akmazo’s Chairman and Managing Partner, was joined by David Spitz, Founder and CEO of BenchSights, and MJ McCarthy, SVP of Global Account Management and Customer Success at Everbridge.
Here are our key takeaways from the event.
Making the Most of Metrics:
In his presentation “In SaaS, Metrics are Destiny”, David Spitz began by outlining the must-have metrics a company should pay close attention to. Individually and cumulatively, he explained, these metrics can bring to light a variety of patterns, weaknesses, and solutions for SaaS providers.
Central among these metrics are:
- Cost of Acquiring a Customer (CAC): how much will your business spend in sales and marketing to acquire a customer. CAC actually takes two forms: the cost of acquiring a new customer, and the cost of upselling an existing customer. While it’s possible for these rates to blend, it makes sense to separate them in order to get better insight into whether said costs are too high.
- Lifetime Value of a Customer (LTV): what is the total value of a customer over the period of their relationship with the business.
Taken together, these two measurements paint a picture of the effectiveness of your customer engagement activities. Are you overspending to acquire or retain customers in comparison to how much those customers are actually worth to you? In order to understand the health of your SaaS business and where your sales and marketing ROI might be faltering, it’s vital to see the overlap between these and other metrics, especially churn.
The Crisis of Churn
High churn can be influenced by several factors, and its impact on a company is material to growth.
According to a 2020 SaaS survey conducted by Keybanc Capital Markets, the sales and marketing spend to acquire a new customer was over twice as much as what it cost to upsell a customer, with the survey respondents noting that for each dollar of annual recurring revenue (ARR) they spent an average of a $1.60 for the new customer, vs. $0.69 for the upsell. Keeping this in mind, it’s clear that reducing churn is a key strategy to optimize sales and marketing, especially via LTV.
There are multiple ways to achieve this. First is extending contract lengths. There’s a strong correlation between the length of a customer’s contracts and their rate of churn: the longer the contract, the lower the churn. The more time a given solution is embedded in a client’s environment, the greater the burden of switching and the cost of replacement for that customer.
The second factor came to light during a spirited discussion with our audience–professional services offerings. Businesses that offer no professional services often see high median churn rates. However, that decreases materially when professional services are used for integration into customer systems or broad deployment enterprise-wide.
But as with CAC and LTV, one metric isn’t the be all and end all. For instance, research has shown that the fastest growing companies tend to have high net dollar retention which shows your ability to retain and grow customers through upsell or cross-sell of multiple products. The key to mapping your success is to understand the nuances and intersections of all of the metrics you have at your disposal. While not a crystal ball, they often come close.
A Roadmap to Customer Success
MJ McCarthy’s presentation took a deep dive into the best practices for customer success and customer retention, exploring the ways in which businesses can build long-term relationships that drive real value.
Drawing on that expertise, she put forward six key points that every SaaS organization should pay attention to:
- Segment your client base: “When you speak to everyone, you speak to no one.” Understand the different types of companies you’re working with, both based on size and industry. It’s likely you’ll have three buckets of clients: Strategic companies, Mid-Market companies, and Tech Touch companies.
- Strategic clients are the largest companies you’ll be dealing with. It makes sense to partner them with your most senior and dedicated account managers, who will typically have a small number of accounts in their portfolio.
- Mid-Market clients are still handled by account managers, but those managers will have a far greater number of clients in their portfolio.
- Tech-Touch clients are smaller organizations that will rarely have a dedicated AM assigned to them (though they can graduate to one). As their name implies, their primary interaction with your business will be digital–emails, portal access, etc.
- In all of these cases, you should consider vertical alignment of segments as well, as you assign CSM/AMs. Among those AMs who specialize in Strategic clients, have some focused on individual industries so that they know the language and specific concerns that, say, a manufacturing company might have vs. a financial institution.
- Hire the right DNA: Your relationships with customers depend on the quality and skill set of your team members. Do you want account managers or customer success managers? Is their focus on just renewal and usage best practices or do they need to drive growth sales.
- Compensate to drive behavior: It’s critical to balance retention and growth. Incentivizing multi-year contracts and meeting renewals $ goals should be a top priority. You don’t want to sacrifice the chance to grow your relationship with existing customers because you’re too focused on chasing new ones.
- Build a playbook and KPIs for success: KPIs will allow you to have concrete evidence of how your team is performing. Define what these should be for each role and start painting a picture of desired performance.
- Understand customer health and sentiment: NPS gives you powerful insight into how your customers feel about you. Don’t take that feedback for granted. Look at Usage, breadth of deployment in an account, number of open cases, executive sponsorship, etc.
- Define your customer journey: Land ↣ Adopt ↣ Expand ↣Retain.
That last point is especially critical because it provides you with a blueprint for continual reaffirmation of your value to the customer. As with any relationship, first impressions are vital, and providing a stellar onboarding experience is one of the best ways to build a strong bond with your clients: it starts with enabling them to quickly realize value and be “live” and effectively using the product. They should feel like you’re setting them up for success right away. This also means your sales team should think hard about single product versus multi-product sales. While the latter leads to higher customer retention, it also extends the sales process, so you need to balance the benefit of quickly acquiring a new customer vs. the risk of extending your sales cycle for a larger sale. Most providers have a “land and expand” sales approach where you “land” a new customer and then “expand” and grow sales after the initial product is implemented.
Over the course of their adoption and use of your solutions, your customer success team should be finding ways to deliver value and demonstrate the ROI of your product. Doing period health checks and quarterly business reviews with the CSM and Customer are keys to assessing customer “sentiment”. Also pay attention to indicators that your buyers are getting value and are engaged. Are they using your system? Are they attending your webinars and user groups?
As MJ explained at the end of her presentation, the best path for customer success and retention can be sorted into three categories that encompass all six of her main points–the big takeaways.
First, you need to Invest in Insight and Automation. This includes tracking the customer journey, paying attention to usage and adoption, investing in processes that help you understand your customers’ health and sentiment, such as the NPS.
Second, you have to Hire for the Long Term. This means hiring “the right DNA” and providing employees with a clear career growth path to retain them. Customers value relationship consistency with their CSM/AM’s, so you want to hire well, then continue investing in the development and growth of your team members.
Finally, you must Set Goals and Measure. Draw up your KPIs and playbook. Monitor customer health while expanding the use of all your products in the account to drive up your net retention. Figure out how to balance New Customer acquisition while not compromising customer success, retention & growth.
These three areas of focus will help you build a holistic strategy for optimizing your relationships with your customers.
Sustain Your SaaS Success
The flexibility of SaaS solutions has been a boon to thousands of businesses across industries. It’s also given them a great deal of power when it comes to their relationships with their vendors. If a software provider isn’t serving a client’s needs, they can switch to a competitor with previously unseen ease.
It’s for this reason that customer retention must be a core component of any B2B SaaS provider’s strategy. While acquiring new customers might seem like the best path to growth, retaining and upselling existing customers is far more cost-effective. Balancing these strategies will make your company more effective and better poised for market-leading success.
Customer relationships are the lifeblood of SaaS providers. Nurturing them, paying attention to gaps and issues, and developing dynamic retention strategies is the best way to ensure that your clients remain your clients.
CEO Roundtable Interviews with Mike Lewis and Joel Rosen - Akmazo Capital
[…] build a predictable demand generation engine. This event is the latest in a series of conversations we’ve hosted with key leaders in the SaaS […]