Tag: ROI

SaaS vendors – or any vendor that sells on a subscription basis – know that retaining customers (CSM) is critical for growing revenues and ensuring the overall prosperity of their organization. The challenge is that historically companies have focused on the initial sale and building new relationships. Renewals were nice but not the top focus area.

Most companies have a process for closing the initial sales

Over the years, I’ve worked with lots of great sales and service organizations when they were implementing CRM systems. We spent a lot of time mapping out sales stages, defining sales activities, and building sales tools.

What was clear is that they have invested lots of time and money in creating a sales organization that knows what it is doing and can close deals. That is, they could close new deals.

But what about retaining customers?

But they don’t have a plan for what happens next

The rise of SaaS and subscription pricing means that customer renewal processes need to evolve too. SaaS vendors need to identify what needs to happen to make the customer choose to renew year after year. And they need to look at this from both their perspective and the perspective of the customer.

The image below shows the typical approach many SaaS companies take with renewals. Vendors tend to focus solely on the initial sale and then wait for the renewal period to come around. Sure, they will provide some customer support and will focus on maintaining the relationship with the buyer, but they do little to ensure the customer is getting value from the system, which is the main criterion on which customers base their renewal decisions.

And they lose a lot of customers at renewals – No CSM

The problem is this: the customer has a different renewal process.
That is, driving effective and sustainable user adoption and (therefore) getting measurable value/ROI are on the customers’ critical path for renewals.
If they don’t achieve these two things, they don’t renew. Period.

Including Customer Success Management activities after go-live is critical to renewals

Sustaining user adoption and achieving measurable ROI has always been the Achilles’ heel for IT projects. Prior to SaaS software, these problems fell 100% to the customer. Now, for the first time, the SaaS model means the vendor has a vested interest in helping customers solve these problems.
So, what is a SaaS vendor to do to help customers? Establish Customer Success Management (CSM) teams to help ensure customers achieve their goals and renew their subscription.

Quite simply, profitable SaaS vendors recognize CSM is on the critical path to customer renewals. And they must continue to provide CSM services over the life of the customer relationship; for once, a customer stops getting value from the system, and they stop renewing.

If you are like most SaaS vendors, you have a great product developed, implemented, and supported by a team of gifted professionals. You can win new sales. Everything looks rosy.

But you have a problem. You keep losing customers at renewal time. And this is costing you big-time!

Customer Retention is Key to SaaS Vendor Success

The SaaS business model, with its low upfront costs and low, regularly scheduled payments, means that SaaS companies need to keep customers longer to profit. Every customer that cancels their subscription – or even reduces the number of licenses under contract – has a dramatic impact on your bottom line.

The simple truth is you cannot have a successful SaaS business if you have high churn.

The impact of customer churn is cumulative and drastically underestimated

According to the resources developed by SaaS Capital, customer churn has a cumulative impact on the vendor. Not only does it decrease revenues in the period during which the customer cancels their subscription, but it also reduces all future revenues.

For example, in their webinar, “No Churn: Keep Customers & Improve Your SaaS Company Valuation,” showed a comparison of two companies, one with a 95% customer retention rate and the other with an 80% retention rate.

• After 5 years, the company with a 95% retention rate had revenue that is 40% greater, and a growth that is 50% higher.
• By year 10, revenue is 80% higher, and the growth rate is 2.5 times faster.

Recurring revenue is a critical component of SaaS company valuation

With customer churn having such an impact on revenues and growth, investors are now looking very closely at customer retention when calculating SaaS company valuations. According to SaaS Capital, businesses are traded on a multiple of revenue (not EBITDA) and, “recurring revenue is a better proxy for future cash-flows than current income.”

Customer Success Management programs reduce churn, increase revenues

Given the importance of reducing customer churn, it is not surprising that you’re focusing efforts in this area. Effective CSM programs can help you reduce churn. And if your customers are getting more value from your systems, they are more likely to increase the number of licenses they purchase. All of this adds up to increased revenue for you.

Now the problem – how do SaaS vendors deliver the elusive customer success?

Sounds great, right? There is just one hitch. How do you create and deliver effective Customer Success Management programs?
This opens up a lot of questions

• What tools, methods, skills, and resources do you need to facilitate customer success across your entire customer base?
• How will you build this new capability?
• How will you integrate this new service into your existing business model?

Resources to help with your Customer Success Management efforts

Once you realize that you need a Customer Success Management program, you then need to figure out what this looks like and how to build this capability in a quick, affordable manner. Success Chain can help. Contact us to learn more.

I spent some time over the weekend reading various blog articles and LinkedIn discussions about Customer Success Management. I also watched various online video presentations from CSM conferences and corporate websites.

At first, I was struck by all of the great issues and questions that illuminated the amount of work and complexity involved in creating an effective CSM organization. And as I continued to watch, I noticed another theme emerge. Nearly all of the discussions and videos were focused on how to make sure the vendor was successful. But wait, isn’t CSM supposed to be about helping the customer be successful?

Many CSM experts talk about what the vendor wants out of CSM

For the most part, many of the emerging CSM experts are talking about how to maximize customer renewals. They talk about topics like, “Should CSMs have a renewal quota” and “How should CSMs interact with the sales team?”

These are all important and valid discussion that you need to have when building your CSM team. But they are also very internally focused questions. They are all about what the vendor needs to do so that the vendor benefits. You can’t stop the discussion here. Actually, you shouldn’t even start the discussion here.

Very little talk of what will actually make the customer successful

Think back to the reasons you even first started thinking about setting up a customer success management team. It was because your customers were not successful with your product, which, in turn, led them not to renew.

Before you have any hope of ever solving the renewal problem, you need to solve the customer success problem. This requires that you understand both:

1. The reasons why your customers are not using your product
2. What actions you – and the customer – need to do to change this

Once you do this, then you can turn to the internal questions about to structure and manage your CSM organization.
Do you have a Customer Success Management program? If not, why not? If so, how has it affected your customer churn?
Please share your thoughts and experiences on the Success Chain community forums.

When speaking with Customer Success Management professionals, they consistently tell me they provide different Differentiated Customer Success Management services depending on the customer. Even basic customer segmentation has allowed them to prioritize their efforts and adjust their services to meet the specific needs of different customer groups.

Not all customers are equal

While all customers are important, they are not all equal. Some customers are more profitable. Some require more support and take more time. Some customers start small but with a huge potential lifetime value, whereas others may have limited potential.

When developing your CSM program, make sure you understand both the needs and the potential value of your different customers. And then prioritize accordingly.

Differentiated Customer Success Management for B2B or B2C

You will need to adjust your Differentiated Customer Success Management approach to meet the unique needs of B2B and B2C customers.

• B2B customers often have less individual control and discretion when it comes to the systems and tools they use. In addition to individual user habits, you have to navigate a plethora of organizational issues, including internal business processes, incentives, policies, procedures, technical and data quality issues.
• B2C customers tend to have a high degree of individual control and discretion when it comes to using your product or service. You may need to help them develop new habits that involve regular, sustainable use of your system.

Delivering B2B CSM services is more complex than B2C, but the revenue amounts at stake often make it a priority.

Differentiate size & budget

It will take some experimentation to determine the optimal size and budget for your CSM program. The type of Differentiated Customer Success Management services you deliver will influence the number of customer success management staff you need. It will also affect things like the amount of travel (face-to-face) service vs. the amount of remote (web and phone) service.

Many CSM programs start relatively small and then grow as the customer base grows. When you building your CSM program, be sure to include plans for how you will add additional capacity as your customer base changes and as their needs – and your software – changes.

Change your methods based on customer need and value

You can help customers be successful with your product or service in many different ways. For some customers, it may make sense to provide services that are largely automated and uniform. For others, especially those with a high potential lifetime customer value, you may need to provide more hands-on, customized CSM services. And, as your customers grow, you may need to adjust the level of service they receive.

Here are the top 35 questions you should expect your sales prospects to ask you when evaluating your customer success services!

Savvy software buyers know that the customer success services provided by alternative vendors and make or break their success. How do your customer success services stick up? Check out this free guide to learn the answers you need to expect your prospective customers to ask.? Are your customer success services competitive? When will you lose your first sales because your competitor has more effective customer success services?

We are still seeing the impacts of the Cloud IT revolution. Cloud computing is changing many things about how organizations buy, deploy, use, and gain value from information systems. One of the most interesting and dynamic emerging trends is that for many organizations, the focus is shifting from the technology itself to the value the organization realizes from using the technology.

The move to “as a service” is also changing the way organizations make decisions regarding the initial purchase and the renewal of the software. If you ask someone who works in traditional service industries – lawyers, accountants, wait staff, bartenders – they will tell you that people decide to come back (renewals) based on the quality of the experience and the value the individual receives from their experience with the service.

This flips the traditional perspective of technology on its head. Once viewed and evaluated like a product you would purchase and take home to keep, technology is now viewed and evaluated as a service. Cloud buyers and vendors are slowly catching on to just how important value creation from the use of the software is for their success.

One software vendor I spoke to indicated that they were great at landing an initial sale, but they had over 50% turnover in their mid-tier market alone just because the system was not being used and therefore not delivering value to the client organization.

Will you renew your cloud subscription?

When you first decide to purchase a cloud IT system, you do so because of the promise and potential for you to realize the value in the future (after you start using it). Even with lower upfront costs, you probably put together a business case that defines your expected costs and expected return.

Before cloud systems became popular, many organizations only looked at their business case during budget discussions when making the initial system purchase. Once the decision was made and the money was spent, few organizations would come back to measure their actual ROI on their IT investment. There was little need to do so – after all, the money was spent and gone.

But what if you could get out of a bad investment before you spent all the money? With cloud systems, you can.

Cloud IT subscription-based pricing changes the buying decision process

Cloud IT, with its subscription-based pricing and defined contract periods, enables organizations to evaluate the value they are actually receiving from their cloud investments and pull out of bad investments. In essence, the contract renewal date inserts a logical breakpoint in the buying process. It also changes how you make buying decisions.

Cloud renewal decisions are different from the initial purchase decision

As I mentioned, the initial cloud buying decision is made based on expectations for future results. With no direct history with the system, you make your decision based on the word of others (the vendors, vendor-provided references, online reviews, etc.) and your confidence that you can get similar results.

Renewal decisions are made primarily on your direct experience. You evaluate your experience implementing the system, the level of adoption you have achieved, and any specific success metrics / ROI calculations. This experiential information then creates a context in which you evaluate the potential of the system to deliver additional benefits in the future.

Need to focus on cloud user adoption and ROI

So, what does it all mean? It means that clients (buyers) and cloud vendors both have a vested interest in making sure the cloud system is fully adopted, and there’s clear evidence of the value you received from the cloud system.

It means that having great functionality and a low price point is not enough to get you to renew your subscription if you aren’t getting any value. It means that there is a new standard for success when it comes to investing in technology solutions. And it means that you will need an ongoing program to drive user adoption, making sure you are getting the ROI you need.

After all, as soon as the system stops delivering the value, you will stop paying for it.

Most software projects fail to deliver the expected business outcomes because of the approach the buyer takes to getting the system live and driving adoption. Most buyer’s organizations don’t have the expertise, tools, and capacity to deliver their own success.  This short video explains many of the methodological and structural problems organizations face when dealing with software.

If you are looking to help software buyers create their own internal software success programs, Success Chain can help.  Contact us to find out what we can do for you.