Just the other day, while talking to a SaaS cloud software vendor, we started talking about customer satisfaction and retention. They shared with me their examples of what is becoming a story that I hear all too often from SaaS vendors – that is, they have a great product and get lots of initial sales, but they lose a ton of customers at renewal. And, it’s really hurting their bottom line.
The more I talk to SaaS cloud vendors, the more I notice a growing awareness among them that the subscription business model has unexpectedly (and, arguably, unintentionally) shifted what it takes for the vendor to be successful. Cloud vendors now realize that if the customer is not successful – that is, getting measurable business value from their SaaS purchase – they will not renew.
Unfortunately, many vendors are not prepared to deal with this new reality.
SaaS vendors now realize that they cannot afford to just sell software, rely on the user interface (UI) design and overall user experience (UX), and hope the customer uses it. Retaining customers – and preserving revenues – means needing a comprehensive, actionable strategy to drive and sustain customer success.
Here are six reasons why this is true.
1. SaaS software transfers IT adoption risk from the customer to the vendor
In the old days of traditional, on-premise software, customers made big up-front software purchases. The software vendor made their profits based on license sales, regardless of usage. With subscription software, customers will only pay for (rent) licenses that are actually being used. Lower usage (IT adoption) = lower license revenues.
2. SaaS profits require long-term customer renewals and retention
The low cost, pay-as-you-go pricing means that customers need less up-front cash to purchase the software. However, the lower up-front fees mean that vendors need to retain customers longer to get the same amount of revenue. Suddenly, customer retention is critical to vendor profitability.
3. If customers are not successfully adopting your software, they are not renewing
OK, this is a no-brainer. Savvy customers – and even the not-so-savvy customers – will not keep paying for things they are not using. If customers are not adopting your software, they will not keep paying for it. Now, this doesn’t mean they will drop all licenses (though many will). It may just mean that they dramatically cut the number of paid licenses to eliminate those that are not being effectively used.
4. No matter how intuitive, fluid, or beautiful the system, it's still a change for the users
Software vendors love to talk about how “usable” their product is, and many (most?) claim almost prescient intuition on the part of the UI. So suggesting that people might not actually use the software is virtual heresy. But really, it’s not about the software. It’s about the fact that the software is a change in users’ daily work lives. Some will love it; some will hate it. But left on their own, not all will use it to its fullest, business-value-creating extent.
5. Customers will not buy more until they use what you have already sold them
Software vendors love to add new features to their products. It’s how they keep the product fresh and competitive. It is also how they can charge you more per user. The problem is customers won’t pay additional fees for new features if they are not using what they have already been sold. So, if you are a software vendor, before you go paying developers to create lots of new features for your software, you better make sure that people are using what they already have. And this should start with your existing customers.
6. Customers don't know how to maximize and sustain successful IT adoption
This is, by far, my favorite. For years, customers and vendors alike assumed that if they deployed a system and trained people to use it, that everyone would. The reality is that very few systems are fully adopted. In fact, one report shows that up to 24% of the value of an IT system is lost due to poor IT adoption. Many IT implementation efforts focus on getting the system live but do nothing to ensure it is effectively used and delivering measurable business value to the customer organization. The methods used to develop and deploy a system are very different from those used to help organizations manage change and maximize IT adoption. Unfortunately, many organizations do not know how to effectively manage and sustain IT adoption programs.
SaaS vendors need to invest in Customer Success Management Strategy
SaaS vendors are quickly learning that having a great product alone is not enough. They now need to have a strategy in place to help customers quickly adopt it and make sure it is delivering business value. We are already starting to see SaaS vendors create new positions – such as Customer Success Managers ? to help clients get the most from their software. This is just the first step. In the future, customers will demand – and vendors will need to provide comprehensive customer success management programs.