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.
