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csm customer acquisition cost customer retention customer success SaaS business

The Need To Know for SaaS Businesses

The need to know

In the traditional software market, it has often seemed that the only thing that a vendor felt they really needed to know about a given customer was how to get their signature on the initial contract.  The bulk of the profit to be realized (and the source of the Sales’ commission!) came up-front from the sale of the perpetual licenses.  After that had been accomplished, the barriers to switching were presumed to be high enough to keep the customer tied to the vendor for some time.


In the SaaS/Cloud sector and business model, there is no burst of up-front profit, and the barriers against churn are much lower.  It can take many months, in some cases as long as a year or even more to recoup the customer acquisition cost.  A customer who elects to end the relationship before that point can instantly turn what appeared to be a highly profitable deal into a dead loss.  As a necessary result, the Customer Success Manager at a minimum must know a great deal about the customers’ business, and especially about the customer’s expectations and usage of the vendor’s application, in order to have any accuracy of insight about the real status of the relationship.

Looking for Answers


The beginning of the quest for knowledge is in determining what you need to know in order to function as an effective CSM (Customer Success Manager).  What drove the customer to engage with your company and application?  How does the customer measure success?  Are they tracking their own progress towards those success goals and objectives?  Are their individual users appropriately moving up the adoption curve of the application’s feature set?  All of these core questions must be reliably answered, and on a continuing basis, but the need for knowledge doesn’t stop there.

Some of the answers will come from conversations with your customers.  Others will be provided by your application feature usage monitoring resources – but here, too, you have to know what to look for.  Which features are core to the application. such that there is something very wrong when a customer is not using them?  If your monitoring tools haven’t delivered enough data to use in this regard (or even if you think they have!), go talk to the Support team reps.  Ask the customers themselves what they consider to be the must-have features.  What does the Sales team report as customer hot-buttons?  How do prospects talk about their expectations?  What does Marketing say about competitive analyses of the opposition’s products?

Are You Sure?

What you don’t know can very definitely hurt you in the game of keeping customers and increasing per-customer profitability levels.  So can what you think you know.  Cross-check the data and responses you get to your inquiries from different directions.  If there is conflict, dig deeper.  Why would some customers or respondents think that a given feature was vital and others not?  Look for patterns, and matches with verifiable customer behavior.  Look, too, for what doesn’t fit – and ask why.

About the Author

Mikael Blaisdell, The Hotline MagaszineMikael Blaisdell, publisher of The HotLine Magazine, brings 30+ years of experience in the strategy, process, people and technology of customer support, retention and profitability to the emerging profession of Customer Success Management. He is also the moderator of the CSM Forum on LinkedIn. Read moer about The Customer Success Management Initiative, sponsored by Totango.

 

 

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Best Practices CAC cltv cohort analysis conversion rate customer acquisition cost customer lifetime value high touch HubSpot Interview low touch RC-SaaS Sales Tips SaaS business SaaS sales sales 2.0 sales models successful saas business zero touch

What is the Best Sales Model for You?

HubSpot Tip

So how do you know which sales model is best for you – zero touch vs. low touch vs. high touch vs. field?

In his last tip from the Sales 2.0 Convention, Mark Roberge, VP Sales at Hubspot explains that it’s really depends on your buyer, what you’re selling and the full sales context and it does require some experimentation.

Preferably you should aspire to go on no touch or low touch as possible as the economical will always be best if you can pull that off.
But it is best to simply run experiments – set 100 leads to no touch and 100 leads to low touch and check the conversion rate, revenue, Customer Lifetime Value and in SaaS see what the CAC to LTV is  (Customer Acquisition Cost to Lifetime Value) and what the payback periods are and take the approach which has the best economics.

Furthermore, as mentioned in many of my previous posts, it is highly recommended to keep a thorough and updated Cohort Analysis for your metrics so that user behavior would come out accurately. This is the only way a successful SaaS business could reach the right consequences and choose its suitable sales model!

 

Review Mark’s first tip “Do you Distinguish Your Sales to Hunters and Farmers?

Review Mark’s second tip “Top-of-Funnel Strategy

To read the full transcription of the video, click here

 
 

Video Transcription:

Mark Roberge, VP of Sales at Hubspot.

Yes so, zero touch versus low touch versus high touch versus fields, the quick answer is it depends, unfortunately, and I’ll walk through the dynamics. It really depends on your buyer and what you’re selling in the full sales context. And it’s gonna require some experimentation. I think in general you’d prefer to go as no touch or low touch as possible.

I think the economics will always be best if you can pull that off. But hey, if you’re wondering, “Here’s a lead that has 50 employees in this particular segment. Should this be a no touch or a low touch or a high touch?” You run experiments. You send a hundred leads like that to no touch, you send a hundred leads like that to low touch, and you see what the conversion rates are, you see what the revenue is, you see what the lifetime value is, in a SaaS role you see what the LTV to CAC and the payback periods are, and then whichever ones have the best economics, you take that approach.

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Best Practices Business Insights customer acquisition cost Customer Engagement customer lifetime value customer success key metrics most important metrics for saas RC-SaaS Best Practices RC-SaaS Customer Analytics saas executive saas metrics track saas business User Engagement

Survey Results: Which Metrics are Key to SaaS Executives?

Pie Image

As part of my effort to create the SaaS Executive Dashboard, which helps executives to put together their business metrics for SaaS on a single page and track them, I’ve online surveyed 522 executives at SaaS companies. The survey compiles the list of metrics that matter most to SaaS Executive.

We aimed to get an industry perspective on questions such as:

  • Which metrics are most important for SaaS executives?
  • How satisfied are they with the tools & methodology their organization uses to monitor metrics?

Some of the things we found:

  • Following metrics related to customer-acquisition is a common practice by SaaS executives, with growing demand for life-time value (LTV) measurement
  • As it pertains to CAC, most SaaS organization have a clear view of what and how to measure metrics (practices & tools). But for LTV, there is less industry knowledge.
  • Similarly, there is a lack of quality tools for “LTV measurements”, whereas most SaaS executives feel CAC related metrics are well covered with existing tools

Survey Results Screenshot

While many executives rely on metrics, most also struggle with the in-house implementation of monitoring systems and find that there is a general lack of off-the-shelve tools:

Survey Results Screenshot

The results of the survey overall were pretty insightful and we’ve learned a lot about things like:

  • The specific metrics people use to track their SaaS Business
  • How often executives review SaaS metrics
  • Differences in the use of metrics between start-ups and mature businesses

We hope this research is helpful to you as well.

We plan to continue and follow these trends by running a quarterly updated survey.

 

How does it compare to the use of metrics in your SaaS or online business? We would love to hear from you.

 

Download Survey Results

 

For the complete results of the survey download the report here.

Categories
Business Insights customer acquisition cost Customer Life Time Value Customer value Increase Conversion Rate penetration rate potential buyer Response

Treat Customers Based on Their Values

in Scott Gruher’s blog post on “Go to Market Strategy: How Much are Your Customers Worth?”, his recommendation is to treat customers based on their values.

He suggests measuring two basic metrics: CLTV (Customer Life Time Value) and CAC (Customer Acquisition Cost). Those metrics should both be measured accurately, as based on the outcome, a company should decide how to treat its prospects/customers:
Low CLTV would mean to use a less expensive resource to handle prospects/customers (i.e. non-direct contact such as email).
On the other hand high CLTV would mean considering a one-on-one contact with the prospect/customer.

This principle would increase conversion rates from prospects and maximize penetration rates withing current customers.

As for the CAC, Scott recommends focusing on existing leads as it more profitable to cross-sell and upsell an existing customer than acquiring a new one.

I agree it is much more effective to reach out customers from a dedicated list.
I also agree, as posted in my previous post, that CLTV and CAC are crucial metrics which should be measured accurately in order to spot potential buyers.
However, CTLV and CAC are not the only metrics a company should measure – there are other metrics (such as churn rates, account activation rate, account usage statistics, etc.), that should be taken under account in order to perceive a business whole picture.

In addition, in order to reach the right conclusions out of those metrics and know where to focus on, it is essential to wisely choose tools that would help a business to both measure and analyze its data correctly.

 

 

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Added Value Best Practices Business Insights customer acquisition cost Customer Engagement Customer Life Time Value Customer Loyalty customer satisfaction Increase Conversion Rate Reduce Churn Response SaaS business

Customer Engagement is Key for SaaS

Customer Engagement is key for software-as-a-Service business. A recent post by David Skok explains how and why to measure customer engagement. If you are a SaaS executive and haven’t read it yet, read this first.

In this post I’d like to elaborate in what areas customer engagement is critical for SaaS business success.

Balancing Customer Acquisition Costs and Lifetime Value

The baseline metrics that govern SaaS business success are Customer Acquisition Costs (CAC) and Customer Lifetime Value (CLTV).   The larger the margin between CAC and CLTV, the more poised the business is for sustainable growth and profitability.

So lowering CAC while increasing CLTV is key and customer engagement has a dramatic impact on both.

The most effective way to lower CAC is to increase conversion rates from free to paying customers. We’ve learned that when customer engagement is high during evaluation period it has direct link on conversion rates.

Same in CLTV. The key metric here is churn. Higher CLTV means lower churn.
Customer engagement (or lack of) is very good indication for churn.

The dynamics of “Land & Expand”

The SaaS model lends itself to gradual adoption by customers. It could be inherit in the business model (e.g. freemium), or just by nature of subscription model itself:  Most customers start off as short term pilots by one team in an organization. Success results in renewed subscriptions and further adoption within the organization.

This means that SaaS companies have users/clients who actively evaluate the service (paid or free evaluation), and at the end reaches a decision to continue or not as a customer.

As David describes in his post, times have changed with a much higher percentage of business transactions transpiring online with much less interaction.

This new reality places customer engagement at the center. So what does it take to strengthen customer engagement in your service?

 

Cultivating Customer Engagement

Cultivating customer engagement requires an organizational culture that focuses on customers and their needs.

1. Know your customers

It’s easy to fall into the trap of treating your customers as unknown, faceless people. After all, chances are no-one in your organization ever met them. They probably live far away and may even speak a different language. But you can’t afford to do that.

A company must develop or achieve tools that will help them measure customer behaviour on their service. These tools must be capable of presenting the users behaviour once in your application and answer relevant questions such as:

  • Have the users tried the service more than once?
  • How much time are users investing in your service?
  • Which features have they used?
  • Have they been exposed to your core features and do they fully understand the value-propositon of  your offerings?
  • Is momentum growing or declining within the organization?
  • Are they potential buyers?
  • Etc.

Knowing what your users choose to do in your application is crucial for you to be able to interpret their actions correctly and use it as a basis for running a successful SaaS business.

2. Learn how to be proactive

Being attentive to your customers also means knowing when to intervene.
You need tools to wisely call-out users who need help and are at risk of churn or, conversely, those that are reaching the limits of their current plan and are prime for “upsell”.

Being able to identify these users and conditions is critical because:

  • Your sales and success teams have finite resources and need to be laser focused on accounts that matter
  • Users nowadays prefer self-serve and self-paced work. You need to know it’s a good time to contact them, or run the risk of doing more damage than good.

Contacting users at the right time increases their satisfaction and loyalty. It shows you understand their needs and respect their time. And it will increase conversion, reduce churn and maximize upsell opportunities for your business.

3. Evolve your service

The same tools that help you measure and understanding customer behaviour, should help you draw conclusions of how your service and product needs to improve.

  • Do the new features add value or complexity?
  • Is the new design helping convert more trials but causing added friction to existing customers?
  • Are the new tutorials and guides helping new users or are they still getting lost?
  • Are users from the basic plan not engaged enough to “push through” to the premium packages?

Customer engagement can shed a light to some of these tough product and marketing questions. Not only by directly showing you what parts of your product different users engage with, but by surfacing the users you should be talking to directly for primary market research.

 

Summary

In the long run, Customer Engagement is all about value – customers have needs and they’re seeking for an efficient, ready and easy solution that fulfills those needs. Now.

If you are able to understand your customer’s behavior, interpret their needs and act accordingly, customers will choose to use and reuse your service!

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Best Practices CAC conversion conversion rate customer acquisition cost customer lifetime value metric TLV trial conversion trial usage

SaaS Best Practices: Measuring Trial Conversion Rates – Part 1

Defining an active user and setting a baseline

 

Over the next few weeks, Totango will be posting a blog series on best practices for measuring conversion rates of trial usage for Software-as-a-Service (SaaS). Trial conversion is arguably the single most important business metric for SaaS companies since the model is based on two key parameters: customer acquisition cost and customer lifetime value. The trial conversion moves customers from the acquisition phase to the lifetime value phase and as more potential customers become paying customers, the customer acquisition cost goes down and the customer lifetime value goes up. Simply put, the ratio between customer lifetime value and customer acquisition cost is the entire profit of a SaaS company.

It is important to make sure that the measurement of trial conversion addresses three basic concepts:

  1. Simple to measure;
  2. Simple to understand;
  3. Be actionable.

Unfortunately, trial conversion is not that simple to measure correctly (most organizations do it, but haphazardly) because there is no “single source of truth” per se. That is, trial conversion comes from multiple business processes (marketing and lead generation, in-house sales, and the product itself), which muddies the ability to measure it definitively. As a result, to get an accurate trial conversion number, organizations need to make sure that all the data collected is aligned among the business processes mentioned above.

Conversion Rate GraphThe second challenge is “noise,” or trials that are “dead on arrival.” These users may have signedup for a trial, but have no intention of buying. They are just playing with the software because they can; it could be for educational reasons, it could be for other reasons. Taking these “dead on arrival” trails into account creates a very blurry picture, which is difficult to take action on.

Considering the challenges of measuring trail conversions (and the need for simplicity), the first step is to define the active, or effective trials (trials who came with the intention to buy and now are evaluating the service) and weed out the “dead on arrival” trials. There are different ways to do this of course, but one example could be measuring active trials based on a second day of usage or perhaps based on what the user is actually doing. Once the SaaS organization defines an active user, a baseline can be established. A baseline is taking the current number of trial conversions (and perhaps taking into account historical information as well, if available), and setting metrics around that.

With a baseline set that weeds out “dead on arrival” trials, organizations can tweak the service they sell or the various parts of their sales and marketing processes to improve trial conversions. Perhaps the organization needs to focus on marketing to get better leads because the current leads aren’t good enough. It could be that the sales process is not effective and it needs to be improved. Or it could be that the service itself needs improvement. Ultimately, the SaaS organization needs to measure continuously in order to put a finger on the right problem.

Imagine an organization that had, for the duration of July, 1,000 new signups for trial. Out of those accounts, 10 ended up “converting”. On the face of it, the conversion rate is 1%.

Signed up Purchased Conversion Rate
1,000 10 1%

However, dig a bit deeper and in many cases, you see that many, if not most, of those 1,000 trials never had a “buying potential at all”, evident by the fact that they never did a serious evaluation of the service

Signed up Actually Evaluating Purchased Conversion Rate
1,000 100 10 10%

(note: it would be nice if numbers in real life would be so round and simple to calculate in ones head!)

Why is this important? First off, because it gives a more real indication to what is going on within the sales team’s pipeline (they are succeeding in selling to 1 out of every 10 prospects not out of every 100), and it is easier to motivate people to improve a metric they intuitively feel is true.

But that is not it, in our next post, we’ll explore what the trial conversion metrics mean and how SaaS companies can best act on the data that is collected to increase conversion rates.

View our Trial Conversion Webinar!

 

To learn more about Trial conversion,
view our 40 minute webinar: “Best Practices on Trial Conversion

 

 

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