This week, I’ve interviewed Charles Hudson, CEO and Co-Founder of Bionic Panda Games about how he uses analytics system to increase free to paid conversion.
Charles indicates that they’re trying to find a pattern of the paying customer and try to build a profile around the way users behave and try to predict what they’d like to see in the game they’re going to pay for.
I like the way of finding a winning card and then replicate it and this is why it is very important to know what have caused to that engagement. Measuring the right metrics here are crucial to understand your customer behavior and a comprehensive research should be done on the route which caused the free user to convert into a paying customer.
Charles also talks about the advantages of the freemium model versus the enterprise – what can a freemium offer that Enterprises can’t? for the complete interview see below:
To read the full transcription of the video, click here
This is Charles Hudson from Bionic Panda Games. We use our analytic system internally to identify that subset of customers that converts and spends money in the game, and to better understand their behavior and we take that information and then go try to acquire more customers who look, behave like the ones we find that monetize well.
If you look at some of the really big freemium consumer success stories, part of what makes them work is that it allows customers who have a problem, to use your service without having to pick up the phone, without having to have a salesman so i think what enterprise companies can learn is that making your service free and available to consumers who have a defined need is a great way for customers to self-select.
Then you can always go back and follow up directly with the people who are using your service.
I agree with Jeff that reducing churn is not only the concern of your Support group – the entire company should focus on client retention and reducing churn as focusing on existing leads is more profitable than acquiring new ones (see: Treat Customers Based on Their Value)
Below are the most critical elements for client retention strategy:
Losing an executive champion opens the door for competitive bids at renewal time – In order to leave their mark, new executive champions will be open to more competitive bides before agreeing to renew.
Many software companies are surprised when clients renew or leave – technology companies need to adopt a client lifecycle approach that removes the element of surprise.
Understanding the true retention rate – many clients will renew in year two more as a reflex then as a choice (Unless you have failed them miserably) making the 3rd 12 month term less likely for renewal. Therefore, it is important to measure retention rate per subsequent renewal years
Having high client retention, frankly, is hard work – clients will renew only if they find value in your product. Ensuring retention requires hard work and the whole organization should be focus on that.
A disconnect between the purchaser and the user community spells trouble – Companies rarely renew a solution that is not being properly used. Wherever necessary, bridge the void between purchaser and user when a divide exists.
The bad news – SaaS solutions are easy to deploy – If they are easy to deploy, they are also easy to remove and in many cases, the customers’ risk in replacing a SaaS provider is low. Retention is always a risk, when leaving you is painless – relative to the on-premise model.
Client retention is strengthened when your solution is connected into a larger eco-system of solutions – your clients will be more dependent on your solution and less likely to leave if your solution can integrate, communicate or otherwise “hook into” other key tools that your client needs such as financials, CRM, project management tools, etc.
Complimentary service offerings positively impact client retention – That too will create dependency for your service – offer complementary services that will help to ensure that your solution is entrenched in your client’s business process and workflow.
Sales rarely take an active involvement in client retention – Sales people skill set is very different from Customer Success skill set (read: Hunters and Farmers post) and even though Sales is often responsible for all revenue they cannot and should not spend the amount of time and effort on client retention. This is another reason why you need a client lifecycle approach that complements the Sales team and gives them the confidence to pursue new business because they know the company is pursuing client retention and revenue protection.
Clients will not renew if they think they have chosen a market loser – have your Marketing and PR teams communicating you market wins to counter any perceived “market loser” symptoms. i.e. RIM, a great company, that has great products, but will lose clients not because their products or solutions, but because they are perceived (wrongly so) as a “market loser” – and no one wants to be associated with a perceived loser.
So take a hard look at your organization through the lens of each of our Top 10 items, and adjust accordingly.
The subscription-based economy is thriving. Netflix’s well-known model (and subsequent public relations mess in changing it), and the recent announcements from Google and Apple have set it in stone.
The subscription model, like many of the B2B sales models in the SaaS industry, is all about the customers – listen to your customers and have your service to comply and you’re on the right direction!
Here are 10 tips that can assist subscription based companies to get by in the industry:
1. Keep it simple
Ease of use is a key aspect of the subscription economy. Subscribers want the one-stop shop, and their attention will not be kept easily. Frustration, which might lead to churn, can be easily ensues if they can’t find what they want or need.
2. Customize to the consumer
Bob’s business is not the same as Mary’s. Can you offer flexible payment options (weekly, monthly, annually)? Family versus individual? Basic versus premium?
More is better, but more can also be overwhelming. Netflix’s popularity is in part because it offers customized selections based on its subscribers’ viewing history. If the subscriber never, ever watches foreign language films, they don’t want to have to scroll through them to get to the good stuff.
4. Make it social
Can your subscribers see what others think of this product? Can they easily share it through social media? Social media has the power to sweep many others and help in distribute your message – and it’s free, so you might as well use in your business favor.
5. Offer continuing value
Make sure your offers will always consist of an added value. Can some ancillary information help your subscribers? Partner with other companies that add value. Also, what new thing can you offer? Can you surprise them with how good it will be?
6. Keep it open
Remember what we said about the ancillary market? Is your forum open enough to allow add-ons? Don’t keep things so proprietary that spontaneous creation is stifled. Think of Flickr, for example – would it help or hurt their business to team with a photo editing application? It would help, of course, and they’ve allowed just that.
7. Give it away
If you still haven’t done so, consider using a free-trial or freemium model for your product. Subscription economy is likely to be ruled by the free-to-join. For example, you can make your overall platform free and have advertising, add-ons or premium offerings in order to make it profitable. Think Facebook – free to join, but not likely to go broke anytime soon.
8. Don’t charge for that which was once free
How would you like to have nearly 9000 pages of complaints about your new pricing structure? That’s what Netflix got for their announcement that they were nearly doubling their prices, removing services their subscribers had gotten used to having included, and offering no additional value in the exchange. Calling it a great deal just added fuel to the fire. (If you can’t give it free, keep it as low as possible!)
9. Keep the customer relationship as thy first priority
With the Netflix debacle, it’s not just about the pricing. Their customers felt personally betrayed. If you succeed in accomplishing a real relationship with your subscribers, where they recommend your service not for incentives but because they’re real fans, the worst thing you can do is spoil that relationship in a “money grab.” Nurture your relationship. Keep customers in mind as you consider changes. Get feedback on proposed changes. Don’t sell their information to spammers or let slimy advertisers in. Business is more personal than ever.
Customers in the subscription economy are more savvy than ever. They can tell if you honestly love your own offerings or if you’re just using sales tactics. Let you enthusiasm shine through and it would be a win-win situation!
Eventually, Jason recommends performing cohort analysis when looking at cancellation rates. He suggests to divide customers in segments based on their “time to cancel” (i.e. cancelled after 30 days vs. cancelled after more than 30 days) and, for all intends and purposes, he recommends focusing in the long-term users who have greater business revenue potential and cancellation reasons which can be addressed and resolved more easily.
This is indeed an interesting way to look at it, and very analogous to the importance of the “time to convert” metric when it comes to inbound marketing and trial conversion. However, I argue that this is not the only, and maybe not always the best, way to do cohort analysis on SaaS churn.
Let’s take for example an email service application. If 2 users have signed up at the same time:
One of them is using the service more frequently, creating many accounts, visits almost all application features and cancels after 10 days
The other accesses the service 3 times a week but just checking very limited features and cancels after 31 days
Who should be given more weight?
If I’d measure by Jason, I would focus my efforts on the second user, but if I weigh my analysis with user behavior altogether, then my most valuable customer to understand is the first one.
So this leaves us with three promising ways to segment customers for cohort analysis:
Traditional way: create cohorts based on the week or month in which they signed up for the service. This will allow you to analyze the effect of changes you made to your product or service over time.
Jason’s way: to create cohorts based on the “time to cancel” (or the “time to convert” for that matter). This will allow you to focus on long-time users of your product and sift out those who signed up in error.
The customer engagement way: to create cohorts based on the “engagement level” with the product or service. This will allow you to focus on frequent users of your products, independent on how long it took them to cancel, but still sift out those who signed up in error (and never started to use the product).
Of course, in all cases, measurement is just the first phase of the process and the complementary phase must be to prioritize the changes needed in the service which would ultimately lead to increase customer satisfaction and customer engagement.
What about you? What is your definition for cohort analysis?
At Totango, we care deeply about customer engagement and customer success. We agree with Dave that with SaaS “it might make just as much sense to focus on retaining (and garnering new revenue from) current customers as it would be to focus on gaining new customers”.
For companies with a zero-touch or low-touch sales model, customer engagement management is about much more than ensuring customer satisfaction. I wrote about that previously in my blog 4 Tips to Increase B2B Sales for example. It doesn’t matter who owns the customer engagement function and many modern sales leaders understand and implement customer success programs. Some B2B sales leaders have split their team into hunters and farmers, with the latter focused on customer success. Others now call themselves “Chief Revenue Officer” (as discussed in a recent blog by Phil Hernandez).
Still, the trend to assign a dedicated executive to manage customer engagement, is promising. Sometimes, you have to put your money (people) where your mouth is.
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 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?
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.
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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Businesses these days are making significant efforts to delight their customers, and for good reasons. One of the key areas where businesses focus their efforts is in creating online self-serve applications with a great user experience in order to help customers get what they need and when they need it.
But how do businesses know if they are successful? Below are 3 key metrics you need to measure customer engagement.
1. Activity Time
When an online service creates value, people use it and use it often. Usage is measured by the number of times a customer visits your service (sometimes termed sessions) and the elapsed time they spend in using it.
We call this Activity Time – the total time a user spends online, interacting with the offered service. Note that Activity Time measures the actual time a user spends interacting with the service, and factors out time in which the user is idle (even if logged-in). This is critical given modern usage behaviors where users typically have many web-applications and sites open on different browser tabs.
2. Visit Frequency
How often a user returns to your service is a key reflection of the value they get from it. This is often called Visit Frequency.
Visit frequency yields many potential patterns in customer behavior, as shown in the table below. The main goal is to identify the pattern that is most relevant for your service and monitor users against that pattern. If you expect a delighted user of your service to visit every day, measure against that, if you offer a seasonal service and expect them to only return on holidays, look for that pattern and so forth.
3. Core User Actions
Another indication of value customers gain is their use of Core User Actions, as defined for your service. If a user is consistently performing core actions, it is a good indication of adoption. When user’s explore new features and start to use them, the service is growing on them, and they are happy to use it more.
Conversely, if a user is not performing Core User Actions, while still spending time on the service, it may be because he is unable to get to it (indicating a usability problem) or that you don’t understand the value they are getting. Regardless, it requires further investigation to make sure the user and your offering are on track.
Core User Actions are naturally service specific, the following table gives examples of certain types of web applications and online services.
Creating an Engagement Score
A combination of these core metrics: Activity Time, Visit Frequency and Core User Actions uncovers the level of user engagement for any web-application or service. To get to the combination that is right for your particular service requires some thinking and modeling of the expected user behavior.
It may not be simple to do, but it’s essential if you want to continuously delight users and in turn increase their life time value. If you want the best tools in the industry for this job, we recommend you learn about Totango and signup to get started with these concepts today!