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?
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!
Do you know how to measure your Customer Engagement?
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