How well are SaaS businesses seeing their conversion metrics?
By definition, SaaS companies should be able to see their critical usage metrics clearly and easily – in real time.
However, in practice many companies are experiencing blurry metrics that don’t provide a clear picture for their trial and conversion performance. Use our infographic to learn how SaaS businesses are (or aren’t) using metrics to see the “Big Picture”.
This infographics is based on the SaaS Metrics Survey conducted a few months ago. The survey helped me understand the SaaS industry’s best practices in regards to key business metrics (download full survey results).
Feel free to right-click to copy use this info in your website/post!
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, 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.
Do you know how to measure your Customer Engagement? Our SaaS Dashboard can easily do that for you! Try it now for FREE
I’ve conducted an interview with Chris Yeh, VP Marketing from PBWorks and thought it would be interesting to share.
As you know, I declared more than once that the customers are kings which means companies should be able to understand their customers behavior and trends and interpret it correctly into customer engagement level in order to know which customers to focus on later at the funnel.
Chris explains why customer engagement is so important when using the land and expand strategy – for example once a large company is starting to use their services their goal is to have that company to use them more and more and eventually to spread into an enterprise wide deployment.
So tracking and enhancing the customer engagement level is very important. The metrics to know that could be i.e. how much a user is using the products, how many usage days they have per week, the total volume of transactions, etc.
I agree with using those metrics in measuring customer engagement and every company should pick the right metrics for its business. At the same time, there are acceptable metrics that every SaaS company should use which are elaborated in our SaaS Business Metrics Survey Results. Using those metrics will not only show the engagement level but the whole business overview which every successful SaaS business should act upon.
Tomorrow I will post another tip by Chris about Freemium Sales Models for B2B and SaaS.
To read the full transcription of the video, click here
I’m Chris Yeh. I’m the VP of Marketing for PB Works, which is a SaaS company that does collaboration software for various markets, like advertising agencies, law firms, and of course general business. Customer engagement is super important to us because a lot of times we have, what we call, a land and expand strategy.
So often times a large company will start to use us in just a small group, maybe just one team that’s using PB Works to be more effective. And what we want to do is to have them use us more and more to bring in more and more people and eventually to spread into an enterprise wide deployment. So what’s very important for us is to be able to track and enhance the level of customer engagement, how much they’re using the product.
We look at things like how many days per week are they using it. We look at things like what’s the total volume of transactions and things that they’re doing and all this is really important for our marketing and for business in general.
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!
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.
A topic that seems to be coming up over and over again today is the need to come up with innovative sales compensation (commission) models that align with the subscription business model of cloud.
While this is mentioned as an issue, not too many solutions were discussed so far (we are only at lunch time) so I went hunting online for some good blog posts on the topic. Here are three posts to get the discussion started:
It’s not just about compensation: you could technically have a comp-neutral model for perpetual licensing and SaaS bookings. However, you need to examine how Sales is compensated on revenue or bookings. If you set up term limits (i.e., 12 to 36 months) in your subscription billing, then you will want to review your renewal process and make sure your sales team has the right incentives in place to keep the customers you have. Remember, it’s harder to find new customers than it is to keep the precious ones you have.
In my post on SaaS Sales compensation, I made the claims that SaaS vendors should a) pay in proportion to the lifetime value of the deal and b) pay entirely up-front, because the SaaS sales rep should not be asked to bear any of the SaaS investment risk, or the rep is likely to just quit and find better work. The same basic ideas holds for the SaaS channel partner with the caveat that it is reasonable to expect the channel to absorb at least some of the risk, if not all of it. So, when it comes to SaaS channel compensation, SaaS vendors should a) pay in proportion to the lifetime value of the deal and b) pay disproportionately, but not entirely up-front because the SaaS channel partner should not be asked to bear a disproportionate amount of the SaaS investment risk, or the channel partner is likely to just quit and find better work.
Somebody also mentioned to me over the break that there may also be models we could learn from in other industries: for example, in commercial real-estate sales people are paid as a percentage of the monthly lease over the lifetime of that lease.
Do you know of any other good recommendations or posts? Please let me know in the comments!
A case-study on the SaaS Low Touch Module which shows how to focus on the converting opportunities and create priorities in order to increase conversion, reduce churn and enetually increase revenues for a SaaS business
Ensure customer success (CLTV)
Can you implement those important tips in your SaaS business?
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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Managing a Software-as-a-Service (SaaS) business isn’t trivial. Successful SaaS companies are able to deal with a high volume of leads and turn those into a high volume of loyal customers with fast response and turnaround time.
This is often referred to as the ‘sales and marketing machine’ – a highly optimized, massively scalable and controlled business operation that is capable of:
Continuously increasing the service value, differentiation and offerings.
In order to build a ‘sales and marketing machine,’ companies need to invest in the tools that will get them the business scalability that is required and reduce the learning curve.
Many startups begin with homegrown solutions using spreadsheets and databases (with a bit of integration glue in between). This is sufficient for small scale, but quickly becomes unwieldy as the organization grows. Luckily, there are excellent tools available for SaaS companies to leverage.
Many vendors have a “starter” package, so there is really no excuse not to start building your tool-chest sooner rather than later.
The Customer Life-Cycle
To best understand where the different categories of tools fit, it’s best to look at the various stages of the customer life-cycle, as they evolve from early prospects to mature customers.
At Totango, we use the following customer life-cycle terms:
Visitor – Anonymous user on the website
Lead – Person who has expressed some interest in the service. This can be anything from downloading a white paper to signing-up to a trial
Evaluating – A user (or company) who’s actively evaluating the service usually during a trial period or fermium
Onboarding – A paying customer in the initial usage period
Mature – A paying customer who has been loyal to the service beyond the initial usage period
With those definitions in mind, it’s easier to associate solutions and tools to help carry customers through every phase of their life-cycle.
CRM (Customer Relationship Management)
CRM is a common way to keep a reference of all customers’ life-cycle stages. CRM organizes all contacts’ information and account details in a single database, so it’s vital you select a tool that fits your needs and can grow with you.
Specifically, your CRM software will be the main working software of your inside sales teams as they organize account work mainly during the sales life-cycle phases.
Web analytics tools keep track of visitor activity on your website and various other marketing properties; this is where you keep track of your top-tier leads funnel, measure the initial success of marketing and advertising programs, and work to improve visitors’ experience with your products’ properties.
Mainly the marketing team, though other users in the organization (product team, IT) will need to use it as well.
Select list of Web Analytics solutions Google Analytics is the most commonly used tool. It’s immensely powerful, feature-rich and free. But there are other good tools your marketing team should look at, such as Clicky, WebTrends that provide additional useful views into vistiors’ actions.
Marketing automation takes you beyond basic web-properties and aims to help you interact, build, and cultivate a relationship with leads, so they can ultimately be passed on to your sales team and “convert” to happy customers.
This is your marketing team’s main toy!
A post marketing (sales & customer success) solution stack for SaaS companies does not exist yet. Enabling the buying process (converting leads), ensuring customer success, and increasing service value, is something that I feel is needed and missing in the market, and this is what we’re building in Totango.
Having all the above tools in place enables marketing, sales and customer success teams to effectively do their jobs and be an integral part of the ‘sales and marketing machine’.
Having said that, it’s crucial to have a single business dashboard available to the executive teams that allows them monitor the business end-to-end.
The SaaS dashboard should include operational metrics, trends and key business performance indicators (KPI’s), which allow the business owners, get ‘the full picture’ of the business, identify bottlenecks and allow to teams to take appropriate actions.
The SaaS model presents an opportunity to run a predictable and high-volume business. The first step is to put the required business infrastructure in place in order to monitor, analyze and optimize the sales and marketing machine operation continuously.
In coming posts, I’ll discuss in further detail the actual attributes of the SaaS dashboard.