Thoughts from my journey

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

Video Transcription:
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.

Last week, Jason Cohen wrote a very comprehensive blog on software-as-a-service churn: Deep Dive – Cancellation Rate in SaaS Business Models. I required everybody at Totango to read this blog and recommend that you do the same. Jason looks at many different definitions for the SaaS Cancellation Rate metric.

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:

1. 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.
2. 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.
3. 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?

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

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:

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.

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

Lately, I’ve started building a SaaS Dashboard for my own usage (which I’ll be happy to share with others as well) and I have put together a short survey in order to learn what are the key metrics to measure SaaS business success. As I posted in our previous post, every metric matters when trying to see the whole picture, however, according to Chris Zane’s interview in Christoper Brown latest post, if he could only have one measure to manage his business, he would have chosen “lifetime value of customers”.

This metric, in Zane’s opinion is not a static number but a dynamic one that can grow with the customer, so that customers will first purchase their bike when they’re 4 years old, then when they’re 6, again when they’re 12 and they might come by to buy their own kids their first bikes. That’s the power of a happy customer.

This classic example could be taken to any sort of business, as in all businesses, it is critical to understand customers behaviour.

What is ‘customer lifetime value’ translated to the terms of a SaaS company? It’s when your service is valuable and highly appreciated by your users who chose to repeatedly and constantly use your service.

Most customers will encounter SaaS online services when signing-up to their free trial period / freemium. As the funnel goes on, the amount of users converting to paid customers naturally goes down, however, user’s usage pattern in crucial to understand what’s behind those numbers and also to reflect the users behaviour and needs.
Therefore, even though measuring many other metrics should be taken under account, I agree that customer lifetime value should be standing in front of our eyes when thinking of our business plan.

To run a successful SaaS business and increase the chances to gain lifetime users and revenue, a business must make the right conclusions and adjust its service according to customer / user experience.

Tell us how you adjusted your service to fit your user’s needs!

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