The Promise of SaaS Customer Success Metrics

saas customer success metricsOver the past few years, the SaaS community has gained a solid understanding of SaaS financial metrics, as well as many of the operational principles required to achieve them. However, there has always been an obvious gap between what happens on the top line and what happens on the ground. It’s one thing to claim that a 50% reduction in churn will result in a 2X increase in recurring revenue, but it’s quite another thing to make it happen. Achieving that 50% reduction in churn is usually a tedious and unreliable process of trial and error. This is about to change. As the SaaS industry matures, we are witnessing the evolution of SaaS metrics beyond simple, historical financial measures toward sophisticated operational measures in the form of new SaaS customer success metrics and predictive analytics.

saas customer success metrics kpi dashboard

We are witnessing the evolution of SaaS metrics beyond simple, historical financial measures
toward sophisticated SaaS customer success metrics and predictive analytics.

This is the second post in a series inspired by my ongoing collaboration with Bluenose Analytics that explores the new Metrics-driven SaaS Business and its foundation of emerging best practices in customer success metrics. [Attention SaaS CFO's and VP's of Customer Success! Please see the exclusive invitation at the end of this post if you like this series and would like to explore more in person.] The first post discussed the unique qualities of SaaS that enable the Metrics-driven SaaS business to apply a more analytic approach to management than traditional licensed software. This second post drills down on the promise of customer success metrics to bring greater rigor to the processes of churn reduction, upselling and customer success management for increased recurring revenue and decreased recurring costs of service.

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An Ocean of Customer Success Data

The promise of customer success metrics is immense. Unfortunately, so is the challenge of developing them. Read more »

Bluenose Enables the Metrics-driven SaaS Business

bluenose customer success metricsWe are witnessing a dramatic change in the way SaaS businesses are managed. While SaaS financial metrics, such as recurring revenue, acquisition cost, service cost, churn, growth and lifetime value have dramatically increased our understanding of the economics of SaaS businesses, they have proven inadequate for managing them. As useful as they may be, SaaS financial metrics look at the past, not the future. They can tell you that you have a problem with churn, but they cannot tell you what you should do about it. Motivated by the need to better understand churn, many SaaS businesses have been independently exploring a new class of customer success metrics and have begun to embed them in SaaS customer success workflows with the hope of preventing churn before it occurs. We are witnessing the emergence of The Metrics-driven SaaS business.

Two weeks ago, I kicked off a new blog series on The Metrics-driven SaaS Business vision in collaboration with Bluenose Analytics, who I believe is going to help make this vision a reality. Over the course of the last five years, I’ve discussed the potential of SaaS customer success metrics with a variety of startups, but I didn’t feel anyone fully got it until I met the folks at Bluenose. There was always something missing, and that something was predictive analytics.

For those of us that work in SaaS, we feel the customer success metrics pain when we try to bend Web marketing tools like Google Analytics, Marketo or Eloqua to the purpose of SaaS customer success. Unfortunately, they are just not up to the task. They don’t integrate the critical subscription, product usage, and account engagement data required. More importantly, they don’t have the necessary analytical power to enable the Metrics-driven SaaS Business. At best they supply simple historical reporting and heuristic scoring systems that have little basis in reality. There is no short-changing the math. If you want real predictive analytics; you have to use real statistical methods.

Real Stats. Real Easy.

I started my software career at SPSS, a very successful Chicago-based software company acquired by IBM. SPSS made predictive analytics under the tag line: “Real Stats. Real Easy.” The reason I bring this up is that I think a lot of folks believe that real predictive analytics is something that is hard to do and even harder to apply to everyday business. Well it is hard to do, but it can be very easily applied to everyday business. A SaaS customer success manager doesn’t need to know a system is using logistic regression or survival analysis to produce health scores and churn alerts. She just needs to see the red light go on and get the alert in time to keep a customer from churning. Plus, statistical visualization methods can be incredibly intuitive and powerful, providing the ability to zoom out to see high level root causes and drill down to investigate account-specific issues.

Bluenose Analytics Enables the Metrics-driven SaaS Business

The Bluenose platform uses real statistics to create SaaS customer success metrics,
root cause analyses and predictive analytics that enable fact-based churn reduction.

I was lucky enough to get a preview of Bluenose back in November, and they got two things right that I have been waiting to see a long time: powerful statistical visualizations and predictive analytics. Of course the system has the baseline SaaS customer success capabilities, such as work flow management, surveys and broad data integration, but these are just a SaaS customer Success ERP module without the right analytics. Simple heuristic scoring systems just doesn’t cut the mustard. SaaS customer success metrics need real stats, real easy.

I think the Bluenose management team gets the potential of predictive analytics for SaaS customer success, because their roots are in serious big data analytics, specifically anti-virus software. That and I know they interviewed more than 50 potential customers in the development of their requirements. Having announced a significant pre-launch $11 million A round in December, the production release is imminent and the company is actively seeking and working with pilot customers. Anyone who follows my blog knows that I don’t do advertising and I rarely give product recommendations. For me, blogging is a labor of love, not commerce. The reason I am collaborating with the folks at Bluenose is that I think they get it, and I want to see the Metrics-driven SaaS Business become the standard in our industry.

The Metrics-driven SaaS Business

saas business metricsMy first serious lesson in the criticality of SaaS metrics was about six years ago when I was unexpectedly stumped in a board of directors meeting. I had just presented the booking plan for the year and one of the Director’s in the meeting said that the plan was good, but we really needed to increase our booking rate. My first reaction was something like: “Well our current booking rate is pretty strong and we’re a SaaS business, so even with no immediate improvement to bookings we’ll continue to pile up revenue quarter after quarter, right?” Wrong! I had totally neglected the impact of churn. At the time, SaaS investors and executives were still getting their heads around the SaaS recurring revenue business model, so there were very few resources to turn to for support. Yet as the person in the room primarily accountable for the top line, I had to have the answer.

Fast forward to today. In 2014, we not only have a much better understanding of the financial levers that drive SaaS business success, we are on the verge of a metrics revolution in the way SaaS businesses are managed. Unlike licensed enterprise software, the SaaS recurring revenue business model offers a much higher degree of stability, measureability and predictability. These three factors form a foundation that enables SaaS executives to take a much more analytical approach to driving SaaS business success. SaaS business executives are uncovering new operational metrics that connect SaaS customer success to SaaS financial success, and in the process are creating recurring revenue machines. Today we are witnessing the emergence of The Metrics-driven SaaS Business.

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This is the first post in a new SaaS metrics series inspired by my ongoing collaboration with Bluenose Analytics. This series explores the promise of customer success metrics and their role as the glue that connects SaaS customer success to SaaS financial success. This first post discusses the unique qualities of SaaS that enable a more analytic approach to management than was possible with licensed enterprise software and introduces the concept of the Metrics-driven SaaS Business.

The SaaS Metrics Mandate

Why are metrics so uniquely important in SaaS? Read more »

SaaS Growth Strategy | A Customer Lifecycle Approach

Driving sustainable growth is a challenge for every SaaS business from startups to public companies. In the beginning, the SaaS recurring revenue model seems like a dream compared to the revenue fits and starts of licensed enterprise software. But within one short customer lifetime, every SaaS CEO startles awake to the fact that the churn monster is always looking over your shoulder.

In the short run, SaaS growth scales with customer acquisition, but in the long run churn kicks in and dominates even the most aggressive SaaS growth strategy, creating a SaaS growth ceiling that can be incredibly difficult to break through. SaaS churn naturally scales with the size of your customer base making it negatively viral. Overcoming churn and breaking through the SaaS growth ceiling requires a relentless focus on growth that pushes every available SaaS growth lever.


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Click the image or link to download the complete SaaS Growth Strategy eBook

A compilation of recent popular articles at Chaotic Flow, this detailed eBook outlines a framework for driving sustainable SaaS growth throughout the SaaS customer lifecycle. It introduces the concept of the three fundamental SaaS growth levers: customer acquisition, customer lifetime value, and customer viral network effects as well as the SaaS Growth Pyramid that outlines the corresponding SaaS growth strategies for pushing them. Finally, it wraps up with Eleven SaaS Product Secrets that Drive Growth, one for each stage of the SaaS customer lifecycle.

Enjoy. And if you like it, please share it!

Cheers,

jy

Eleven Secrets of SaaS Product Design

saas product secretsSaaS product management professionals should always remember that there are four P’s in marketing, one being product. Unfortunately, software companies have a bad habit of thinking about product in isolation from the rest of the marketing mix. This is a particularly costly mistake in SaaS and is the root cause of many a SaaS Don’t. Unlike other businesses, SaaS creates a real-time, always-on connection between the customer and the company through the SaaS product. Smart SaaS product managers look to establish this connection as early as possible and to leverage it throughout the entire SaaS customer lifecycle.

This is the fifth and final post in a series that explores SaaS marketing strategies that drive growth throughout the customer lifecycle using the three fundamental SaaS growth levers: customer acquisition, customer lifetime value and customer network effects. In the course of this exploration, we’ve encountered numerous examples where the SaaS product itself is the instrument of growth. This final installment explores the product P in more detail providing Eleven Secrets of SaaS Product Design that drive growth at each stage of the customer lifecycle.

The Boundless SaaS Product

What are the boundaries of your SaaS product? Login? Purchase? Mobile? From a SaaS customer’s point of view, there is little distinction between your SaaS product, website, mobile app, support, service and community. It is a seamless online experience…if you design it that way! Great SaaS product management professionals don’t simply specify features and functions, they create online experiences that satisfy business, professional and personal needs. And in the course of satisfying those needs, they drive revenue growth by pushing the three fundamental SaaS growth levers.

Below are eleven SaaS product management secrets for creating SaaS products that sell themselves, one secret for each stage of the SaaS customer lifecycle. Underscoring each secret are two enduring economic themes: Read more »

Breaking Through The SaaS Ceiling

saas growth marketingIt’s the dream of every Internet entrepreneur to build a business that goes viral. Yet the sad truth is that most do not. It’s hard to think of any other industry with such a winner-take-all mentality as Internet software. The volatile combination of small market entry costs and big network effects creates wave after wave of disruption and consolidation, and quite a few millionaires along the way. Alas, virality is an elusive goal, particularly in SaaS. For this reason, SaaS Don’t #10 insists that you should not depend on network effects. Instead you should focus first and foremost on satisfying each and every single customer. But, if you’ve done that…bring on the hockey stick!

This is the fourth post in a series that paves the path to sustainable SaaS growth. The first post in this SaaS growth series introduced the concept of the SaaS growth ceiling, as well as the three fundamental SaaS marketing levers for breaking through it: customer acquisition, customer lifetime value and viral customer network effects. This installment explores the third, final and most funnest SaaS marketing lever: network effects, offering three proven SaaS marketing strategies to drive SaaS growth by getting your customers to sell themselves.

The Roof is On Fire!

saas growth marketingYou don’t need a PhD in economics to understand network effects; you just need to know how to throw a party. No one wants to go to a lame party. The more people that are going to a party, the more other people want to go. And, the more they are willing to pay to get in. If you’ve ever tried to get people to move from one party to the other, say from dinner to dancing, then you know that you have to get them ALL to move at once, or nobody moves. Finally, if your party gets big, crowded and mainstream, the hipsters start leaving to find the next big thing. So, let’s party!

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SaaS Marketing | Maximizing Customer Lifetime Value

saas marketingWhat’s the stronger driver of SaaS company growth: customer acquisition or customer lifetime value? The answer is yes. Rapid, sustainable SaaS growth is equal parts customer acquisition and customer lifetime value. Simply multiply these two numbers and you get your SaaS growth ceiling, the most revenue your SaaS business can ever achieve. Period. The end. If you want to change your future, you have to change one of these numbers. However, most SaaS marketing professionals think their job ends at purchase. In SaaS, the intital purchase is only the first of many. Keeping each and every customer around longer and making the most of the business relationship along the way has as much impact on SaaS company growth as acquiring more customers. Therefore, good SaaS marketing lasts a customer lifetime.

This is the third post in a series that paves the path to sustainable SaaS growth. The first post in this series introduced the three fundamental levers of SaaS growth: customer acquisition, customer lifetime value and viral customer network effects. This installment explores the second lever and provides three proven SaaS marketing strategies to drive SaaS growth by maximizing customer lifetime value.

Two Views of Customer Lifetime Value

There are two sides to every purchase: buyer and seller. Maximizing customer lifetime value isn’t something you do to a customer, it’s something you do for a customer. In SaaS, customer lifetime value is often expressed as average recurring revenue times the average customer lifetime (one divided by percentage churn rate), however, this is only the sellers side of the coin. When thinking about what you can do to maximize customer lifetime value, it is a good habit to think about it from your customer’s point-of-view. For example, reducing churn means giving your customer a reason to stick around, while upselling and cross-selling mean solving more problems, incresing satisfaction, and providing greater ROI. Getting paid is just an end to the means.

SaaS Marketing Strategy #5 | Reduce Churn

There is only one SaaS marketing strategy to reduce churn: Read more »

Negative Churn | It’s Not that I Don’t Dislike It, I Do

negative churnMost of us were taught at an early age that double negatives are a bad thing, because they are unnecessarily complicated and increase the chances of miscommunication. It is with this principle in mind, that I propose that we permanently ban the ridiculous term “negative churn” from the SaaS metrics vocabulary. Churn is negative growth. Negative churn is simply growth.

Many of my esteemed SaaS colleagues have casually adopted the negative churn idea without issue, such as this post by David Skok, and this one by OpenView Partners, and this one by Lincoln Murphy, and to my knowledge the very first one by Daniel Drucker who attributes the origin of negative churn to the folks at Bessemer Venture Partners. A very prestigious group of SaaS metrics experts indeed. So, what’s got my goat?

SaaS Growth vs. SaaS Churn

Negative churn implies that the economics of SaaS growth are the same as SaaS churn, only reversed. This is not the case. The business processes and customer decisions that drive SaaS growth are fundamentally different from those that drive SaaS churn. For example SaaS growth might be driven by a sales process that targets a customer need, whereas SaaS churn might be driven by a customer going out of business. As metrics, these numbers are intended to measure those processes. When they are commingled, they lose their value.

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SaaS Marketing | Accelerating Customer Acquisition

saas marketing acceleration SaaS marketing professionals know that customer acquisition is the name of the game. What they generally don’t know is that sustainable SaaS growth requires accelerating customer acquisition. In the long run, acquiring more customers is not enough. Your SaaS marketing strategy must aim to acquire more customers, faster. Otherwise, churn wins and you stop growing.

This is the second post in a series that paves the path to sustainable SaaS growth. The first post in this series introduced the three fundamental levers of SaaS growth: customer acquisition, customer lifetime value and viral customer network effects. This installment explores the first lever and provides four proven SaaS marketing strategies to drive SaaS growth by accelerating customer acquisition.

The SaaS Marketing Mandate: Remove Buyer Roadblocks

While shopping can be fun, buying a SaaS product is hard work. As the buyer, you have to figure out your problem, research and evaluate solutions, negotiate a purchase, and learn how to use yet another piece of software. Unfortunately, most SaaS vendors make it even harder than it has to be. Without world-class SaaS marketing, the typical SaaS product is hard to find, hard to understand, hard to buy and hard to use. And, every ounce of work creates a roadblock for the would-be buyer.

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