As a SaaS business matures, the importance and value of SaaS metrics increase. Most SaaS businesses begin their journey down the SaaS metrics path by tracking recurring revenue in relation to customer acquisition costs. After building a solid customer base, churn becomes a priority. These fundamental SaaS metrics are all apparent in the standard SaaS profit equation below.
SaaS profit =
current customers x ( avg recurring revenue – avg recurring cost )
– new customers x avg acquisition cost
However, it quickly becomes apparent that fighting churn requires a SaaS metrics toolkit that digs significantly deeper than simple financial metrics. Operational metrics are needed that connect day-to-day business reality to financial performance. It is this realization that gives birth to the new Metrics-driven SaaS Business as it discovers the goldmine of SaaS customer success metrics and predictive analytics that enable it to eliminate churn before it begins.
But what about the other half of the profit equation? Is it possible to apply SaaS customer success metrics to customer acquisition? The answer is most emphatically yes! Prospects are merely future customers, and their success lies in the purchase of your SaaS product. It’s a SaaS best practice to provide a seamless customer experience from visiting your website to trial to purchase to use, therefore the metrics used to describe this process should be seamless as well. In all cases, the goal is to help customers become happy users of your SaaS product, i.e., successful customers. SaaS customer acquisition is merely SaaS prospect success.
Customer success metrics are equally applicable to SaaS customer acquisition,
because prospects are merely future customers whose success lies in purchase.
This is the third post in a series inspired by my ongoing collaboration with Bluenose Analytics that explores the new Metrics-driven SaaS Business based on emerging best practices in SaaS customer success metrics. The last post discussed the promise of SaaS customer success metrics for churn reduction and upselling. This third post examines their use in SaaS customer acquisition.
Improving Trial Conversions
Marketing automation vendors built an entirely new software category based on the idea of facilitating purchase by helping B2B companies engage more effectively online with the New Breed of B2B Buyer. Unfortunately, marketing automation products focus all their attention on trying to get prospects to read your content, not use your product. Continue reading "Driving SaaS Customer Acquisition w/Success Metrics"
Over 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.
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.
An Ocean of Customer Success Data
The promise of customer success metrics is immense. Unfortunately, so is the challenge of developing them. Continue reading "The Promise of SaaS Customer Success Metrics"
We 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 Continue reading "Bluenose Enables the Metrics-driven SaaS Business"
My 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.
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? Continue reading "The Metrics-driven SaaS Business"
With increasing number of software solutions moving to SaaS, the way to charge, collect the fee for the service is also changing. License (lump-sum) fee is being replaced by (monthly/annual) subscription fee. If the architecture, data management, service uptime (SLAs) are not challenging enough, SaaS companies now also have to deal with subscription pricing, billing and tiered offerings which is not the core competency of most SaaS businesses. To meet this this challenge, a new category of software offering called Subscription Management (aptly also SaaS) which specialize in providing robust billing, pricing capabilities has emerged.
A friend who runs a SaaS company, which is growing fast and has outgrown their in-house process/technology of managing subscriptions, was beginning to evaluate a Billing Service. He asked me to help with characterization of what an ideal service should be capable of and baseline the needs that they need to assess. Thought it might be
Continue reading "Evaluating a SaaS Subscription Billing Service"
Customer References are the best way to get credibility for your product. While the eventual decision by the prospect might be more dependent on your value proposition and how painful of a problem the prospect has, references could push the deal past the goal post. Providing references that can vouch for the product has become an integral part of the sales cycle. Most early stage companies sweat bullets when it comes to furnishing them.
Irrespective of what stage your company is at, in its lifecycle, you will be asked for references. Consider it as a certificate of merit for the excellent service you have provided your existing customer. While NPS (Net Promoter Score) serves as an indicator of your customer loyalty (also how good your customer satisfaction score has been), a customer reference is an indicator of how compelling the value proposition of your product/service is.
If you are a
Continue reading "Securing and Maintaining Customer References"
An oven, no matter how good it is can just be a shiny object. Its value is realized only based on the cake that comes out of that oven. The cake in turn is dependent on the recipe, the ingredients you use and how you cook the cake. A cake bought from a bakery, on the other hand, is ready to be consumed and enjoyed right away. What has an oven or a cake got to do with Software Products?
Product companies sell a variety of solutions ranging from ready-to-use products(i.e. cake) such as CRM, Project Management that anyone can use to complex products (i.e oven) such as Business Intelligence, Performance Management that need specialists to realize its stated value proposition . As Product Managers, based on where your product falls, a Oven manufacturer or Baker, you should expect different paths to success. The way you build the product, market
Continue reading "Are you selling an Oven or a Cake?"