Why We Love SaaS: It’s Uniquely Customer-Centric
The SaaS (Software as a Service) business model is new in the software market and has experienced rapid growth; the first use of the term to describe software on demand dates back to 2001, while global revenues reached almost $40B in 2016.
SaaS differs from traditional software offerings in multiple ways, all of which have shifted the balance of power to the customer, and put pressure on the product to be easy to use and customer responsive. The customer-centricity of SaaS is a natural fit for Customers First Now’s approach to delighting customers, and the catalyst for the creation of our SaaS specific practice.
The differences between SaaS and traditional software span the customer journey:
Acquisition: Most SaaS go-to-market strategies accelerate customer acquisition by drastically reducing sales friction. The sales cycle is shortened significantly, and customer objections are minimized.
- Try before you buy: The most common acquisition journey in SaaS is to generate a qualified customer lead and drive it to a free trial of the software. Done well, it answers most of the questions customers have about how the software works and whether it’s the right solution.
- Low upfront investment: SaaS models make it easy for customers to get started by minimizing the initial costs and/or spreading them over time.
- Minimal technical requirements: Since SaaS offerings are hosted in the cloud, the burden is removed from the customer to have on-site hardware, perform updates and conduct maintenance. The IT/Operations team becomes less of a factor in the purchase decision.
Fulfillment: Different from traditional software, fulfillment happens every day, week, and month in SaaS. As a result, most SaaS companies are building Customer Success organizations finely tuned to the customer’s experience while using the software.
- On-boarding replaces implementation: The removal of friction in the sales process means customers can get started quickly. Their initial experience of value after purchase has a tremendous impact on their success and satisfaction. Thus, the internal on-boarding function, and emphasis on successful on-boarding, prevails in SaaS.
- Subscription business model: Customers vote every time they renew. In the forefront of their mind is the question: “What have you done for me lately?” SaaS companies strive to remind customers of the value they are getting from the software. Forms of gamification are emerging as a light-hearted way to keep the value customers are receiving top of mind.
- Rich data on usage patterns: For customer experience and big data enthusiasts, the access to customer usage data (enabled because of the shift of hosting to the service provider) is a dream come true. From behind the scenes, we can examine usage patterns, identify breakages, and build profiles of successful vs. unsuccessful customers.
Renewal: In the SaaS model, retention becomes the most important metric to watch after acquisition/growth rate. Forecasting and operationalizing renewals requires a firm grasp on the customer experience – each and every touch point that is now influencing the customer’s decision to renew. The importance of renewals leads to certain teams/functions gaining more emphasis in SaaS companies.
- Account Management: While traditional AM functions have emphasized managing customer relationships, SaaS AM hires require a combination of relationship management, customer experience intuition and the ability to leverage data to make decisions.
- Customer Experience: Because the customer journey – and breakdowns in the customer journey – tie directly to renewals, SaaS companies are getting more disciplined and investing more into deep understanding of the customer journey.
- Big Data/Analytics: The overwhelming quantity of customer data – demo/firmographics, preferences, usage frequency and patterns – takes renewals from an art to a science. Predictive models tied to customer success and renewals are entirely possible in SaaS.
The CFN Approach to SaaS Retention & Churn
In the SaaS model, the Account Manager does not need to wait, or to be surprised by, a customer requesting to cancel. Teams may get a well informed view of the customer’s engagement with the product much before the cancelation thought comes into customer’s mind. At CustomersFirst Now (CFN), we help companies focus on the few metrics which any company should, without fail, measure if they want a higher customer retention. This also demonstrates one of the CFN’s guiding principle “Always be on your toes, not your heels”, which is critical to understanding the needs of the customers and being one step ahead.
Below are few must-to-measure-metrics and critical factors to keep in mind;
Below are few customer retention related Industry benchmarks that any SaaS company must be aware of;
- Customer renewal rate – 80-85% in B2B space
- Trail period conversion, B2B space, across industries -15-20%
- Customers retained after requesting cancelations – 10-15%
- Average discount offered for customer retention – 5-15%
- Indication to cancel if average login sessions are– <6 times in a month
At CFN, we have laid out a SaaS specific approach to improving Customer retention in subscription based model. Our approach has three distinct steps;
In Step 1, we leverage CFN’s CX experts to better understand the customers’ journey and our analytics team to prioritize which breakdowns we should address first. The end result is two fold: a detailed journey map that each stakeholder in the journey can connect to, and a clear prioritization and investment plan useful in more senior team discussions. This process can be easily completed within a few months.
At step 2, we start to drill down into the top churn priorities. We identify actions to take and processes that need improvement. As an example, if on-boarding emerged as a high priority improvement area, a customer-centric Quick-Win could be “Redesign the On-boarding Process” with a goal of shortening the timeframe for successful on-boarding from 6 weeks to 2 weeks. We can see improvements from this phase of work in as early as 90 days.
At Step 3, we create the longer-term operating plan for driving retention to an optimal level. We identify and prioritize the journeys we will improve, and the target metrics for improvement. We craft full change management plan, including senior leader strategic/financial plans as well as front line communication plans. The Sustainable Program most often take 12 months to execute, with clear progress each quarter.
Key leaders for the SaaS solutions at CustomersFirst Now are Kerri Neslon and Elizabeth Pitt.
Kerri Nelson is CEO and co-founder of CustomersFirst Now. 25 years in the Information / Analytics industry (SaaS solutions and Services) and 10 years leading Customer Experience programs for multi-billion dollar, global companies.
Elizabeth Pitt is CX SaaS Practice Leader with CustomersFirst Now. 20 years in Marketing, Sales and Customer operations and a Senior Associate for McKinsey & Company.
To know where your company stands in terms of Customers Experience, take our Best Practice Assessment now and you will receive a complimentary assessment on your company’s CFN RatingTM and comparison against your competitors.
CustomersFirst Now (CFN) has been refining our CX solutions for more than 40 years—working with and for many Fortune 100 companies. We provide the only proven, predictive process that links Customer Delight to financial performance by incorporating and measuring CX Best Practices across all key business disciplines. For more information, contact Kerri Nelson at firstname.lastname@example.org