When your SaaS business is well aligned, your SaaS customers consistently take positive actions that lead to positive business outcomes: they try, they buy, they upgrade and they refer you to a friend. When you are poorly aligned, your SaaS customers consistently take negative actions that lead to negative business outcomes: they bounce, they negotiate, they complain, and they churn.

SaaS businesses develop intimate, long term relationships with their customers. Like many long term relationships, it is founded on a recurring cycle of needs fulfilled and expectations met, or not. And I donâ€t just mean customer needs and expectations. There are two sides to every relationship. SaaS businesses need to make money as much as SaaS customers need to spend it. SaaS customer alignment means aligning the goals and actions of the SaaS customer with the goals and actions of the SaaS business at every stage of the SaaS customer lifecycle.

Click the image or link to download the complete SaaS Marketing Strategy – Achieving SaaS Customer Alignment eBook

A compilation of recent popular articles at Chaotic Flow, this detailed eBook outlines the important SaaS marketing concept of SaaS customer alignment. It examines the challenges of maintaining SaaS customer alignment throughout the SaaS customer lifecycle. Along the way it provides 16 tips for achieving SaaS customer alignment in customer acquisition, customer success and early product-market fit.

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

Cheers,

jy

The post Achieving SaaS Customer Alignment | Ebook first appeared on Chaotic Flow.

I’ve been thinking a lot about how my SaaS experiences have shaped my thinking on agile management, and visa versa. SaaS and agile present complementary aspects that enable a uniquely symbiotic relationship. Agile aims to help businesses increase responsiveness to customer needs, while laying a foundation for continuous improvement. SaaS opens up real-time customer communication and product delivery channels, while simultaneously establishing a long term customer relationship. The high velocity at which SaaS customer value can be understood and then delivered through the SaaS product enables faster, more accurate fulfillment of SaaS customer needs to reduce SaaS churn and drive SaaS growth. IMHO, adopting and mastering agile software development, agile marketing and pretty much agile everything should be a priority of every SaaS business.

A Little Agile History

The roots of agile software development and agile marketing lie in agile manufacturing, lean manufacturing and total quality methodologies. The original total quality goals were very simple: increase quality and improve productivity. Two goals that were seen as opposite were made to be one. As global manufacturers mastered total quality, they upped their game and looked to increase responsiveness to customer needs, while maintaining productivity. Again, two goals that were seen as opposite were made to be one. This is the origin of agile.

Agile software development and agile marketing have followed similar, but unique paths. Buggy software, product delays and death marches were the norm in the 90s. A groundswell formed around the idea of taking the agile principles that had been so successful in manufacturing and applying them to software. Could we turn a death march that produces bugs into an efficient production line that produces quality software? In 2001, this culminated in the publishing of the Agile Software Manifesto. Since then, agile software development has become the industry standard.

Today, we are seeing a similar groundswell around agile marketing. The emergence of modern marketing as an essential revenue driver has led to high pressure performance, inflicting many marketing organizations with the same ills that plagued their pre-agile software engineering peers: too much work, too little time, and too little understanding in the rest of the organization of the work required to produce quality results.

The Forgotten Agile Customer

As agile evolves and adoption expands throughout the SaaS sector, one thing concerns me greatly. What happened to the customer? The very first line of the principles behind the Agile Software Manifesto begins: “Our highest priority is to satisfy the customer…”, but all I ever hear is SCRUM, collaboration, backlogs, sprints, and story points. The voice of the customer has somehow been lost. On most agile development teams, a single ‘product owner’ represents the voice of the customer and must compete with CEOs, VPs and VCs to be heard.

There are three ideas at the center of any agile methodology.

1. Customer-driven products and services enabled by real-time customer data
2. Increased productivity from higher quality and reduced waste
3. Iterative, continuous improvement over the long run

It is #1 that defines agile; #2 & #3 are borrowed from earlier methodologies. The overarching idea is that productivity and quality are table stakes, whereas real-time customer responsiveness creates sustainable competitive advantage in a fast-moving market. There are few markets moving faster than SaaS, but we are missing the agile SaaS opportunity. Agile is not SCRUM. Agile is not sprints. These are just means to the end. Agile SaaS aims to accelerate SaaS business growth increasing the velocity of value delivered to your SaaS customers.

Agile SaaS and the Velocity of Customer Value

We use the word ‘value’ alot in SaaS: lifetime customer value, average subscription value, total contract value, SaaS company value, and so on. However, we rarely use it in the agile sense of the word: customer value. Not the value of a SaaS customer to the SaaS business. Not the value of a SaaS business to its investors. The value a SaaS business delivers as judged by its SaaS customers.

Agile SaaS creates a continuous loop of customer feedback and product delivery:
listen, build, deliver…listen, build, deliver…etc., that responds rapidly
to SaaS customer needs, increases competitiveness and drives SaaS growth.

When we choose a feature off the backlog, publish a blog post or handle a support ticket, the opinion that counts in agile is the customer’s. Your SaaS customer must say it, read it, write it, click it, rate it, review it, share it, try it, buy it or recommend it to provide a measure of your work. It is a core competency of any agile SaaS business to collect, analyze, disseminate and act upon feedback from its customers. If your SaaS business has implemented agile software development or agile marketing, but it doesn’t have a continuous real-time flow of feedback from your customers indicating the value of your work, then you don’t really have agile.

On the other hand, you might be the most customer-focused SaaS business on the planet, but if you don’t have the ability to act on it faster than your competitors, then it will do you little good. An agile competitor can learn from your customers as well as its own, copying and improving whatever innovation you deliver before you have time to sell it. Agile SaaS businesses set up a continuous loop of customer feedback and product delivery: listen, build, deliver…listen, build, deliver…etc., that responds rapidly to the needs of their customers and keeps them ahead of the competition. The higher your velocity of value, the faster your SaaS business grows.

The Agile SaaS Opportunity

Imagine getting real-time SaaS customer feedback on your SaaS product on a daily basis. Your customers can rate, review, suggest, complain or ask for help from directly inside your product. Then, complement that with real-time product usage data and ongoing customer surveys. Then, expand that feedback beyond your product to everything you do from your blog to technical support. Now, imagine that information being accessible to everyone in your organization, not just a product manager or market researcher. Finally, imagine your teams using agile methods to take that feedback and turn it into new product releases, new marketing campaigns and new services in a matter of days and weeks as opposed to months and years. This is the Agile SaaS opportunity.

No other industry has the same intersection of intimate long-term customer relationships, potential automation of customer feedback and product delivery, and intense market competitiveness. No other industry has more capability to reap the benefits of agile or the need to do it. Does your SaaS business measure up to your agile imagination? Or, are you missing the opportunity of Agile SaaS?

The post The Missed Opportunity of Agile SaaS first appeared on Chaotic Flow.

Finding product-market fit is a central, early stage challenge of every startup. SaaS startups, however, have unique advantages. Unlike consumer Internet products, SaaS products are essential business tools. SaaS customers take them very seriously. SaaS customers want to provide feedback and they want to see that feedback acted upon in a timely fashion. In other words, SaaS customers want product-market fit as much as the SaaS vendor. Unlike offline B2B products, the SaaS product creates an always-on connection between the SaaS company and the SaaS customer. By leveraging that connection, the process of getting and acting upon SaaS customer feedback can be automated and accelerated.

This is the fourth post in a series that explores the importance of SaaS customer alignment. Previous posts in the series have focused on establishing SaaS customer alignment throughout the SaaS customer lifecycle, creating a list of SaaS Customer Alignment Tips along the way. This post continues that list, but take us back to the earliest and arguably most important stage of SaaS customer alignment: finding SaaS product-market fit.

Try, try, try again

There have been many great books and articles written on the topic of product-market fit. Surprisingly though, you are unlikely to find any better advice than that given in the old nursery rhyme: “If at first you don’t succeed, try, try try again.”

Of course, you don’t want to just try things at random. You want to try things that will systematically improve SaaS customer alignment and move your SaaS business closer to product-market fit. You need to test your current product-market fit, then make adjustments in the right direction based on the results. In other words, you need to create a continuous loop of SaaS customer feedback and SaaS product development that increases product-market fit on each iteration: listen, build, deliver…listen, build, deliver…try, try, try, again. The unique advantages of SaaS, however, allow you to increase the velocity at which you ‘try, try, try’ and accelerate your path to product-market fit.

SaaS Customer Alignment Tip #13

Let Your Customers Be the Judge

When angling toward SaaS product-market fit, it is essential to understand the different roles played by the product and the market. The product proposes and the market judges. SaaS startup founders, product managers, UI designers and software engineers all have strong ideas and even stronger attachments to the SaaS products they build. This vision and ownership is an integral aspect of technology innovation. Once that innovation is out there, however, you need to get the clear and unbiased appraisal of your potential SaaS customers. Talk to them. Listen to them. Build a customer-focused culture that continually seeks to understand and better meet the needs of your SaaS customers.

SaaS customer focus doesn’t mean SaaS product design by committee. After the market judges, its the product’s role to re-propose. Beyond modest improvements to existing features, it is unlikely that the feedback you receive will translate verbatim into the capabilities your SaaS product needs to reach product-market fit. You may need to innovate and provide an unforeseen solution to an unforeseen problem. You may need to walk away from a particular segment of the market, because it will never fit. It is also unlikely that your second or your third try will be perfect. The faster you iterate, the faster you will achieve product-market fit.

SaaS Customer Alignment Tip #14

Accelerate Feedback through the SaaS Product

Getting direct, in-person feedback from your customers should be at the top of your priority list when you are working toward SaaS product-market fit. That said, your SaaS customers will naturally spend much more time in front of your SaaS product than they will in front of you. Don’t waste it. In the same spirit as SaaS Customer Alignment Tip #8, the best time to get SaaS customer feedback is real-time.

Open as many feedback channels as possible to your SaaS customer directly inside your SaaS product. New feature requests, current feature ratings, bug reporting, support inquiries, and so forth are just one click away from the events that precipitate them when you enable them inside your SaaS product. Long before SaaS product usage data helps you convert trials and reduce churn, it should help you improve SaaS product-market fit. Product usage metrics provide unbiased insight about what is being used and what isn’t. It can also tell you what is being used with difficulty versus what is being used with ease. By turning on real-time feedback directly within your SaaS product, you accelerate the SaaS customer side of the listen, build, deliver loop and increase the velocity at which you approach SaaS product-market fit.

SaaS Customer Alignment Tip #15

Go All Out Agile

Agile software development has seen wide adoption throughout the software industry. However, there is one often overlooked aspect of agile software methodologies that has been lost in their loose translation from their agile manufacturing roots: the customer. Many software engineering teams turn to agile as a means to increase productivity and manage risk. However, the primary goal of agile is not higher productivity; it is increased responsiveness to customer needs. In most agile software development teams, the product manager provides a surrogate voice of the customer. This is not enough. A fundamental tenant of agile is that the output of your team, your SaaS product, must be of value to the customer, otherwise it is not real output. That is, features that have no value to the customer are waste.

Adopting agile software development in your effort to achieve SaaS product-market fit is a good idea. Complementing it with agile marketing that plugs unbiased customer feedback directly into the software development process is a great idea. Agile should not end at the SaaS product manager. SaaS product and marketing managers shouldn’t just gather and analyze customer feedback, they should take the lead in collecting as much of it as possible and sharing it with the entire team to reinforce a culture of customer focus. Bring the feedback gathered through SaaS Customer Alignment Tips #13 and #14 full circle and make it the foundation of your SaaS product development process.

SaaS Customer Alignment Tip #16

Automate SaaS Product Integration, Testing and Deployment

Like agile, automated integration, testing and deployment have seen wide adoption in the software industry. And like agile, they are often pigeon-holed as engineering best practices. They are not. They are SaaS business best practices, because they enable rapid reaction to market demand and specific customer needs. Automated testing is particularly important when you are redesigning and refactoring on a regular basis to improve SaaS product-market fit. When combined with agile software development and agile marketing, they create a SaaS product delivery machine capable of rapid innovation that follows the SaaS customer’s lead and drives rapidly toward SaaS product-market fit.

The post Finding SaaS Product-Market Fit first appeared on Chaotic Flow.

SaaS businesses develop intimate, long term relationships with their SaaS customers. Keeping that relationship positive and aligned over the years is a real challenge. In fact, many public SaaS companies have yet to turn a profit. If they don’t keep their customers around for years, then all that capital invested in customer acquisition will have gone to waste.

This is the third post in a series that explores the importance of SaaS customer alignment across the SaaS customer lifecycle. The last post examined the challenges of aligning SaaS customer acquisition, resulting in a short a list of SaaS Customer Alignment Tips. This post continues the list of tips into the second half of the SaaS customer lifecycle by examining the challenges of aligning SaaS customer success.

Churn Starts on Day One

It is typical in B2B software for customer acquisition to eat up 50% or more of total costs. In traditional licensed software, that cost is immediately recovered when a deal is closed by the revenue of the deal. There is very little uncertainty about the value of any new contract: it is the margin reaped between license revenue and acquisition costs. In SaaS, however, customer acquisition costs are recovered over time as the customer renews each period. There is a great deal of uncertainty about the value of any new contract, because the customer might cancel early or stick around for years.

The economics of a SaaS contract are like that of buying a stock or a bond, where you make an up front investment based on the promise of future returns. As the future unfolds, the value of that investment has little correlation to the price that you paid. It is determined by how effectively the underlying business manages its future. In SaaS, the work doesn’t end when then deal it is signed. It begins, because churn starts on day one.

SaaS Customer Alignment Tip #7

Don’t Fumble Your Handoffs

Separating hunters and farmers is a common SaaS sales best practice. Deals are closed by an aggressive quota-carrying sales team: the hunters, and then handed over to a more service oriented group of account managers and customer success reps for on-boarding, renewals and up-sell: the farmers. Your SaaS customer has only one SaaS customer life cycle. Every time you hand-off a SaaS customer relationship, you create the opportunity for that SaaS customer to fall through the cracks in your process. When you break up responsibility for the SaaS customer life cycle, you must put processes in place that sew it back together. It might be as simple as an onboarding checklist and a formal meeting with all the relevant parties. Or, you might create teams that link specific sales reps to specific account managers and success reps. Use whatever approach works best for your particular SaaS business, but don’t fumble your hand-offs.

SaaS Customer Alignment Tip #8

Onboard in Real Time

Sales, marketing, customer success, and technical support teams all play critical roles in servicing SaaS customers and driving SaaS business revenue. However, they should always be considered the second choice when the same goal can be accomplished directly by innovative SaaS product design. As much as we love our teams, they don’t have economies of scale. More importantly, they are not in front of the customer when the customer needs help with the product. The SaaS product is. Oboarding is best when it is done in real-time as the the SaaS customer uses the SaaS product. Build your SaaS products to detect and react to the needs of the SaaS customers based on their experience and usage. Don’t clutter up the user interface with advanced features for first time users. Strive for instant gratification. Design for discovery to expose deeper capabilities based on deeper usage. When all else fails, provide ques, tips, education and immediate access to support within the product itself.

If They Use It, They Will Stay

There are many potential causes of SaaS churn. SaaS products that don’t deliver enough value to justify their use. SaaS products that are so hard to use, such that SaaS customers never really get up and running. SaaS products that are so casually used that SaaS customers don’t incur any switching costs. Or, SaaS customers that simply go out of business. Whatever the root cause of SaaS churn, its impact is always measured by use. They might not come if you build it, but if they use it, they will stay.

Its a bit of a tautology to claim that SaaS product usage is the best predictor of SaaS churn. In one sense, churn is simply non-use. Over time, however, SaaS product use tends to deepen switching costs as SaaS customers put more and more of their data into the SaaS product, invest more of their time learning the SaaS product and bake the SaaS product into their business processes. The cumulative impact of ongoing SaaS product use creates an economic hysteresis that makes it easier to go forward and renew, than to go backward and churn.

SaaS Customer Alignment Tip #9

Use Your Usage Data

SaaS product usage patterns provide unprecedented insight into SaaS customer alignment. Well aligned SaaS customers get up and running fast, use your SaaS product on a regular basis, discover new capabilities in the course of regular use, and expand their use over time. Only SaaS products offer this level of customer intelligence. Many other products from vending machines to automobiles embed SaaS-like components for the sole purpose of obtaining this kind of information. Use your usage data to gain a deeper understanding of your SaaS customer’s needs and habits to improve SaaS customer alignment.

SaaS Customer Alignment Tip #10

Qualify Churn like You Qualify Leads

SaaS sales and marketing organizations spend an enormous amount of time and energy qualifying leads. They track conversion rates, create A/B tests, develop lead scores, put lead development teams in place, and so on. Lead qualification increases the probability of closing a deal and enables the SaaS sales and marketing organizations to focus on the best prospects. So it is with churn. Churn is just negative retention, and retention is revenue. Whereas lead scoring models are built on weak, superficial metrics for SaaS customer intent, such as click streams and page views, SaaS customer success models can be built clear indicators such as product usage, support tickets, and direct customer feedback. If you can qualify your current customers likelihood of cancelling better than you qualify leads, then you will have developed a significant advantage in the never-ending battle against SaaS churn.

Help Your SaaS Customers Help Themselves

There is no market for lemons in SaaS. SaaS customers gain a complete understanding of your SaaS product before they pay you. If they don’t like what they see, they churn. On the other hand, the SaaS business incurs the same customer acquisition costs. If your SaaS sales and marketing machine is too aggressive, your reps may make quota, but your SaaS business will pay for it in the end. Many enterprise software vendors pay lip service to solution selling, but SaaS vendors must deliver. The only sure way to build a sustainable, recurring SaaS revenue stream is to help your SaaS customers help themselves.

SaaS Customer Alignment Tip #11

Avoid The Downside of Upsells

Upselling is a critical component of many SaaS business strategies. For some SaaS businesses, long term profitability hinges on upsells. The importance of upsell revenue and retention revenue lead many SaaS executives to the natural conclusion that these revenue streams should be on quota to get the same level of individual motivation and accountability that sales has for new revenue. Putting account managers and success reps on aggressive quotas, however, is a double edged sword. Bad cops can’t be good cops.

A lost deal only implies an opportunity cost: revenue we might have had. Unlike new business, a lost customer is a real cost: revenue you would have had. If your upsell effort is so aggressive that it creates bad SaaS customer alignment, they your cancellations might very well cancel out your upsells. Avoiding the downside of upsells requires striking a careful balance between revenue accountability and customer success. In that regard, culture matters more than quotas. Make sure your SaaS customers are successful first, and your upsells will sell themselves.

SaaS Customer Alignment Tip #12

Advocacy Compounds Lifetime Value

A SaaS customer that upgrades can easily be worth 2X one that doesn’t. A SaaS customer that brings your new SaaS customer, each of which might upgrade, can easily be worth 10X. The best SaaS customer advocates do more than provide logos for your website and quotes for your press releases. They recommend you to their colleagues and bring in new business at a fraction of your average acquisition cost.

Smart SaaS businesses put in place ongoing programs that identify, nurture and enable SaaS customer advocates, because the lifetime value of a SaaS customer advocate compounds with each referral. But remember, your SaaS customer advocate is not helping you. You have been paid for your services. She is helping the colleague she refers to you, because she thinks your SaaS product is genuinely valuable. And, she is helping herself to the good feeling of doing a colleague a favor. Help her, help her friends, and help her, help herself.

The post Aligning SaaS Customer Success first appeared on Chaotic Flow.

SaaS businesses can be overwhelmingly complex. If the multi-tenant, cloud-based technology isn’t enough, there’s the recurring revenue model which creates all kinds of challenges from accounting to sales compensation to funding. Then, there’s the marketing. Getting noticed on the Internet gets harder every year and almost every SaaS product category has a crowded field of competitors. And of course there is mobile, which should come first right? In my own SaaS experience, be it scaling a sales and marketing team, consulting for SaaS startups or bootstrapping my agile marketing SaaS, Markodojo, I find myself returning to a common theme that always cuts through the complexity: SaaS customer alignment.

This is the second post in a series that explores the importance of aligning the goals and actions of the SaaS customer with the goals and actions of the SaaS business. The first post in a series introduced a simple framework for understanding SaaS customer alignment and its many benefits. This post digs deeper into the challenges of achieving SaaS customer alignment in the early stages of the purchase process. Along the way, we kick-off a list of tips to help SaaS businesses improve SaaS customer alignment at every stage of the SaaS customer lifecycle.

Not Everyone Needs Your Stuff

We love our SaaS companies and we love our SaaS products. Theyâ€re our babies! But, your baby always looks cuter to you than it does to everyone else. Selling to everyone is one of the biggest causes of poor SaaS customer alignment. Some people just donâ€t need your stuff, and they will never appreciate the unique qualities of your baby. Selling to everyone is an ill that inflicts many businesses, not just SaaS businesses, because it is baked into the economics. When growth is the primary determinant of SaaS company value, then there is always pressure to expand your available market. Unfortunately, your available market was probably determined a long time ago when your baby was conceived. Expanding your available market generally requires a new product module, a new SaaS product or even a new business unit.

SaaS customer acquisition should focus on maximizing available market penetration, not increasing available market size, and to do that you have to have a very clear picture of your target SaaS customers. Who truly needs your stuff? Why do they need it? What do they get out of it? How many are there? And, how can you reach them? This information goes by a lot of different names: market segments, qualification criteria, pain points, buyer personae, customer profiles, use cases, etc. The important realization is that they are all the same thing in the end: tools that reinforce SaaS customer alignment. The primary difference is in the depth of data; because you tend to have more of it the deeper the SaaS customer proceeds into the purchase process.

SaaS Customer Alignment Tip #1

Create a Common Customer Understanding

Chances are your SaaS Marketing VP has some version of market segments, buyer personae, and lead scores, while your SaaS Sales VP has some version of qualifying criteria and pain points, and your SaaS Product VP has some version of users and use cases. Do they match? Are they shared? Do they use the same language? In the end, they define the same customer. Work as a team to create one definition of your SaaS customers, a shared understanding of who they are at a detailed level and a common language to describe them. Once youâ€ve defined each type of SaaS customer at a detailed level, then give each one a short, descriptive, meaningful name that can serve as a short hand for all the underlying detail.

SaaS Customer Alignment Tip #2

Learn to Say No

Once you have a clear and common understanding of your ideal SaaS customers, you will find that you also have a clear and common understanding of your poor prospects. Qualify them out, early and often. When you’ve just raised that B-round and growth expectations are running high, it is easy to fall into the trap of over-selling your SaaS product. Bad prospects waste precious sales cycles and marketing dollars, driving up your customer acquisition costs. If you do manage to close them, they drive up your success and support costs, because your SaaS product is not a good fit for their needs. Ultimately, they cancel and drive up your churn rate. It’s better to say no up front, and make expanding your available market an element of your SaaS product strategy, not SaaS customer acquisition.

Are You a Commodity or a Contraption?

One often overlooked item to include in your common customer understanding is the messaging you will use to communicate the value of your SaaS product to each SaaS customer type. That messaging should be consistent at the core in all of the places it might appear: website, sales pitches, email, direct mail, event presentations, press releases, blogs, webinars, and so on. However, poorly aligned messaging consistently applied produces consistently bad results.

Your SaaS product messaging must align with your SaaS customer’s understanding of your SaaS product. If your SaaS product is a commodity, keep the content simple. If your SaaS product is a contraption, you have to map out an educational journey.

Your SaaS product messaging must align with your SaaS customer’s understanding of your SaaS product. Are you a commodity or a contraption? A commodity is a product that is generic. Customers have seen it, used it and are completely familiar with it. It is virtually synonymous with the product category itself, like a Kleenex or a Coke. That is not a bad thing, if you own the category. In fact, that is a very good thing. A contraption is innovative, complex and poorly understood. Knowing where your SaaS product falls along this spectrum is essential to achieving SaaS customer alignment.

SaaS Customer Alignment Tip #3

Don’t get Caught Up in the Content

Today’s SaaS marketers have a very broad communications toolkit that includes websites, email, blogs, ebooks, videos, ads, webinars, presentations, press releases and everything in between. It is easy to generate a lot of content. It is even easier to generate a lot of really meaningless content. If your SaaS product is a commodity, keep the content simple and focus it on getting the customer to the next stage: trial. They don’t need education.

If your SaaS product is a contraption, your SaaS marketing must be commensurately more sophisticated. In the end, you’d like to lead your SaaS customer to a commodity-ish understanding of your value, such as two words that say it all. It’s almost always a good thing to get your message down to two words, but contraptions can’t lead with that. As simple and clear as your two words might be, early stage prospects just won’t get it. You have to start with the level of interest and understanding of your target SaaS customer and map out an educational journey that brings their pains to the forefront, demonstrates your SaaS product’s value and ultimately leads to real understanding of your two words.

SaaS Customer Alignment Tip #4

Seeing is believing

At the risk of repeating myself, I have yet to see a SaaS product that would not benefit from a free trial. That is, benefit SaaS customer alignment. While it is often difficult for the contraption to pull of a great free trial, even the commodity can run into difficulty if the adoption costs are high. For example, accounting software is a very well understood SaaS product category, but it is difficult to show the real value of the product until you have loaded it up with your SaaS customer’s chart of accounts, product SKUs, and so forth. I don’t care, and neither does your SaaS customer. Seeing is believing.

Find a way to demonstrate the value of your SaaS product in a real-world customer experience. The ideal scenario is that the customer signs up and is instantly gratified by the first thing she does with your SaaS product. Every SaaS business should strive for that ideal. If you are a bit of a contraption, then you need to help them out along the way with in-product ques and education. If you are a large complex, enterprise, transaction-oriented system with no hope of delivering a live system pre-purchase, then set up a production environment that your qualified prospects can test drive. Let them see it. If your product is good, they will buy it. And, even if it has some rough edges, they won’t be surprised later on. You will be more aligned with your SaaS customer.

The Cloudy Nature of SaaS Pricing

SaaS pricing is one of the most important dimensions of SaaS customer alignment. SaaS pricing isn’t that hard to do. It’s just hard to know if you are doing it right. Many SaaS businesses just give up and copy Salesforce.com or some other category leader similar to them. SaaS pricing is difficult for two reasons. First, pricing is inextricably linked to volume, and most SaaS businesses don’t have that much volume to work with. Second, SaaS pricing recurs renewal after renewal. To test SaaS pricing, you need lots of purchases. And, you need to be able to separate those purchases in a scientific A/B testing sort of way. Unfortunately, most SaaS customers don’t make good test subjects.

The difficulty of getting real data when it comes to such an important decision as your SaaS pricing model significantly ups the ante on the quality of your SaaS pricing judgment. You need to make the best SaaS pricing decisions your can, because you will be stuck with the results. The average SaaS business might change its SaaS pricing model every couple of years. The SaaS pricing learning curve is very slow. You must try to get it right the first time.

SaaS Customer Alignment Tip #5

SaaS Pricing Should be Simple

There is a natural tendency to over-complicate SaaS pricing. Don’t. Your SaaS product might be overflowing with features, but your SaaS customers probably only come in a couple of flavors. Your SaaS pricing choices should say more about your customers, than they do about your features. Moreover, you’re just fooling yourself. You don’t know if one low-level feature is more important than the next. You can’t test it. So, why make it complicated?? Keep it simple and create bundles based on your SaaS customers and their list of needs, not your SaaS product and your list of features. If you started with SaaS Customer Alignment Tip #1, you will be in a very good position to do so.

SaaS Customer Alignment Tip #6

Build Upsell in from the Start

A good SaaS pricing model separates your SaaS customers based on their choices and maximizes both your revenue and their value. Customers that value capability A, pay a little more for A, but not so much more that they don’t benefit or don’t buy it. Economics 101. What you generally don’t cover in Economics 101 is the SaaS customer that sticks around year after year. SaaS customers evolve as their businesses grow and their use of your SaaS product deepens. This evolution demands that you stay aligned with your SaaS customer over time. From a SaaS pricing perspective, it offers the opportunity to create time-based bundles and usage-based pricing that reflect the natural evolution of your SaaS customers and build upsell into your SaaS pricing model from the start.

Stay tuned for the next article in this series: Aligning SaaS Customer Success!

The post Aligning SaaS Customer Acquisition first appeared on Chaotic Flow.

When Iâ€m not completely absorbed with my agile marketing software startup, I do a bit of SaaS consulting on the side. SaaS colleagues come to me with a wide variety of problems from positioning to sales compensation to churn analysis, but lately Iâ€ve noticed a common theme: poor SaaS customer alignment. SaaS businesses develop intimate, long term relationships with their customers that are enabled by the always-on connection between the SaaS customer and the SaaS business through the SaaS product. Like many long term relationships, it is founded on a recurring cycle of needs fulfilled and expectations met, or not. And I donâ€t just mean customer needs and expectations. There are two sides to every relationship. SaaS businesses need to make money as much as SaaS customers need to spend it. SaaS customer alignment means aligning the goals and actions of the SaaS customer with the goals and actions of the SaaS business at every stage of the SaaS customer lifecycle.

This is the first post in a series that explores the importance of SaaS customer alignment. This first post introduces a simple framework for understanding SaaS customer alignment and its many benefits. Future posts will examine the challenges of achieving SaaS customer alignment in customer acquisition, customer success and early product market fit.

In SaaS, customers are the fundamental unit of measure. Each new customer brings a new thread of subscription revenue that is woven into a larger tapestry to form the total recurring revenue of a SaaS business. The quality of that tapestry hinges on the quality of your SaaS customers. But,what makes for a high quality customer? A high quality SaaS customer is aligned with your SaaS business goals and your SaaS business processes throughout the SaaS customer lifecycle. SaaS businesses that are well aligned with their SaaS customers have high recurring revenue growth, low acquisition costs and low churn rates. Poorly aligned SaaS businesses struggle to survive and satisfy their customers.

When your SaaS business is well aligned, your SaaS customers consistently take positive actions that lead to positive business outcomes: they try, they buy, they upgrade and they refer you to a friend. When you are poorly aligned, your SaaS customers consistently take negative actions that lead to negative business outcomes: they bounce, they negotiate, they complain, and they churn. In theory, the solution is simple: just get your customers to take positive actions. In practice, itâ€s a little more complicated.

When your SaaS business is well aligned, your SaaS customers
consistently take positive actions that lead to positive business outcomes.

Know Thy SaaS Customer

The good news about actions and outcomes is that they are easily measured. The bad news is that they are not as easily managed. Achieving strong SaaS customer alignment requires the ability to manage SaaS customer actions toward the positive and away from the negative. To do this, you have to understand the underlying motivations for those actions. You have to know how your customers think and why they do the things they do. That means you have to get meaningful and deep feedback from your customers at each stage of the SaaS customer lifecycle—real people. Clickstreams just donâ€t cut it.

That said, it is next to impossible to get inside the head of every single SaaS customer at scale. At each stage of the SaaS customer lifecycle, the SaaS business learns a little more about the SaaS customer and the SaaS customer learns a little more about the SaaS business. Not all of this information is useful or relevant. The key to scaling SaaS customer alignment is to link your understanding of real-world customer motivations to motivational indicators that are more easily measured.

The key to SaaS customer alignment is to link real-world customer motivations
to motivational indicators that are more easily measured.

The table above provides a strawman example of what I mean by linking motivation to measurable motivational indicators. What I call ‘motivational indicators†go by a lot of different names, e.g., demographics, clickstreams, qualification criteria, pain points, or if you are a statistician: independent variables. In the early stages of the SaaS customer lifecycle, you have very little information about the prospect, so the indicators are largely demographic or early buying behaviors. Later in the SaaS customer lifecycle, you get access to product usage data and direct customer feedback. By the time they are renewing customers, you usually have more data than you can reasonably deal with. The two main takeaways are that the measures only matter if they are indicators of positive customer actions and they will only indicate positive customer actions if they are measures of customer motivation. Most demographics are meaningless.

The two most common roadblocks to achieving SaaS customer alignment are that a SaaS business either a) doesnâ€t talk to its SaaS customers on a regular basis to understand their underlying motivations at each stage of the SaaS customer lifecycle or b) doesnâ€t link real-world SaaS customer motivations to the oceans of data coming out of marketing, sales and support systems. Predictive models are developed by throwing spaghetti at the wall to see what sticks without any real understanding of why they work, or more often why they donâ€t.

If It Quacks like a Duck

If you can make a detailed table of motivational indicators by correlating direct customer feedback with your available process metrics, then you are halfway to SaaS customer alignment. The first thing you will notice is that your customers tend to fall into buckets based on specific bundles of motivations and motivational indicators. Like the indicators themselves, these buckets also go by many names: market segments, customer profiles, buyer personae, churn cohorts, or again if you are a statistician: customer populations.

A common mistake is to create arbitrary customer populations based on off-the-shelf demographics that do not indicate any real SaaS customer motivation, such as industry. This doesn’t mean demographics like industry are bad. Its just that you are likely to find that there are five industries that matter, because those SaaS customers have specific motivations that align with your SaaS business. And, fifty industries that don’t matter, because they don’t indicate anything other than an absence of positive motivations. Focus on the five.

Another common mistake is to create customer populations based on internal criteria, such as date of purchase, that corrupt pure external customer motivations with the internal actions of the SaaS business itself. When buckets are created this way, they say as much about your marketing, your product, your sales and your support as they do about your SaaS customer. These measures are useful when you are trying to determine the effectiveness of marketing programs and changes to your product, but they should not be used to describe your SaaS customers.

Once you can create meaningful buckets of motivational indicators, then the next most important thing to do is to give each SaaS customer type a simple, highly descriptive name. This small thing will do wonders for your SaaS business. When you give your high quality customers a name, it changes how you think and communicate about your SaaS business. Because industry doesnâ€t matter if industry doesnâ€t indicate motivation. Customer profiles don’t matter if they don’t profile motivations that lead to positive business outcomes. On the other hand, if it walks like a duck and it quacks like a duck, then it must be a duck! Call it a duck. When you can discuss your customers efficiently in a shorthand that describes their motivations, i.e., ducks need to quack, birds need to fly, firemen need to put out fires, bakers need to bake, truckers need to deliver, SaaS executives need to make money, etc. then you will find yourself making better, fast business decisions that consistently improve SaaS customer alignment.

The post Avoiding Poor SaaS Customer Alignment first appeared on Chaotic Flow.

As many of you may know, Trish Bertuzzi and the folks over at the Bridge Group publish a lot of great stuff on Inside Sales strategy and operations, including inside sales compensation benchmarks, lead development rep best practices, outbound selling strategies, and on an on.

Their upcoming 2015 Inside Sales Metrics and Compensation report will feature expanded coverage and focus of SaaS inside sales benchmarks in an extra effort to service the SaaS community. But the numbers are only as good as the data, so I’m reaching out to all my SaaS sales colleagues to TAKE THE SURVEY!! It only takes 6 to 8 minutes to complete. As motivation, SURVEY PARTICIPANTS WILL RECEIVE A PRE-RELEASED COPY. If you don’t do it, your competitors will ;).

For reference as to how great the fruits of your labor will be, here is a link to the 2012 Inside Sales Compensation and Metrics report. And, if you haven’t come across the other inside sales resources the Bridge Group has published, I highly recommend you check in out.

The post SaaS Inside Sales Benchmarks Survey | Take It! first appeared on Chaotic Flow.

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. This is about to change! The SaaS industry is maturing beyond simple, historical SaaS financial measures toward sophisticated operational measures in the form of new SaaS customer success metrics and predictive analytics. We are witnessing the emergence of The Metrics-driven SaaS Business.

This new Ebook is a compilation of recent posts 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.

Please enjoy, comment and share!

JY

The post The Metrics-Driven SaaS Business | Ebook first appeared on Chaotic Flow.

Becoming a Metrics-driven SaaS Business is no easy task. It takes time, commitment and plenty of customers. However, the financial rewards of moving beyond standard SaaS financial metrics to SaaS customer success metrics and ultimately to sophisticated predictive analytics are significant. Each step toward SaaS metrics greatness builds upon the last. The stages of development can be classified into a natural progression of increasing SaaS business understanding from financial stability to operational measurability to revenue predictability outlined at the very beginning of this series. These stages define a SaaS Metrics Maturity Model that provides a SaaS metrics roadmap along with benchmarks at each stage of development for SaaS companies that aspire to become a Metrics-driven SaaS Business.

The SaaS Metrics Maturity model provides a SaaS metrics roadmap
along with benchmarks at each stage of development
for SaaS companies that aspire to become a Metrics-driven SaaS Business.

This is the fourth and final 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 two posts discussed the potential uses of SaaS customer success metrics for reducing churn and accelerating customer acquisition. This final post defines The SaaS Metrics Maturity Model, a path for SaaS companies to follow on their way to becoming a Metrics-driven SaaS business.

SaaS Metrics Maturity Model Stage 1:
SaaS Financial Metrics Mastery

The first step along the path to becoming a Metrics-driven SaaS Business occurs when a SaaS business achieves a stable SaaS business model that allows management to monitor the key SaaS financial metrics, including recurring revenue, customer acquisition cost, churn, growth and cost of service. Financial plans and targets are produced using these now standard financial metrics. In addition to the basic financial metrics, more advance metrics such as the customer lifetime value, churn cohorts and the various SaaS magic numbers may also be calculated.

The stage one SaaS business has a solid understanding of SaaS economics grounded in SaaS financial metrics. As the use of SaaS metrics becomes the company standard, they are pushed out into departmental plans. Sales is compensated on recurring revenue and avoids discounts based on total contract value. Marketing makes demand generation plans around revenue, upsell and acquisition cost targets. Customer success focuses on churn reduction. And, executive compensation is based on non-GAAP SaaS financial goals.

SaaS Metrics Maturity Model Stage 2:
Reactive Customer Success with Customer Success Metrics

At stage 2, The Metrics-driven SaaS Business gets serious about customer success and discovers the panacea of information available from product usage data complemented by customer demographics, transaction history, engagement tracking and primary customer research such as surveys and focus groups. It starts to delve into statistical methods and descriptive models to better understand the root causes of churn, upsell, trial conversion, purchase and onboarding. These models produce customer success KPIs and benchmarks than uncover operational opportunities for improving SaaS customer success.

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Stage 2 is an important transition stage for the Metrics-driven SaaS business. Most companies enter stage 2 out of churn frustration. The SaaS financial metrics mastered in stage 1 give the perils of churn very high visibility, but they offer no guidance for reducing it. This motivates management to explore new operational metrics and approaches to customer success. The need for account-level financial information and product usage data within the SaaS customer success organization becomes obvious, but CRM systems, marketing systems, accounting systems and the product itself often donâ€t provide easy access. Stage 2 is a struggle.

SaaS Metrics Maturity Model Stage 3:
Proactive SaaS Customer Success with Predictive Analytics

In stage 3, the perseverance required to slug through stage 2 really begins to pay off. The SaaS customer success metrics discovered in Stage 2 become standard KPIs that are used to construct predictive analytics. These predictive models help The Metrics-driven SaaS Business get out in front of churn and acquisition in a systematic way. Health indexes and alerts are incorporated into the daily routines of customer success reps and sales reps to increase revenue and reduce operational costs. Predictive models are plugged directly into the SaaS product to automate communications that facilitate purchase, use and upsell.

The stage 3 Metrics-driven SaaS business is becoming the master of the SaaS metrics domain, moving from art to science. However, predictive analytics in SaaS is a big data problem that only a few companies could conceivably tackle on their own. It is virtually impossible to succeed in stage 3 without significant investment in new customer success systems, as well as the integration of those systems to the product, CRM and accounting system.

SaaS Metrics Maturity Model Stage 4:
The Recurring Revenue Machine

Finally, the stage 4 Metrics-driven SaaS Business has a complete top-to-bottom understanding of the drivers of SaaS financial success. Financial planning goes beyond simple what-if spreadsheets that have no basis in operational reality. Financial goals are linked directly to operational goals using SaaS customer success metrics and predictive analytics. Targeted churn reductions are tied directly to root causes and operational initiatives with predictable results. Growth plans are based on specific improvement programs with well understood impacts on trial conversion, purchase, churn, and the productivity of sales and custom success reps.

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Success in stage 4 requires an integrated management approach, especially between finance and customer success, two departments that have historically had little to do with each other. The finance-customer success partnership is essential to the Metrics-Driven SaaS Business, because it links continuous operational improvement to financial goals through SaaS customer success metrics. The stage 4 Metrics-driven SaaS Business is a well-oiled recurring revenue generating machine.

The post The SaaS Metrics Maturity Model first appeared on Chaotic Flow.

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.
Reading content is good, using product is better. Online trial is a foundational SaaS best practice and improving trial conversion is strategically important to many SaaS vendors. Fortunately, SaaS customer success metrics offer as much potential to increase trial conversion as they do to reduce churn.

The same statistical methods used in customer success can be applied to customer acquisition,
only we are looking for drivers of purchase rather than drivers of churn.

Trial is the moment where the SaaS vendor establishes that always-on communication channel to the SaaS customer through the product. Prior to trial login, customers are just cookies and email addresses. After trial login, product usage can be monitored and every click can be associated with an individual customer. Trial forms also collect key customer demographics that can be used in predictive models. In fact, The Metrics-driven SaaS Business uses these same models to decide exactly what questions should be asked on a trial form, i.e., the ones that can be used to best predict and facilitate purchase! Using SaaS product usage data to create predictive purchase models is SaaS lead scoring done right.

Reducing Acquisition Costs through Metrics

Moving along our SaaS profit equation, we come to one of the most important SaaS financial metrics for every SaaS vendor: customer acquisition cost. Keeping customer acquisition cost is line is essential to the financial success of every SaaS business, because customer acquisition eats cash. The lower your customer acquisition cost, the sooner you get repaid for your upfront investment in acquiring a customer, and the sooner you can reinvest that money in acquiring yet another one.

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By now you should be able to guess exactly how SaaS customer success metrics can be applied to reduce customer acquisition costs, because they are essentially similar to the methods for improving customer success efficiency. First we need to identify the key predictors of purchase. For example, our analysis of product usage data may indicate that prospects that use the product every day of the free trial can usually be converted with a single phone call, whereas those that stop using it within the first week are twice as likely to convert if we can get them to attend an instructional webinar. Now what SaaS account manager wouldn’t love to have that little jewel of information?

As with our customer success organization, the key to reducing acquisition costs is to embed our predictive models into the daily sales activities. The process is the same. First we create descriptive models to identify the root causes of why prospects do and don’t purchase our product. Then, we use these models to create KPIs at the trial account level that reps can use to guide their daily activities. We can also create alerts when specific trigger events require a reps attention, such as increased or decreased product use of a particular kind. And, finally, we can automate communications within the product itself to facilitate purchase.

Improving Onboarding with SaaS Customer Success Metrics

Onboarding a new customer is where customer acquisition and customer success meet. Most SaaS customer success professionals will tell you that inadequate onboarding at the beginning of a contract is one of the key drivers of churn at the end of the contract. In addition, onboarding can be an expensive and time-consuming task for more complex SaaS products. The Metrics-driven SaaS Business understands the strategic impact of onboarding and applies SaaS customer success metrics to streamline the onboarding process and reduce onboarding costs.

Where are your new customers getting stuck? This is the primary question of the onboarding challenge, and I can think of no better indicator than product usage data. Whereas acquisition and churn KPIs were largely focused on predicting future events, onboarding customer success metrics are looking at the here and now, as in “Why is this customer stuck right here, right now?” By drilling down on this question, we can identify root causes and predictive indicators of onboarding failure that can be used by both customer success reps and product managers to streamline the onboarding process.

Driving Customer Advocacy and Viral Growth through Metrics

At the beginning of the SaaS customer lifecycle, SaaS customer acquisition and SaaS customer success first meet in onboarding, but at the end they meet again in viral growth, where life begins anew. Up until now, we’ve explored a number of ways SaaS customer success metrics can be applied to eliminate problems: stopping churn, reducing service costs, improving trial conversions, etc. At the top of the capability pyramid, The Metrics-driven SaaS Business uses SaaS customer success metrics to create opportunities, not just resolve problems.

The same techniques we used to identify customers who might churn can be used to identify customers that will never churn, customers that love us, and customers that will recommend us! By applying SaaS customer success metrics to identify advocates, we can improve our bank of potential sales references, customer testimonials, case studies and user group leaders. Many organizations use methods like Net Promoter to measure customer advocacy, and these are good ideas for SaaS businesses as well, but only SaaS businesses can complement these qualitative measures with quantitative customer advocacy metrics based on actual product use.

By applying SaaS customer success metrics to identify advocates,
we can improve our bank of potential sales references, customer testimonials,
case studies and user group leaders.

Enabling viral growth through sharing is a common SaaS product design best practice. The main idea is to encourage customers to create work products, such as documents, charts, projects, etc. that are integral to the SaaS product experience, and then share those work products with non-customers with whom they need to collaborate. Understanding and facilitating the activities that lead to sharing is strategic goal of the Metrics-driven SaaS Business, because viral sharing leads to viral revenue growth.

The post Driving SaaS Customer Acquisition w/Success Metrics first appeared on Chaotic Flow.

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.

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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. From the initial capture of a prospect’s email address to the final cancellation of a churning customer account, the Metrics-driven SaaS Business collects and analyzes customer data. At the very beginning of a SaaS customer’s lifetime, a cookie is dropped and the usage clock starts ticking as web visits turn into trial accounts. That initial email is complemented with profile information captured on sign-up forms and augmented by third-party databases. Sales and marketing kick in and engagement activities are recorded in CRMs and marketing automation systems. Finally, a purchase is made and the ecommerce engine captures the transaction and forwards it to the financial systems for future billing. Then, the real action starts. Customers log in to the product again and again. Every important click is recorded and every customer success activity is logged.

The SaaS customer success metrics challenge is a big data problem,
requiring powerful data collection engines and sophisticated statistical models.

Collecting the data, unfortunately, is not even half of the battle. The Metrics-driven SaaS Business must make good use of it, turning data into information and information into action. Compared to the SaaS metrics challenge of previous years where all we had to do was master a relatively short list of SaaS financial metrics, the SaaS customer success metrics challenge is truly daunting–a bona fide big data problem. There is just no way to make sense of these volumes of data without powerful data collection engines and sophisticated descriptive and predictive statistical models. Simply defining the relevant customer success metrics is a difficult problem onto itself. But for the very first time, we have the law of large numbers tilting in our favor and the benefit it offers for reducing churn and accelerating customer acquisition far outweigh the costs.

Driving SaaS Customer Success with Metrics

The SaaS profit equation from the previous post and repeated below shows the five key financial levers of SaaS businesses, the two volume drivers: current customers and new customers, and the three units of value: recurring revenue per customer, recurring service cost per customer, and acquisition cost per customer.

SaaS profit =
current customers x ( avg recurring revenue – avg recurring cost )
– new customers x avg acquisition cost

[ Note: For the accountants in the audience,
this should look a lot like activity-based costing. Because it is. ]

As SaaS executives, our financial goals are very simple: make business decisions that push these financial levers in the right directions to increase revenue and reduce costs. The challenge of maximizing SaaS profit is easily divided between the ‘current customer’ half of the calculation and the ‘new customer, half. SaaS business organizations and operating plans are often similarly divided into servicing current customers and acquiring new customers.

This second post in The Metrics-driven SaaS Business series focuses on the ‘current customers’ half. The next post in the series will focus on the ‘new customer’ half. As mentioned earlier though, pushing these financial levers is much easier said than done. Planning to increase revenue by increasing current customers with a 30% reduction in churn is easy. Reducing churn by 30% is hard. The following sections take a look at the first three financial levers: current customers (churn), average cost of service (customer success efficiency) and average recurring revenue per customer (upsells) and the principal role of SaaS customer success metrics in creating and executing operating plans that actually push them.

Leveraging Root Cause Analysis to Reduce SaaS Churn

By far the lowest hanging fruit of SaaS customer success metrics is their use in SaaS churn reduction. For a SaaS business of any reasonable size, churn uniformly represents the largest financial drain on SaaS growth and profit. Its simple math, ‘current customers’ is almost always the largest number in our SaaS profit equation above. SaaS churn is also a great place to start our exploration of SaaS customer success metrics, because at its heart, SaaS churn is a statistical concept, so modeling it operationally is fundamentally a statistical problem.

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[Note: If you tweeted the quote above, CONGRATULATIONS!
Welcome to the club of true SaaS metrics geeks! ]

SaaS churn represents the probability that a customer will cancel in a given period. That probability is determined by a number of factors: the value the customer sees in your SaaS product, the customer’s reliance on your SaaS product, the potential value of competitor offerings, and the internal priorities and politics within the customer’s organization. The Metrics-driven SaaS Business gathers and analyzes information on all of these predictors. Customer profiles in CRMs and accounting systems combined with direct product usage data go a very long way in describing the first two, whereas the less visible ones can be tackled through customer success surveys and expert ratings by executives, sales reps, support reps, and customer success reps.

With an ocean of customer success data and the law of large numbers on our side,
we can apply well known statistical methods to identify the root causes of churn

Once we have collected the relevant information, we can apply well known statistical methods to identify the root causes of churn. There are a number of descriptive statistical methods that apply from simple cross tabulation of churn cohorts to more advanced methods like logistic regression and survival analysis. Statistics aside, we expect to find insights, such as customers in healthcare are more likely to churn than customers in financial services. If a customer has not logged in in the last 30 days, it is at severe risk of churn. Customers that use our reporting module frequently are our best advocates, and so forth. With the right data and the right analytics, root causes of churn can consistently be identified and addressed, a significant improvement over simply reducing churn from 15% to 10% in our financial forecast without having a clue as to how it will be achieved.

Predictive Analytics with SaaS Customer Success Metrics

Once we have a better understanding of why past customers churn, we can create models that predict the risk that a specific current customer will churn in the future. With sound predictions, the customer success organization can take action to prevent SaaS churn before it happens. At their heart, most of these statistical methods are simply scoring systems that estimate the probability of a given event, in the case of churn it is the probability that a customer will cancel. The predictors in our models and the models themselves can therefore be used to create key performance indicators (KPIs) for customer success that are tracked on a regular basis for each and every customer. For example, we may find that customers that stop using our product for a two week period are at a higher risk of churn, and that the risk increases the longer they do not use the system. This metric and the regression that produced it can both be used to create KPIs.

SaaS Customer Success Metrics and Product Use

Customer success metrics based on product usage data is the secret sauce within the Metrics-driven SaaS Business. In a sense, churn is simply the opposite of use. The more a customer uses your SaaS product, the less likely the customer is to churn. Not only does use indicate how much the customer values your product, prolonged use correlates strongly with switching costs. Customer success metrics that track inadequate use are key indicators of churn, while those that track deep and frequent use are strong indicators of customer advocacy. One of the smartest applications of customer success metrics based on product use is driving product use itself. By identifying customers that are struggling with your product, you can uncover opportunities to improve the user experience, offer help and education, and of course reduce churn.

Product usage data is the secret sauce within the Metrics-driven SaaS Business.
In a sense, churn is simply the opposite of use.

Improving SaaS Customer Success Efficiency through Metrics

The same KPIs that we use for churn reduction can be applied to improve the efficiency of the customer success organization and thereby lower cost of service. They key is to go beyond simply monitoring and modeling customer success metrics to embedding them in the daily workflow of customer success reps. From the preceding example, if we know that customers that have stop using our product for two weeks are in need of immediate attention, then we can use this information to create dashboards and alerts for customer success reps. The primary goal is to direct the attention of customer success reps to customers where the reps can have the greatest impact on financial results. Conversely, the secondary goal is to not waste time on customer success activities that have no influence on the success of a customer.

The beauty of SaaS customer success metrics over SaaS financial metrics is that they apply at the individual customer level. Moreover, they can be rolled up along any dimension, such as time, customer type, product module, customer success rep, etc. to create a detailed picture of our customer success operation. At the individual account level, they can be used to create a scorecard or health index for every single account to help customer success reps monitor and manage their territories. At the aggregate level, they can be used to design the customer success territories themselves, so that customer success reps are deployed to customer accounts in the right numbers and with the right mix of skills. Customer success managers are usually familiar with a straightforward small, medium and large account approach to territory design, however, it might just be that your large accounts have the least risk of churn and the least potential for upsell! SaaS customer success metrics provide much stronger guidance and many more dimensions from which to choose for territory design.

Driving Upsells with SaaS Customer Success Metrics

SaaS customer Success metrics can also improve upselling to increase average recurring revenue per customer, the next financial lever in our SaaS profit equation. By applying the same types of statistical models we used in churn reduction to analyze past upsell purchases across customer demographics, product usage data, and so forth, we can develop predictive models and scores for upselling. Again, we can embed these models and KPIs into the daily activities of customer success reps or account managers to direct them to the accounts with the greatest upsell potential at any given time. Finally, we can use the predictive models within the product itself to automatically trigger communications with high potential customers and facilitate purchase.

The post The Promise of SaaS Customer Success Metrics first appeared on Chaotic Flow.

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 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, Iâ€ve discussed the potential of SaaS customer success metrics with a variety of startups, but I didnâ€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 donâ€t integrate the critical subscription, product usage, and account engagement data required. More importantly, they donâ€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 doesnâ€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.

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 doesnâ€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 donâ€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 post Bluenose Enables the Metrics-driven SaaS Business first appeared on Chaotic Flow.

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, measurability 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? Every business tracks some relevant set of financial and operational metrics. What makes a SaaS business different? A SaaS business is different because of the recurring revenue subscription model. In fact, most of what follows applies equally well to any subscription business. The economics of a subscription-based business are fundamentally different from those of a transaction-based business. That difference derives from a simple probability. In SaaS, today’s customers will probably be tomorrow’s customers, as long as we keep them happy. In a transaction-based business, no such probability exists.

SaaS Business Stability

The recurring revenue subscription model creates business stability. As recurring revenue accumulates, short term bookings have less and less impact on short term revenue. Short term revenue and costs alike become a function of long-term historical bookings. The feast-or-famine, deal-centric nature of licensed enterprise software gives way to a stable recurring revenue stream and a process-centric business operation. When you know you will have customers tomorrow, you can invest in the support of those customers, as well as the acquisition of new customers, with a much higher degree of confidence. Operations become more reliable and predictable, lending themselves to standardized processes that can be continuously improved. SaaS businesses are recurring revenue machines, and machines are best managed by metrics.

SaaS Business Measurability

SaaS businesses are also uniquely measurable. The SaaS product creates an always-on, communication channel between the company and the customer that allows for direct measurement of customer interaction. This link gives SaaS businesses unique access to operational metrics that provide a much more detailed view of the customer relationship than simple financial metrics alone. Every business can count cash, but only a SaaS business can count customer clicks inside the product. Product usage data is an operational goldmine when properly collected and analyzed, enabling a SaaS business to improve customer success, reduce churn and increase upsell. Moreover, a SaaS business can integrate its business processes and communications directly into its SaaS product, giving product-related metrics new meaning that goes well beyond the number of times a customer logged in today. The more a SaaS business embeds its business operations into the product, the more measurable its business becomes.

SaaS customer success metrics provide the glue that connects SaaS customer success to SaaS financial success to create a SaaS recurring revenue machine.

SaaS Business Predictability

Together, stability and measurability give rise to a new level of predictability. The mass amounts of historical financial, operational and behavioral data available to SaaS businesses enable predictive analytics that are virtually unheard of in B2B companies. B2C companies have always had the law of large numbers working in their favor, enabling a wide array of statistical methods for planning and forecasting. B2B companies have always suffered from a dearth of data for planning purposes, forcing an overreliance on ad-hoc information and the subjective judgments of managers. In the mature Metrics-driven SaaS Business, financial forecasting is a science grounded in customer success metrics and predictive analytics.

The SaaS Metrics Universe

In the SaaS business model, the ongoing customer relationship is a continuous source of revenue, cost, business activity and risk. This contrasts sharply with traditional software where the short-term sales transaction has always taken center stage. A traditional licensed software vendor makes and sells software copies, whereas a SaaS business makes and rents ongoing service subscriptions. Each new SaaS customer brings a new thread of recurring revenue and cost which are woven into the larger tapestry of customers to create the total SaaS recurring revenue stream and associated SaaS total cost of service. This fundamental shift in the unit of value from copies to customers turns the economics of licensed software upside down.

Customers Form the Center of the SaaS Universe

In traditional licensed software, value is equated to the intellectual property of the code, and is monetized using copyrights in a fashion similar to books, music, and movies. It’s a product. Product volume is measured in copies sold and product value is measured by the price of a copy. In the SaaS business model, service volume is measured by the number of customer subscriptions and service value is measured by the recurring revenue of each subscription. A software vendor invests in developing code, and then operates a sales and marketing infrastructure that scales to sell more copies. A SaaS business invests in acquiring customers, and then operates a service delivery capability that scales to service customer subscriptions. Mathematically, the contrast looks as follows:

Software profit = ( price per copy – cost per transaction ) x copies sold – R&D costs

SaaS profit = (avg recurring revenue – avg recurring cost ) x current customers
– avg acquisition cost x new customers

Customers are the fundamental unit of measure in the SaaS business model, not transactions. Whereas profitable transactions drove financial success in licensed software, profitable customers drive financial success in SaaS. SaaS customer success is SaaS business success.

Connecting SaaS Customer Success to SaaS Business Success

Measuring and monitoring SaaS financial metrics are essential to managing a SaaS business. If SaaS executives don’t understand recurring revenue, acquisition cost, churn and upsell, then they have no ability to grow the business. As important as they are though, financial metrics only measure the ends, not the means. They say nothing about how those results were achieved, or how those results can be improved upon in the future. A smart SaaS CFO can construct a SaaS business forecast based on historical SaaS financial metrics. Reduce churn from 20% to 15%, improve upsell by 20%, reduce acquisition cost by 10% and next year looks great! Unfortunately, such a high-level model provides no insight into how to make the forecast a reality.

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The emerging Metrics-driven SaaS Business digs beneath well-worn SaaS financial metrics to uncover the operational levers that drive SaaS business success. For example, it’s a verifiable fact that customers that use your SaaS product are less likely to churn than customers that don’t. So, if you want to get serious about churn reduction, then you have to get serious about measuring product use. At a minimum, you will get a better understanding of what causes customer churn. At a maximum, you will discover patterns and predictive analytics that enable you to take preventative action before they do. Customer-centric operational SaaS metrics, or simply SaaS customer success metrics, provide the glue that connects SaaS customer success to SaaS financial success. Together, SaaS financial metrics and SaaS customer success metrics provide the foundation for building the Metrics-driven SaaS business.

The post The Metrics-driven SaaS Business first appeared on Chaotic Flow.

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.

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,

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The post SaaS Growth Strategy | A Customer Lifecycle Approach first appeared on Chaotic Flow.

SaaS 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: 1) create competitive advantage using the SaaS customer-company connection and 2) enable customer self-service to accelerate revenue and reduce costs. Grounded in sound SaaS economics, the Eleven Secrets of SaaS Product Design are more than mere technology tricks. They are SaaS growth drivers that challenge the creativity of SaaS product managers and encourage them to push SaaS product boundaries into the business to do things better, cheaper and faster than the competition.

SaaS Product Secret #1 | Optimize Public Pages

Good SaaS marketers know that optimizing content for search and social media is essential to expanding online awareness. What great SaaS product managers also know is that your SaaS product should be an integral part of your search and social strategy. Does your SaaS product produce public pages that can be found by search engines? Can it? For example, customers often create useful and unique public content in the course of using a SaaS product, such as branded websites, widgets, profiles, comments, analyses, and so forth. Smart SaaS product managers enable these pages to be created in volume as part of the natural product experience and automatically optimize them for search and social.

That sounds pretty technical, so let’s look at a classic example. Search for any one of your favorite SaaS colleagues on Google and chances are that you will get a public-facing LinkedIn profile page in the top 5 results. This Google search of Joel York quickly finds my public facing LinkedIn profile page (usually 2nd after Chaotic Flow ;)). While I created the content, LinkedIn made it a landing page and automated the SEO (notice the big yellow button and the repetition of the keyword “joel york”). Many SaaS products have untapped opportunities to get found in search with public-facing trial content, product content, educational content, community content, and so forth. The important thing is that the content be a) original, b) useful and c) optimized, so that both search engines and the people landing on the pages will find it of value.

SaaS Product Secret #2 | Formalize Free Trial

I’ve yet to see a SaaS product that can’t benefit from a free trial. I have, however, seen many SaaS products that can’t quite seem to pull it off well. Sometimes it’s really hard, because the product requires significant onboarding in order to shine. Other times, it’s just a foolish, flagrant violation of SaaS Don’t #3. Most of the time, it’s an under-appreciation of a SaaS product’s role in automating core business processes. Free trial facilitates product evaluation and shortens sales cycles. When trials are easily converted to production use, they also streamline purchase and adoption. Most customers are willing to pay for these benefits in the form of an inbound lead! From the vendor’s perspective, a free trial offers huge increases in sales and service productivity through customer self-service–even if all your leads are outbound.

Great SaaS products don’t simply offer a free trial; they formalize core business processes around free trial to drive demand, shorten sales cycles, increase revenue per rep, accelerate deployment and reduce churn. It is far easier to get a customer to sign a contract after using your SaaS product than after seeing a demo. If this is not true, then you have bigger SaaS product issues than not offering a free trial. The secret to successful SaaS free trials is relentless pursuit of these benefits. Don’t settle for less.

SaaS Product Secret #3 | Enable Ecommerce

Ecommerce in SaaS is about more than simply taking credit cards over the Internet. It is about streamlining purchase such that the online customer experience isn’t interrupted with offline activities. It should not only support self-serve purchase, but sales assisted purchase. Every purchase activity has potential for automation through e-commerce, including pricing, product configuration, trial account conversion, contract signing, payment, invoicing, billing and collections. Ecommerce done well can simplify the sales process by setting clear customer expectations. For example, transparent pricing limits discounts and standard contracts reduce redlines. Robust Ecommerce lays the foundation for further SaaS product design secrets that drive growth later in the customer lifecycle through churn reduction, upselling and cross-selling. In SaaS, purchase is part of your product. Let them buy!

SaaS Product Secret #4 | Design for Discovery

If your customers are going to onboard themselves, then they need to be able to explore, understand, use and adapt your SaaS product without outside help, i.e., they must be self-taught. The natural conclusion then is that your SaaS product must be self-learning. Each user logs into your SaaS product with a different level of interest and expertise, however, most SaaS products are defacto designed for the expert user. For each new feature that is added, the typical SaaS product manager will ask: “Where is the most logical place to put this feature, so that it is easiest to access.” The result of this kind of thinking is that all features end up being really easy to access, creating a bewildering array of choices for the vast majority of non-expert users.

Great SaaS products provide an experience that adapts to the interest and expertise of users over time. Novice users are encouraged to explore essential tasks, while expert users are allowed to tailor tasks to their individual tastes for speed and efficiency. At the enterprise level, organizations can configure processes that meet essential business needs. Design for discovery supports the process of personalizing a SaaS product: taking something unknown and generic and turning it into something understood and adapted to your needs. Like most of the SaaS product design secrets, design for discovery has an impact that extends well beyond its primary purpose. Easy discovery of new capabilities is essential for driving upsell and personalization is instrumental to reducing churn.

SaaS Product Secret #5 | Capture Customer Content

There is only one SaaS marketing strategy to reduce churn: increase use. However, there are many types of use: new use, expert use, casual use, habitual use, individual use, organizational use, and so forth. The one thing all forms of use have in common though is that they create customer-specific content. Capturing customer content is the single most important SaaS product secret to reduce churn, because personalized data is directly proportionate to switching costs.

Capturing customer content is the motivation behind SaaS Do #8 | Enable Mass Customization. Mass customization allows mass personalization without compromising essential SaaS economies of scale. Your competitors can copy every feature in your SaaS product, but they cannot copy the personal, historical record of customer use. Historical data contains critical business records, processes, policies, preferences, and organizational knowledge. After extended use, the value of customer content usually outweighs the value of your SaaS product itself. Capture that value!

SaaS Product Secret #6 | Unleash Upsells

The best designed upsells are painless and invisible: painless in that the upsell value far outweighs the upsell price and invisible in that the upsell process provides a seamless bridge between the need for the new capability and the use of that capability. Well designed SaaS products upsell themselves by letting customers do what they want to do: use more. The key to unleashing upsells is a smooth synthesis of SaaS Product Secrets #3 and #4. If you’ve done a good job of letting customers discover new capabilities and purchase is as simple as clicking a button, then unhampering upsells amounts to little more than putting that button in the right place at the right time. Hired a new employee; add a new user. Got new work to do; get the new module you need to do it. Out of storage; add some. Need to integrate; turn on our API. Just click here!

SaaS Product Secret #7 | Tantalize with Teasers

Cross-selling is by it’s very nature more difficult than upselling. Upsells are often non-dicretionary, because they are driven by naturally expanding use. Whereas cross-sells usually take on the flavor of a new purchase driven by an unmet business need. It’s probably not enough to wait passively for your customer to stumble across an entirely new capability or recommend it to a friend, your SaaS product must cross-sell proactively.

Wait. How can a SaaS product be proactive? Unlike other products, a SaaS product creates a real-time, always-on communication channel between the customer and the company. Anything you have to say about your SaaS product can usually be said better inside your SaaS product, because you can say it in context. One of my favorite SaaS product communication channels is the login page. There is only one buyer personae that visits the login page: customers. Your login page offers prime real estate for tantalizing cross-sell teasers. It’s your customer home page! Once customers log in, you know who they are and what they are doing, offering even more opportunities to encourage consideration and trial of new capabilities in real-time based on actual usage patterns. And, after they log out, proactive offers and alerts can motivate them to return until they make a final purchase decision.

SaaS Product Secret #8 | Make Friends through Feedback

Your SaaS product can do more than cross-sell by proactively speaking to your customers. As a two-way communication channel, it can also support, service and nurture community by proactively listening to them. Building community within your customer base is the first step to energizing network effects that drive viral growth and your SaaS product is the best place to nurture your customer community.

Just like selling to your customers, listening to them is better done in context. When customer’s encounter issues, do you make them go searching through your website for a support email, or can they click to chat from within your SaaS product? Can they request new features? Comment on current features? Watch a training video? Register for a webinar? Report a bug? Visit your support forum? Check account billing status? When they need you, are you there? Because they are there and the beauty of a SaaS product is that they don’t really need to go anywhere else. Don’t make them!

SaaS Product Secret #9 | Consolidate Customer Content

There is far more talk of crowdsourcing in the SaaS community than there is actual crowdsourcing. That’s because crowdsourcing is hard. Improving data quality, language localization, operational benchmarks and support are just a few of the ways smart SaaS product managers can put crowdsourcing to work. However, you can’t just wake up one day and say: “let’s add crowdsourcing into our SaaS product.” At a minimum, you have to have nailed SaaS Product Secret’s #4, #5, and #8.

Crowdsourcing is a two step process. First, customers have to contribute content. Then, your SaaS product has to automate the process of consolidating that content into useful information. Mass customization followed by mass consolidation. For example, the process of crowdsourcing translation is essentially similar to the process of crowdsourcing a support knowledge base. Customers contribute solutions, those solutions get reviewed, and the best solution is chosen. The real SaaS product secret here is that the technical process of crowdsourcing can be baked into your SaaS product architecture in a fashion that opens new opportunities as your SaaS business grows.

SaaS Product Secret #10 | Streamline Sharing

At the very peak of the SaaS growth pyramid, customer’s go beyond selling themselves and start selling their friends. When customers refer new prospects, the SaaS customer lifecycle begins anew. Your SaaS product can help close the loop and catalyze viral growth by streamlining sharing between your customers and your prospects. Streamlining sharing requires that you give your customers something useful to share and then reduce sharing it to the absolute minimum amount of work.For example, sharing important business documents or analyses is one of the best ways to drive viral growth in SaaS, because it embeds a referral inside collaboration through product use, similar to the invisible upgrade of SaaS Product Secret #6. Take a look at the Zoho sheet embedded in this post on SaaS sales commissions.

Viral sharing, like crowdsourcing, is easier said than done. Referrals are built on reciprocity. When a customer shares your product with a prospect, the customer is not doing you a favor. The customer is doing the prospect a favor. SaaS product referrals are nine parts motivation and one part automation. Whatever gets shared must be something the customer is certain will have value for the prospect. Don’t just ask your customers to say: “Try this SaaS product, you’ll like it.” Encourage customers to share something valuable with prospects that requires trial use. The the SaaS customer lifecycle repeats when you get them to sign up for that trial, and you are well on your way to viral growth!

SaaS Product Secret #11 | Manage Through Metrics

The great thing about online communications channels from a marketer’s perspective is built-in measurement. There’s little need for costly surveys or panels to understand what customers think of your SaaS product, because every click speaks volumes. I’ve saved this SaaS Product Secret for last, because it augments every other SaaS Product Secret on the list. Metrics empower SaaS product managers to create better products faster. Not only do metrics provide critical input to SaaS product development, but they can also dramatically increase the effectiveness of sales and marketing. What are the traffic stats of your public pages? How do trial prospects navigate the fuzzy funnel. Which customers are exploring new capabilities and have the highest probability of upgrading? Which customers aren’t using your product and have the highest probability of churning? What can you do about it?

Unfortunately, Google Analytics will be of limited help here. While there is much value in the aggregate metrics provided by many website optimization tools, customer-level metrics are where the action is when it comes to driving SaaS growth. It’s the differences between customers that matter most, not their similarities. Usage metrics are so critical to building great SaaS products that startups like Totango and Blue Nose Analytics have taken on the challenge full-time. I wish these guys much luck, because goodness knows we need the tools. Measuring every click for every customer and then making sense of it is a big data challenge for even a modest SaaS product, but the ROI is immense.

If you liked this post, then you’ll love the eBook of the complete SaaS growth series. And if you like it, please share it!

The post Eleven Secrets of SaaS Product Design first appeared on Chaotic Flow.

It’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!

You 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!

We know that the biggest your SaaS business can ever get is determined by the SaaS growth ceiling: a simple function of customer acquisition rate, average recurring revenue per customer and percentage churn.

max SaaS company revenue = acquisition rate x average subscription value ÷ % churn rate

Where are the network effects in this formula? Where’s the SaaS growth lever? Everywhere! As with our partygoers, network effects kick in for your SaaS customers when the value they see in your service increases with the number of other customers using your service. The greater the number of customers that use your service, the greater the number of prospects that want to use your service (acquisition rate), the greater the price they are willing to pay for it (subscription value), and the more difficult it is for them to leave (churn rate). Unlike other SaaS marketing strategies that attack individual stages of the purchase process, network effects have a pervasive impact across the entire customer lifecycle.

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SaaS Marketing Strategy #8 | Nurture Community

It’s not a party if no one’s dancing. A big crowd that isn’t interacting is just a crowd. Network effects require a network, a community. It’s not sufficient to just get customers in the door. Every good party planner knows that you have to facilitate interaction by creating the right environment. So it goes with SaaS marketing. Your SaaS marketing plan should nurture community by enabling communication, sharing and collaboration between your customers and prospects. Luckily for SaaS marketers, the Internet is built for just this purpose.

SaaS Marketing Strategy #5 | Reduce Churn points out that unlike other products, SaaS offers a direct, dynamic, personalized two-way communication channel with your customer. By the same token, SaaS offers a direct communication channel between your customers. SaaS customers are always just one click away from each other. While traditional offline tactics, such as user conferences, may still play an important role of your SaaS marketing strategy, online community nurturing that energizes your customer network offers considerably more bang for the buck. Online SaaS communities can be as straightforward as a forum or as sophisticated as a marketplace, but the best ones all have one thing in common: they facilitate sharing the knowledge and investment of one customer’s use of the product to increase the value of using the product for other customers. That is, they create network effects.

SaaS Marketing Strategy #9 | Crowd-source

It’s never the music or the food that makes for a really great party; it’s the people. People creating value for other people through their interactions. Crowd-sourcing fun! Crowdsourcing is very near the pinnacle of great SaaS marketing, just shy of virality. It’s very powerful and very difficult to pull off, because it requires actual work on the part of your customers, community service if you will. You are unlikely to get a customer to perform community service if that customer does not see value in the community, hence SaaS Marketing Strategy #7.

Assuming that you have nurtured a strong community, how can your SaaS marketing strategy put that community to work? Make it easy. Make it fun. Make it profitable! And most importantly, build it into the product. SaaS Success Do’s #8 & #9 | Enable Mass Customization and Open Up to the Cloud are the foundations of crowd-sourcing. Before customers can share their unique product knowledge and experiences with other customers en masse, they must first be able to create unique knowledge and experiences en masse. While crowdsourcing may be a distant dream for the early SaaS startup, it must be planned in advance and baked into the architecture of your SaaS product.

SaaS Marketing Strategy #10 | Catalyze Virality

Getting a party to go viral is hard. Getting a SaaS product to go viral is even harder. Virality and network effects go together like chocolate and peanut butter, especially in SaaS. For a party to go viral, it might be enough that you tell two friends and they tell two friends, and so on. In B2B SaaS, there better be beer. In other words, word of mouth alone is unlikely to set your SaaS business on fire. Business buyers generally require economic incentives and network effects provide the fuel for the economic flame. Your job is to be the spark.

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SaaS marketing cannot create virality, it can only catalyze it. In the end, your customers must create the value and spread the word, you can only facilitate. That said, a catalyst can make all the difference. If you’re SaaS marketing strategy has successfully nurtured a community and crowd-sourced new value from that community, then you’re 99% of the way to catalyzing virality: you just need to facilitate use of crowd-sourcing by your community! When clients have good things to say about your service, let them tell the world. When clients have solutions to support issues, let them build a knowledgebase. When clients create useful processes or analyses, let them share the templates. When clients build apps on your open APIs, let them promote them to other clients. And, so forth. Lead, follow, but most importantly get out of the way.

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The post Breaking Through The SaaS Ceiling first appeared on Chaotic Flow.

What’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: increase use. The more customers use your product, the less likely they are to stop using it. Most SaaS churn problems can be traced back to a SaaS marketing strategy focused exclusively on customer acquisition at the expense of ongoing use. Unfortunately, SaaS has a very short shelf life.

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Some people think SaaS churn is something that happens when a customer comes up for renewal, it isn’t. The causes of SaaS churn occur much earlier in the customer lifecycle; cancellation is simply the finale. The battle against SaaS churn begins in product design. Long before a SaaS customer decides to cancel, a SaaS marketing professional decides to create a product that is hard to adopt and easy to switch by paying more attention to product features than to customer value that encourages expanded and habitual use. As use increases, customers transform your product into their product by investing in personalized configuration, user generated content, deeper learning and business process automation. Your SaaS product should be designed to increase in value with use by making it easy to explore and easy to personalize. For example, a SaaS product that is fully configured to enable a customer’s business processes and retains historical data is far more valuable after five years of use than it is right out of the box. Unused features have zero customer value and zero stickiness.

Your SaaS marketing strategy should extend beyond purchase to facilitate onboarding and encourage deeper and deeper use of your product. The same SaaS marketing tactics applied in customer acquistion: educational content, marketing automation and engagement metrics are equally important in churn reduction. But, don’t stop there. Post-acquisition, you gain access to an entirely new and extremely effective SaaS marketing channel: your product. Unlike other products, SaaS offers a direct, dynamic, personalized, two-way communication channel with your customer. Every click indicates a potential need, and every need presents an opportunity for communication that promotes use. The more your customers use your product, the more they value it and the higher your customer lifetime value. Unfortunately, the converse of this is also true. The less customers use your product, the less they value it and the more likely they are to churn.

SaaS Marketing Strategy #6 | Upsell

If you’ve managed to keep your customer’s from churning, then the next step up on the SaaS marketing pyramid is upselling. Upselling is usually defined as selling more of the same product to the same customer. In SaaS, this translates to more use by more users for more money. If reducing churn is about finding more value, upselling is about creating more value. Customer value in SaaS is a continuum that can be measured by use. Reducing churn is about preventing the flow in the wrong direction, less use. Upselling is about accelerating the flow in the right direction, more use.

Like churn, upselling begins in product design. Well-designed SaaS products upsell themselves. Customers simply discover more features and add more users until they hit a new pricing level, and then upgrade seamlessly by clicking a button. That doesn’t mean you can’t help them along the way. Since a price must be paid, strong SaaS marketing is even more essential to upselling than it is to churn. A customer must not only want to use a new feature, but must be willing to pay for it. While churn reducing SaaS marketing programs can focus exclusively on users and use, upselling must also target decision makers and present clear business value.

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Upselling is particularly attractive when your SaaS product has an unconstrained dimension of use, as in anybody can use it or they just can’t get enough of it. For example, collaboration and personal productivity tools can be used by anyone, which means an inital 5 user purchase might eventually turn into a 5,000 user purchase. Alternatively, cloud computing and advertising products might have only a single user, but can scale indefinitely with that user’s budget. A common SaaS marketing mistake is to create pricing structures based on functional or technological modules. When putting together your upsell SaaS marketing strategy, don’t align your pricing with your technology, align your pricing with customer value along dimensions of increasing use. And, maximize upsell potential along your least constrained dimensions of use.

SaaS Marketing Strategy #7 | Cross-sell

If you aren’t lucky enough to be selling a SaaS product with unlimited upsell potential, then it might be time to move your way up the SaaS marketing pyramid to cross-selling. Cross-selling is usually defined as selling a new product to an old customer or an old product to a new customer. When creating your cross-selling SaaS marketing strategy, the golden rule is don’t stray too far from home. Pick new products that complement and increase the value of your old products and new customers that have personal business relationships with your old customers, e.g., the department next door. The whole point of cross-selling is that it should be easier and cheaper than acquisition, because it leverages your current customer relationship. Stray too far from home and you lose this leverage. For this reason, cross-selling is often the most illusory SaaS marketing strategy. Just because you have another product to sell, doesn’t mean your customer wants to buy it.

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While rarer than unlimited upsells, some SaaS products do have seamingly unlimited cross-sell potential. Some SaaS vendors have the opportunity to create large product catalogs consisting of many similar, complementary packages, such as ERP systems, office productivity suites, and cloud platform APIs. Cross-selling to new customers has the most upside when you are targeting markets composed of highly fragmented, independent buyers with strong industry relationsips. In this scenario, leveraging current customer referrals to get to new prospects becomes an essential cross-sell SaaS marketing strategy. When customer referrals take on a life of their own, cross-selling crosses over into viral marketing, which just happens to be the subject of SaaS Marketing Strategies 8-10 in the next installment of this series on driving sustainable SaaS growth. Stay tuned!

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The post SaaS Marketing | Maximizing Customer Lifetime Value first appeared on Chaotic Flow.

Most 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.

I think the idea of negative churn looks attractive, because the mathematical definitions of SaaS churn and SaaS growth are essentially similar, give or take a minus sign.

In the above formulas, ?C_old is the number of old customers churned (a negative number), whereas ?C_new is the number of new customers acquired (a positive number). Or in the case of MRR churn/growth the amount of downgrades and upgrades, respectively.

NB: While I argue throughout this article that churn should be cleanly separated from growth, there is also ample argument that upgrades and downgrades should not be commingled either, as they are in the MRR formulas above, when these metrics are driven by fundamentally different business processes from acquisition and cancellation respectively.

While churn and growth are simple mirror images in theory, they are completely different in practice. There is a trick in physics, where you can simply substitute -t for t and reverse time in theory, however, going backwards in time in practice is a little more difficult. And, therein lies the problem with negative churn.

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In practice, acquiring a new SaaS customer is much more difficult and expensive than keeping one, and losing one is essentially free. Moreover, SaaS churn naturally scales with the size of your customer base. This is the fundamental SaaS growth challenge: SaaS churn is free and naturally viral; SaaS growth is expensive and requires persistence. Achieving viral, organic SaaS churn is a given. Achieving viral, organic SaaS growth requires network effects and economies-of-scale that result from sound business strategy, flawless execution and a little luck to boot. The label “negative churn” sounds too much like a fair fight.

Upsell is Not Negative Churn

That would be a triple negative, but who’s counting? The concept of negative churn is based on the idea that a SaaS business can offset churn with upsell, so that the net change in recurring revenue from current customers is positive. However, there is a flaw in this logic: upsell customers churn too, and when they do, they take all that lovely upsell recurring revenue with them.

Upselling increases the average recurring revenue per customer over time. It is an increase in price, not volume. SaaS churn is fundamentally a volume problem, negative virality. Upselling is better viewed as a transition from one average price scenario to another. It can soften the impact of churn, but it cannot reverse it.

Upselling is better viewed as a transition from one average price scenario to another.
It can soften the impact of churn, but it cannot reverse it.
The chart shows how the SaaS growth trajectory when 50% of customers upsell (red line),
is really a transition from the 5K base price SaaS growth trajectory (green line)
to a higher average price SaaS growth trajectory at full penetration (purple curve).
In the long run, however, churn wins in both scenarios as net customer growth slows.

The main takeaway from the above chart is that to offset SaaS churn for any extended period of time, upsell has to be BIG. This particular example assumes 50% of customers upsell for an average of 2X the initial purchase. In other words, upselling must behave like a viral increase in customers to counter churn in the long run. You must double, triple and quadruple the value of a customer through entirely new products and expansion into new buying centers.

Needless Negativity

Aside from the economic issues, I think my biggest beef with negative churn is that it is…well…just plain negative. Negative churn feels reactive and resigned. Like you’re hoping to tie, instead of planning to win. Achieving sustained SaaS growth requires creativity and tenacity, a relentless optimism to overpower a tireless enemy. I’d rather strive for viral, organic growth. It just sounds better.

The post Negative Churn | It’s Not that I Don’t Dislike It, I Do first appeared on Chaotic Flow.

SaaS marketing professionals know that customer acquisition is the name of the game. What they generally donâ€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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The fundamental goal of SaaS marketing is to remove buyer roadblocks to accelerate customer acquisition. Specifically, your SaaS marketing programs should focus on the roadblocks that are creating bottlenecks: the steps in the buying process where would-be buyers are getting stuck right now, because you are making their lives difficult. Every buyer bottleneck removed accelerates customer acquisition. Here are four proven SaaS marketing strategies for removing the most common buyer roadblocks.

SaaS Marketing Strategy #1 | Increase Awareness

If your would-be buyer canâ€t find your solution or doesnâ€t know he has a problem, thatâ€s a real bottleneck. Your prospects must get past the awareness roadblock before they can even run into the others. There are some truly innovative SaaS marketing tactics for creating awareness when your product is not completely hidden behind a login (that I will cover in a future post), but for most SaaS businesses, increasing awareness boils down to B2B marketing basics. However, your SaaS marketing tactic of choice will depend heavily on your specific market and SaaS sales model.

If youâ€re selling something completely new at a high price point, then good old cold calling is the way to go (thatâ€s right, cold calling), because your prospects wonâ€t come looking for you and you can afford to go looking for them. If your price point is low and your product is easy to understand, then blogging, SEO and other inbound marketing techniques are likely to fit the bill. If your business has a strong industry focus and youâ€ve managed to acquire a few happy initial customers, then good old public relations based on customer stories is your best bet.

SaaS Marketing Strategy #2 | Facilitate Evaluation

After awareness, easy product evaluation is by far the most common SaaS buyer roadblock. Many executives think product marketing is something you do after you build a product—not so in SaaS. The best SaaS marketing is built into the product itself. Online trial is easy to build into your SaaS product in the beginning, and very difficult to add later, because it requires the right architecture. Online trial may prove inadequate though if your SaaS product is fundamentally new and complex (as opposed to artificially complex, which is just bad product design).

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Your SaaS marketing strategy should facilitate evaluation by helping your prospects do things their way, and different prospects may have different ways of doing things. Even simple SaaS products can be confusing at first glance to busy buyers with short attention spans. Therefore, itâ€s usually a good idea to back up your online trial with sales, support and educational content.

SaaS Marketing Strategy #3 | Streamline Purchase

Itâ€s just embarrassing to make it difficult for a prospect to purchase your product after she has done you the enormous favor of deciding to buy it. After all her hard work she has money in hand, but she canâ€t give you her credit card, finds your contract unfriendly, and doesnâ€t even know your price. When itâ€s time to buy, your SaaS marketing strategy should aspire to the example of the best consumer ecommerce sites and streamline purchase down to a single click.

Streamlining purchase is particularly important for low price SaaS products where the buyer may very well be acting on impulse. Picking up the phone or figuring out your complex pricing scheme may be more effort than the immediately perceived benefit of your product. For high price SaaS products, streamlining purchase may be quite difficult and is unlikely to accelerate customer acquisition. However, a SaaS product with a midrange price point and a transactional sales model can benefit greatly from streamlined purchase in the form of increased sales productivity.

SaaS Marketing Strategy #4 | Simplify Onboarding

You havenâ€t truly acquired a customer in SaaS until she starts using your product. Poor onboarding is such a common problem in the software industry that we even invented a special word for it: shelfware. Allowing your product to become shelfware is a huge SaaS marketing mistake, because SaaS is sold under a recurring revenue subscription model. In licensed software, shelfware is the buyerâ€s problem. In SaaS, itâ€s the vendorâ€s problem. Poor onboarding leads directly to churn, the arch enemy of SaaS growth.

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There are many ways to simplify on-boarding in SaaS, the best ones are built into the product itself and enable customer self-service. In fact, online trial is the number one way to simplify onboarding, because the prospect starts onboarding early during the product evaluation stage. Getting new users up and running, setting up business processes, and integrating other solutions can all present significant onboarding challenges. Many of these challenges lie well outside what one would think of as traditional marketing, but SaaS marketing is not traditional marketing. SaaS marketing follows the mandate of removing buyer roadblocks whatever they are and wherever they occur, because SaaS marketing accelerates customer acquisition, not purchase transactions.

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The post SaaS Marketing | Accelerating Customer Acquisition first appeared on Chaotic Flow.

SaaS growth isn’t a goal; it’s an obsession. The good news is that SaaS growth can be very smooth and predictable, because of the SaaS recurring revenue subscription model. The bad news is that SaaS growth can also be predictably slow the bigger you get. After a few years of rapid SaaS startup growth, it’s easy to find yourself on the short end of the hockey stick if you don’t know the right levers to push.

The Three Levers to Break Through the SaaS Growth Ceiling

At any given time, you can calculate the SaaS growth ceiling for your SaaS business with a simple formula: customer acquisition rate divided by percentage churn rate. For example, if you acquire 200 new customers each year and your percentage annual churn rate is 20%, then at 1,000 customers ( 200 / 20% ) your growth will slow to zero, because customer churn will equal new customer acquisition of 200 customers per year. New customers come in the front door, while old customers leave out the back. Moreover, you will begin to hit the SaaS growth ceiling in exactly one average customer lifetime of 5 years, equal to 1 divided by your 20% churn rate. Finally, your SaaS growth revenue ceiling will equal 1,000 customers times your average customer subscription, e.g., $10M per year for an average subscription of $10,000 in annual recurring revenue. Without a fundamental change to your business, that’s all the SaaS growth you get.

This SaaS growth ceiling depicted in this example is calculated generally by the following basic formulas from the SaaS metrics series.

max SaaS company # customers = acquisition rate ÷ % churn rate

max SaaS company revenue = acquisition rate x average subscription value ÷ % churn rate

Alternatively…

max SaaS company revenue = acquisition rate x average customer lifetime value

This last formula highlights two of the three fundamental SaaS growth levers: acquire customers faster and increase customer lifetime value. If you double your customer acquisition rate, the SaaS growth ceiling doubles with it. Double customer lifetime value by doubling average subscription value or halving your churn rate and again the SaaS growth ceiling doubles.

In the end, however, churn always wins. Churn scales with the size of your customer base. Churn is negatively viral and can only be countered completely by a positively viral growth lever: network effects. Adding more sales reps and increasing your marketing spend are not enough. These strategies may increase your acquisition rate, but to outpace churn you must increase your acquisition rate again and again and again.

The SaaS Growth Levers Follow the Customer Lifecycle

The three fundamental SaaS growth levers: customer acquisition rate, customer lifetime value and viral customer network effects arise naturally and sequentially as a SaaS business matures. You have to acquire a few customers before lifetime value becomes important, and you have to acquire and nurture many loyal customers before network effects kick it. As your SaaS business evolves, you may find yourself cycling through each lever as your highest potential source of SaaS growth.

The three levers of SaaS growth also map nicely to the individual SaaS customer lifecycle as it evolves from initial purchase to deeper use of your product to advocacy within your customer community. Each stage of the SaaS customer lifecycle offers unique opportunities to drive SaaS growth.

The three levers of SaaS growth: customer acquisition, lifetime value and network effects
map to the SaaS customer lifecycle and each stage of the SaaS customer lifecycle
offers unique opportunities to drive SaaS growth.

The diagram above visualizes the deep relationship between the three fundamental levers of SaaS growth and the SaaS customer lifecycle. When read from left to right and bottom to top, each block of this SaaS growth pyramid highlights a proven strategy for SaaS growth that is directly linked to the SaaS customer lifecycle, beginning with driving prospects through the purchase funnel to saving customers that could churn and upselling those that don’t to nurturing a customer community that fosters advocates of your service and drives viral growth.

This is the first post in a series that explores strategies and tactics for driving SaaS growth. Having introduced the three fundamental levers of SaaS growth and their direct relationship to the SaaS customer lifecycle in this article, future posts will focus on each of the ten proven strategies for driving SaaS growth in the SaaS growth pyramid above with real-world advice on how to put each strategy into action. Stay tuned!

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The post Driving SaaS Growth Through The Customer Lifecycle first appeared on Chaotic Flow.

What is SaaS? We seem to need to ask this question every couple of years, because the answer is a bit of a moving target. It was simple enough when SaaS was merely software applications pushed through a Web browser, but now we have to contend with the cloud, mobile and even social. Recently, Scott Maxwell of OpenView partners sparked an interesting debate on the topic on LinkedIn that got me pondering it again. I’ve weighed in on the “What is SaaS?” question before, however, every time I encounter this debate, I can’t help feeling that it skirts the more important issue: Why SaaS?

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When trying to create a successful SaaS business model, being SaaS is interesting, but doing SaaS is essential. It’s far less important that your SaaS business model meet the exact definition of SaaS, than it is that your SaaS business model creates sustainable competitive advantage through SaaS. Why be SaaS in the first place? Why not just be software? At any rate, this recent debate got me to re-reading some of my old blog posts on the topic and I realized that they were very text heavy and could use an upgrade. So, in this post I revisit the topic of “Why SaaS?” with a short visual tour of SaaS business model basics.

SaaS Business Model Economics

At the risk of repeating myself, I will repeat myself. The only difference between software and software-as-a-service is that SaaS is delivered over a standards-based network called the Internet. Therefore, all new economic value and competitive advantage must flow from this difference.

The SaaS business model creates competitive advantage in two Internet enabled flavors:

1. Lower costs from…
   • Network automation of labor-intensive services and business processes
   • Economies-of-scale from aggregating customers via the network onto a uniform infrastructure
2. Differentiation from…
   • Reengineering business processes and service delivery through network automation
   • Network effects enabled by customer-customer interaction

Yes, it’s a mouthful. So let’s look at some pictures.

Competitive advantage in the SaaS business model comes from leveraging the customer-vendor network connection to reengineer business processes and service delivery, while building a large customer base to create economies-of-scale and network effects.

Network Automation in the SaaS Business Model

SaaS begins and ends with the Internet. The first impact the Internet has in SaaS is to connect the customer to the SaaS business through the product. Let’s think about that for a minute. How many products do we use everyday that can make this claim? One. SaaS. More and more, we are seeing other products, such as automobiles, security systems, and even clothing incorporate SaaS, but it is always the software communicating over the Internet that makes the connection between the customer and the vendor.

The SaaS business model connects the customer to the SaaS vendor through the product, disrupting the value chain by automating and shifting work between the customer and the SaaS business.

Network automation disrupts the value chain by automating and shifting work
between the customer and the SaaS business over the network. Self-service customers do work previously done by the software vendor. Managed service customers outsource unwanted tasks to the vendor over the network. And, smart SaaS business models aim to automate it all. The most obvious example is the work of deploying and maintaining the software itself. Whereas maintaining on-premise software is labor-intensive for customers and vendors alike, the best SaaS products are deployed instantly and maintained invisibly using a high degree of network-enabled automation.

Scale in the SaaS Business Model

The network connection between the customer and the SaaS vendor creates huge economic value, but it pales in comparison to the value created when the SaaS business model scales to hundreds, thousands or even millions of customers. Lower total cost of ownership (TCO) in the SaaS business model arises from the combination of network automation and economies-of-scale. Network automation enables the SaaS vendor to service not just one customer, but many customers from a single infrastructure. With each new customer added, the average cost of operating that infrastructure is reduced for all. When you ask “What is SaaS?”, it is easy to get hung up on things like multi-tenancy, virtualization, and so forth. When you ask “Why is SaaS?”, there are no such concerns. What matters is uniform, automated infrastructure and scale.

Unlike on-premise software, the SaaS business model creates huge economies-of-scale by servicing many customers from a single, integrated infrastructure.

The final piece of the SaaS business model puzzle falls into place when we look beyond the customer-vendor connection and consider the potential of customer-customer connections: network effects. Sharing, collaboration, crowdsourcing, and benchmarking offer unique differentiation over on-premise software in the SaaS business model. They simply cannot be done without the Internet.

The connection between customers enabled by the SaaS business model offers unique opportunities for differentiation.

The technological “what” of SaaS is a moving target, but the economic “why” is enduring. The cloud, social and mobile have not displaced SaaS. The cloud has expanded the opportunity for SaaS competitive advantage through economies-of-scale. Cloud computing enables entirely new technical architectures that deliver as much or more savings as multi-tenant databases. In turn, social and mobile have expanded the opportunity for SaaS competitive advantage through network effects by creating that many more opportunities for customers to interact with other customers. Understanding “What is SaaS?” may help you explain your business to the analysts, but understanding “Why SaaS?” will ensure you leverage the SaaS business model for all its worth, today and tomorrow.

The post SaaS Business Model Competitive Advantage Revisited first appeared on Chaotic Flow.

A few months back, Gartner placed big data at the peak of its hype cycle for cloud computing, meaning most big data products are solutions looking for a problem. I always find this bad entrepreneurial habit to be one of the most frustrating of our industry. Having recently joined Meltwater as head of marketing and product (BTW Meltwater is hiring marketing and product managers!), I think a lot about big data and how to unleash it’s value to solve important business problems, because that is our business. How does big data go from “so what” to “must have”?

The Big Data Challenge

Big data is a by-product of the Internet and the ever increasing power of computers. Kind of like petroleum sludge. We know there must be great value buried within this vast, raw resource, but the challenge lies in figuring out how to turn it into something useful like plastic, or the other thousands of petroleum products that we produce from the 20% of crude oil that can’t be turned into fuel.

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This is no small feat. I can confidently predict that there will be no shortage of well-intentioned, well-funded start-ups that fail to live up to this challenge, producing varying versions of gift-wrapped sludge that never quite deliver on the promises of their pitches. Overcoming the hype and producing real value from big data requires much more than data-processing infrastructure. It requires a laser-like focus on creating order-of-magnitude improvements to how we work and live.

Reengineering Across the Firewall

More than a year ago, McKinsey and Company predicted that big data would be “The Next Frontier of Innovation, Competition and Productivity.” Now, I’m not generally one to argue with the likes of McKinsey, especially in this case as I happen to agree with it. If you have the time, I highly recommend checking out the report. At 156 pages, however, it can be a little hard to digest, so I thought I’d fearlessly attempt to boil it down to a blog post by sharinig a little of how we think about the Big Data Challenge @Meltwater.

Big data implies a shift in real-time access to valuable information outside the firewall.
It offers the opportunity to reengineer business processes that cross the firewall
and that benefit greatly from this information, such as competitive strategy,
sales, customer support, vendor management, employee recruiting, etc.

Cloud-based businesses create value in one of two ways: lowering TCO (cost advantage) and network-enabled innovation (differentiation). Most early-entry, enterprise SaaS applications like Salesforce.com are really not that different from their on-premise counterparts in feature and function. They rely on lower TCO as the primary driver of adoption, and while they expand the market through lower prices to SMBs, they are locked into a replacement battle against on-premise software leaders like Oracle, SAP and Microsoft. However, there are a handful of truly innovative enterprise SaaS and cloud categories that mine the Internet for all it’s worth and have no on-premise equivalent, such as search, media monitoring, marketing automation, Web analytics, social media marketing, human capital management, and cloud integration. These categories all have one thing in common, they reengineer business processes that cross the firewall by leveraging data outside the firewall.

Reengineering is a business term that gained popularity in the early nineties as client-server washed away mainframe applications en masse. The idea was to leverage the new technology to redesign business processes for dramatic gains in productivity, as opposed to just upgrading legacy systems. Fast-forward 20 years and we find ourselves in a similar situation. We’ve spent billions of dollars on ERP, CRM, BI and countless other software acronyms to automate every last internal business process. Inside the firewall, there is very little left to do.

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The vision of big data should not be an upgrade, like the next generation of enterprise business intelligence, only bigger. Big data is a fundamental shift in real-time access to valuable information outside the firewall. It offers the opportunity to reengineer business processes that cross the firewall and that benefit greatly from this information, such as competitive strategy, sales, customer support, vendor management, employee recruiting, etc. For example, it is one of the great ironies of enterprise software that in most companies customers never touch the customer relationship management system.

Social Business and Big Data

If any emerging category can claim more hype than big data, it is social business. This is no accident. Social business and big data are inexorably linked. Big social data empowers social business. Take the case of the social community manager, a new and evolving social business role. The social community manager must engage in a dialog with community members that is personal and relevant. Yet at the same time, the social community manager must sift through millions of online conversations to zero in on specific opportunities for personalized social engagement. Enter big data. Let’s redraw the above diagram for the social community manager.

The social community manager needs a social mission control panel
to digest the vast amounts of big social data and zero in on
the conversations, channels, and community members that require immediate attention.
(At Meltwater, we like to call this Meltwater Buzz 3.0 which launched today! ;))

The social community manager is engaged in the business process of building a social community. To accomplish this daunting task, the social community manager must reach across the firewall to crunch a lot of big data and engage community members in in real-time. The process goes something like this:

1. Gather big data outside the firewall about the social community
2. Develop a social campaign strategy informed by insights from the data
3. Create a social campaign plan of execution
4. Reach across the firewall to engage the social community
5. Rinse and repeat in real-time

I think social community management is a lot like air traffic control, including the potential for social media disasters when information, systems or social community managers are not up to the task. The social community manager must digest vast amounts of big data to find the one conversation or one community member that requires immediate attention. The social community manager doesn’t need raw big data. The social community manager needs a social mission control panel to digest the vast amounts of big social data and zero in on the conversations, channels, and community members that require immediate attention.

Big Data and The Cloud | A Match Made in Heaven

The fact that big data originates largely as a by product of the Internet, and the fact that it is, well, big, lead to the natural conclusion that like big data itself, big data-based solutions are best situated in the cloud. It will be the rare global 500 company that is both big enough and motivated enough to house and sift through the mountains of data available out there to build on-premise big data analytics and automation. Economies-of-scale will rule in the aggregation, enrichment and processing of big data with most businesses interested in paying only for results, i.e., insights that can be used to reengineer business processes across the firewall for order-of-magnitude improvements in productivity and service.

The post Big Data | Thinking Outside the Firewall @Meltwater first appeared on Chaotic Flow.

Sales professionals are some of the earliest adopters and most annoying users of social networking. The problem is that most sales reps treat LinkedIn like a prospecting database for cold calling. It’s just too enticing when all your target prospects are out there showing off their company names, titles, areas of expertise, blogs, and opinions. You can use LinkedIn as a prospecting database, but it is probably the weakest and most professionally irritating use of the technology. To succeed at social sales, you must have something to offer beyond your product. You must be someone your customers want to know.

This is the fourth post in a series on social business designed to help B2B sales and marketing professionals make better use of social media by thinking in terms of social networking. This installment provides ten social sales lead–ership tips that will turn social media into a lead generation machine for your business by following the B2B Social Business Bill of Rights.

Social Sales Lead–ership Tip #1 | Activate Your Social Sales Network

B2B businesses still have rather spotty usage of social networking. Most B2B sales reps are on LinkedIn, but far fewer have active Twitter accounts. Depending on the industry, B2B prospects and customers are even less likely to be active social networkers. Social Business Right #1 says you must expand your social sales network, so take the lead and give your sales reps, prospects and customers a reason to get more social. Use social channels like blogs, forums, Twitter, Facebook, and LinkedIn to communicate with your customers and prospects. Encourage website registration using social networking accounts. And, create promotions and contests that require participation in social networks. Activate your company’s social business network by motivating its members to follow your company’s lead.

Social Sales Lead–ership Tip #2 | Capture Social Sales Contact Profiles

Upgrade your CRM to capture Twitter handles, LinkedIn profiles, blog URLs and Facebook pages in addition to the standard phone, email and fax. Does anyone still fax? Add these items to lead capture forms on your website and use data appending services to augment them. Your sales team can’t link up without the right social contact information any more than they can cold call without phone numbers.

Social Sales Lead–ership Tip #3 | Train Sales in the Art of Referrals

The most common social sales mistake is treating social media like a prospecting tool; it is a networking tool. Stick to direct cold calls and email for prospecting. The reason most sales reps struggle at networking is that they fail to understand the critical role of referrals in the art of networking. Sales reps are trained to hunt. Account managers are trained to farm. Networking is about gathering. Gathering contacts. Gathering useful tidbits of information. Gathering opportunities. Gathering things that you can share.

Social Business Right #2 advises that you build your social sales community by being helpful. Sharing referrals are not selfless acts of kindness, because reciprocity creates social networking karma. Smart networkers look for opportunities to provide referrals to those people from whom they would like to receive referrals. They know who they want to meet and what those people care about. They identify opportunities that can be referred and opportunities to refer them. Networking requires a gathering sales discipline. It’s not something you go out and do once a month. It’s something you incorporate into your daily routine, because opportunity waits for no one.

Social Sales Lead–ership Tip #4 | Train Sales on Social Networking Tools

If your sales team masters the art of networking through referrals, then your social network training will become an entirely different experience. Approaching LinkedIn with the mindset of gathering contacts that you might do business with or might introduce you to someone you might do business with someday and looking for ways to share information, introductions and business opportunities will generate many creative ideas. This proper use of social networking contrasts sharply with the more typical sales prospecting default of searching on title and trying to link up with a product pitch.

Each social networking tool from LinkedIn to Twitter to a personal blog offers different networking capabilities and opportunities. Sales reps should select the ones that fit their respective business needs and professional styles. However, mastering the ins and outs of the features, functions and formalities of each tool is essential. For example, if you choose to write a blog, you probably need to know WordPress and SEO. If you choose Twitter, you need to know how to use handles and hashtags. If you use LinkedIn, you need to understand groups and updates. Despite all your good intentions of being a helpful business colleague, it’s a competition for attention out there and mastering social networking tools is essential to social sales success.

Social Sales Lead–ership Tip #5 | Prepackage Useful, Share-able Content

Social Business Right #3 asks that you should accelerate information sharing within your social sales network. Maintaining a library of incredibly useful, industry-specific tidbits of information in easy-to-share packages like like PDFs, PPTs, Web links, and so forth can be a big time-saver, because when opportunity knocks to share some useful information, you need to answer quickly and concisely. Marketing departments can help sales reps in a big way by making sure sales is plugged into the content marketing pipeline for both original and curated content.

Social Sales Lead–ership Tip #6 | Invest in Digital Media Monitoring

The timeliness of shared information directly impacts its usefulness. Therefore, it’s important to stay on top of what’s being said in your industry everywhere from Twitter to traditional news. Staying on top of industry buzz has become impossible to do manually by reading your favorite trade publications. Strong media monitoring tools not only keep you informed, but they can become a competitive weapon for the social sales professional, because people gravitate to those who are always in the know.

Social Sales Lead–ership Tip #7 | Launch a Referral Reward Program

Operationalizing referrals throughout your social sales organization is no easy task. It requires new knowledge and new habits. By introducing a simple referral rewards program, you provide a vehicle to reinforce the habit of asking for customer referrals. It is a great misconception of customer referral programs that they drive referrals through monetary incentives and discounts to your customers. They do not. When a customer provides a referral, she is doing it in order to help her friend, not the salesperson or the company. If a customer is not happy with your service, she will not refer her friend regardless of the incentive, because it will make her look bad. The best referral programs provide a small reward to your customer (reciprocity, not an incentive) and an incentive to the prospect (which allows your customer to do her friend an even bigger favor).

The most important ingredient in driving customer referrals is never a reward or incentive. It is timing. You must ask for a referral when your customer is most willing to provide it. When she is happy with your service and feeling the reciprocity vibe of your social sales karma. While there are modern marketing tricks that can triangulate on the right time and place to ask for a referral through some online call-to-action, there is no tactic stronger than the sales rep asking for a referral directly after being told by your customer just how fantastically happy she is with your product and service.

Social Sales Lead–ership Tip #8| Increase Social Sales Productivity

Staying on top of every prospect’s and every customer’s social activity across multiple social netorks is an impossible task for most busy sales professionals. Therefore, it is essential to start investing in systems that boost their social sales productivity. Twenty years ago most sales managers would have scoffed at the idea of maintaining a pipeline of opportunities and simultaneous conversations with hundreds of prospects. Today it is routine due to the productivity impact of enterprise CRM systems. The social CRM systems of tomorrow will allow sales reps to hear and participate in thousands of conversations going on inside their social sales network, but outside of today’s enterprise CRM systems on the other side of the firewall.

Social Sales Lead–ership Tip #9 | Create Online Networking Opportunities

Now that you have your social sales reps all linked and followed, why not give them more opporunities to engage? Don’t let them just sit around waiting for that great article to share or contact to introduce. Create opportunities for your social sales reps to social network. Start a LinkedIn Group. Launch a community industry blog or forum. Create social networking events by integrating online networking into offline events. Or, just create social networking events, such as tweet-ups and contests. However you do it, give your social sales reps more online networking opportunities. More opportunities for online engagement mean more opportunities to strengthen online relationships.

Social Sales Lead–ership Tip #10 | Create Offline Networking Opportunities

Social Business Right #5 asks that you consistently work to convert weak ties to strong ties within your social sales network, so sooner or later you’ve got to take it offline. All the tweets in the world are still no substitute for thirty minutes over coffee. Help your social sales reps develop stronger business relationships by providing offline networking opportunities with prospects, customers and industry influencers. These can be as simple as a meetup at the local bar or as complex as a global annual user conference. As industry trade shows shrink in the wake of modern Internet marketing, there is a growing vaccuum that must be filled to satisfy the fundamental need of B2B professionals for face-to-face networking. Don’t forget to mind the gap.

The post Social Sales | 10 Social Sales Lead–ership Tips first appeared on Chaotic Flow.

Since publishing the original SaaS metics blog series and subsequent SaaS Metrics Guide to SaaS Financial Performance, I’ve received numerous inquiries on various details and hidden gotchas in SaaS metrics implementation. This new series of SaaS Metrics FAQs explores some of these finer SaaS metrics points in a simple Q&A format. In this second post, I examine SaaS MRR churn, a SaaS metric that extends from SaaS customer churn which was covered in the first installment.

SaaS Metrics FAQ #4 | What is MRR Churn?

SaaS MRR churn measures the erosion of SaaS monthly recurring revenue (MRR). Mathematically, the SaaS MRR churn rate is an extension of the SaaS customer churn rate calculated by substituting monthly recurring revenue in place of the number of customers. For example, if your SaaS business has 100 customers representing an MRR base of $1M at the beginning of the year, and 5 customers cancel a total of $100K in MRR during the year, then your annual MRR churn rate is 10%, while your annual customer churn rate is only 5%. The general formula for for SaaS MRR churn can be stated as the amount of MRR cancelled (?MRR) per time interval (?t) divided by the total MRR at the beginning of the interval (MRR_total).

In the formula above, the ? is a common math symbol that means change or interval.

SaaS Metrics FAQ #5 | Why Measure MRR Churn?

The simple answer to this question is money.

SaaS customer churn rate is important, particularly if you run a B2C SaaS business where revenue is generated by monetizing users through advertising or such. However, B2B SaaS companies generate revenue from direct subscription sales. SaaS customer churn is an interesting operations metric, but SaaS MRR churn is a critical financial metric. SaaS CFO’s always prefer MRR metrics.

The slightly more complex answer is that MRR metrics tell you if SaaS customer churn is leaning more toward larger customers or smaller customers. IN addition MRR metrics highlight two very important SaaS revenue drivers that customer metrics do not: upgrades and downgrades. In the example above, the MRR churn rate was double the customer churn rate, indicating that larger customers are churning. This quality of the SaaS MRR churn rate becomes more apparent when we expand the above formula to show off its individual components.

MRR_total = MRR₁ + MRR₂ + … + MRR_N-1 + MRR_N

ΔMRR_{cancelled contracts} = MRR_{cancellation 1} + MRR_{cancellation 2} + … + MRR_{cancellation M}

In the expanded formula above, MRR_N is the MRR value of customer number N and MRR_{cancellation M} is the MRR value of cancelled customer M. For example, if there are 100 customers with $10,000 MRR subscriptions and 10 customers with $100,000 subscriptions, then total MRR can be calculated using the above formula as follows.

MRR_total = $2M = 100 x $10,000 + 10 x $100,000

If 5 $10,000 customers cancel and 1 $100,000 customer cancels, then MRR churn is $150,000 = 5 x $10,000 + $100,000. The MRR churn rate is 7.5% = $150,000 / $2M, whereas the customer churn rate would be 5.5% = 6 / 110. MRR churn is higher, because 1 $100,000 customer is worth more than 5 $10,000 customers. To this way of thinking, SaaS MRR churn can be viewed as recurring revenue weighted customer churn.

SaaS Metrics FAQ #6 | How Do I Analyze SaaS MRR Churn?

You can conduct all the same analyses on SaaS MRR churn that you do on SaaS customer churn from simple annual MRR churn rate calculations to complicated MRR churn cohort analysis. The main difference is in the interpretation of the results as recurring revenue weighted versions of the originals. Most importantly, MRR metrics provide the ability to separate the impact of downgrades and upgrades on changes to MRR from the impact of customer churn and growth, respectively.

SaaS MRR churn and growth analysis allows you to separate
the MRR impact of customer churn and new customer growth
from the MRR impact of downgrades and upgrades, repectively.
(A shout out to the Meltwater finance team for turning me on to
this nice MRR churn visual. Thanks Rik, Till and Ludwig!!)

SaaS Metrics FAQ #7 | How Do I Calculate the MRR Churn Rate in Practice?

SaaS MRR churn rate is calculated by substituting MRR for the number of customers uniformly in all your SaaS customer churn rate formulas. For this reason, the SaaS MRR churn rate is subject to all the same measurement problems of the SaaS customer churn rate arising from low churn rates, high churn rates, variable contract lengths, and so forth. If you have any of these issues, you should refer to the previous post in this series which provides a number of SaaS churn calculation tips to mitigate them. If you decide to go measure MRR churn using only contracts up for renewal (Tip #3), then be sure to use the MRR weighted average contract renewal period.

In the formula above, the denominator only counts MRR from contracts up for renewal in the month and the numerator counts MRR of contracts up for renewal in the month that cancel. This gives the MRR churn slice of the waterfall diagram above, however, that still leaves upgrades and downgrades.

SaaS Metrics FAQ #8 | How Do I Calculate the MRR Upgrades and Downgrades in Practice?

It is important to separate upgrades and downgrades from churn, because they each represent distinctively different economic situations. Churn implies a severing of the business relationship, so recovering a churned customer will generally imply a new cost of acquisition. Upgrades and downgrades do not generally entail future acquisition costs, however, they do imply very different sales strategies: upselling vs. recovery respectively. Upgrades and downgrades are calculated as follows.

?MRR_upgrades = ?MRR_{upgrade 1} + ?MRR_{upgrade 2} + … + ?MRR_{upgrade U}

?MRR_downgrades = ?MRR_{downgrade 1} + ?MRR_{downgrade 2} + … + ?MRR_{downgrade D}

In the formulas above ?MRR_{upgrade U} and ?MRR_{downgrade D} represent the net upgrade and downgrade MRR of customer U and D respectively. For example, if a $100,000 customer downgrades to $90,000 then ?MRR_downgrade = $10,000.

It’s also worth noting that there is zero difference between SaaS MRR churn and SaaS ARR churn, because all the formulas are percentages (monthly recurring revenue churn vs. annual recurring revenue churn, not monthly churn vs. annual churn). To convert any of the SaaS MRR churn formulas above so SaaS ARR, you simply multiply both the numerator and denominator by 12, cancelling the conversion out of the calculation. I could search and replace ARR for MRR throughout this entire blog post and it would still be 100% correct.

The post What is MRR Churn? | SaaS Metrics FAQs Part 2 first appeared on Chaotic Flow.

Which is more important in B2B social media, social or media? For way too many B2B marketers, the answer is media. In the B2B marketing community, content marketing has eclipsed blogging, engagement is measured in click-throughs, and gamification is sexier than conversation. Too many B2B professionals see social media as just another marketing communication channel. It is not!

This is the third post in a series designed to help B2B professionals create better social business strategies by thinking in terms of B2B social networking over B2B social media. This post builds on the concepts introduced in the previous installment on professional social networking using B2B social media to explore the opportunities for social business at the company and industry levels. You won’t find tips and tricks for LinkedIn, Twitter or Facebook here, because the foundations of social business transcend the tools. I promise that later posts in the series will get to the tips and tricks, but social business is first and foremost about people, not technology.

Unlike a B2C brand, revenue at a B2B business is driven by the firm’s underlying professional network, because the social business network of B2B professionals includes their customers. By definition, every B2B business is selling to other businesses, as opposed to a consumer. As such, the professional ties between company and customer are very strong. They go far beyond brand image and brand loyalty to include serious business goals, significant professional relationships and personal career success. Moreover, the professional ties between B2B customers can also be very strong, creating an ecosystem that extends beyond the company to include the entire industry. While having a strong industry network is also important for B2C professionals, that network generally excludes their customers for all but the highest end luxury or durable goods, such as yachts and real estate. Not so in B2B. Successful B2B professionals are connected, and those connections include their customers.

The B2B Social Business Network

A B2B business has only one social business network, company and customer, offline and online. This singular fact should always remain top of mind when crafting a B2B social business strategy. While B2C marketers must struggle for brand engagement and must avoid unnatural intrusion by their brands into the personal social networks of consumers, B2B marketers, sales reps, service agents, executives and potentially all employees in a B2B social business are an integral part of their customers’ industry network and should seek to expand and strengthen that network through B2B social media.

Imagine for a minute that everyone in your industry is on LinkedIn, and everyone is linked to everyone else they know in the industry (this is what LinkedIn imagines ;)). Now imagine a map of that network with all your company’s employees at the center and your company’s customers on the next circle out, then your company’s prospects and partners, and finally your industry’s consultants, analysts, press, competitors, associations and so forth to create the complete social network of your industry’s ecosystem. That is your company’s B2B social business network.

The B2B social business network extends out from the company to include every professional in the industry ecosystem. Most importantly, a B2B company’s social business network includes its customers, because unlike consumers, B2B professionals are there to do business.

Unfortunately, your company’s social business network is not all on LinkedIn, but it could be. It could be on Twitter. It could be commenting on your forum and your blog. When you clearly imagine your company’s social business network and beyond that to your entire industry’s social business network, the full potential of B2B social media to drive B2B social networking unfolds before you. B2B social media is a tool that automates and accelerates B2B social networking, it is not simply a marketing platform. There is a reason why LinkedIn is profitable largely through paid subscriptions, while Facebook struggles to monetize through ads. Unlike consumers, businesses are willing to pay for the value of B2B social networking. Advertising is just gravy for LinkedIn.

B2B Social Business Bill of Rights| We the People

Social media connects and energizes the B2B social business network, but it is still only a tool. It is not the network. The B2B social business network is composed of real people with real relationships that drive business throughout an industry. In the first post in this series, I proposed that the fundamental purpose of B2B social media is to increase the frequency, velocity, and quality of business referrals, a referral being broadly defined as a trusted relationship and the sharing of some useful information that facilitates a business opportunity. The second post went on to claim that reciprocity is the cornerstone of good professional networking. Just being helpful builds trust and transforms weak ties into strong ties. So let’s put aside the content strategy, engagement, gamification, and other buzzwords for a moment and talk about the right way to use B2B social media: as a technology enabler of B2B networking. Here is the B2B social business bill of rights. Don’t get it wrong!

B2B Social Business Right #1 | Expand the Company Network

The first goal of any B2B social business program should be to get every target prospect, customer, and influencer connected to the relevant sales, service, marketing, executive, and other employees within your company. In short, expand the company network, online and offline. If your industry is not very active in B2B social media, then your social business programs should encourage it. Start a LinkedIn Group and invite others to join. Write a blog and encourage comments. Help your offline social business network link up online. Getting your offline social business network online, linked, liked, followed, and subscribed is the foundation of success for all your B2B social media programs.

B2B Social Business Right #2 | Build Community by Being Helpful

Being helpful builds community within your social business network, because it is reciprocity that enables information to flow and strengthens bonds within your social business network. You may produce killer content for every buyer persona at every stage of the buying process, but when prospects are not ready to buy right now, it is reciprocity that keeps them from opting out of your nurturing queue. You must offer helpful information to keep them coming back for more.

Helpful can mean many things to many people within your social business network: opportunity, education, support, entertainment, unique, simple, and so forth. What is helpful to your customers is different from what is helpful to your prospects, your partners and your industry influencers. Whatever helpful means in your industry, it is essential to energizing your social business network, driving referrals, and enabling viral word-of-mouth, because at the center of every viral social media program is a helpful gem of information.

B2B Social Business Right #3 | Accelerate Information Sharing

If you’ve done a good job of building community within your social business network and you’re offering lots of helpful information, then the next link in the B2B social media chain is to facilitate and accelerate the sharing of that helpful information throughout your social business network. Getting your content shared online is the B2B social media equivalent of word-of-mouth marketing. Word-of-mouth marketing is not only the most effective marketing communication channel; it is also the cheapest.

Consistent sharing calls-to-action should be available for all your content. Beyond this, sharing helpful information from other sources builds reciprocity and sets an example for other members of your social business network. For example, content curation may already be a part of your B2B social media strategy, but do you see it as a way to fill in content gaps or a way to build relationships with the authors who create it and a way to encourage them to share your content in return. Lastly, sharing helpful information isn’t just about content. It’s about communication between real people. It’s about opportunity. Your B2B social media strategy should go beyond simple content sharing to driving business referrals throughout your social business network.

B2B Social Business Right #4 | Drive Business Referrals

The be-all, end-all accomplishment of B2B marketing is a customer referral. When your customers consistently tell their colleagues that they should buy from you, it’s time for vacation, because you’ve earned it, and demand for your products will continue without you. Your B2B social media strategy should definitely encourage customer referrals. However, why not take it one step further and promote referrals throughout your social business network? That’s all fine and good Joel, you say, but my company is in the business of making money. How are we going to make money by altruistically driving referrals?

Within that circle of your social business network that represents your firm, everyone is aligned behind the same business goals (hopefully). Once you cross the line into areas of your social business network occupied by your customers, prospects, partners and the like, your goals are no longer aligned. The practice of driving referrals through your social business network forces you to align your goals with their goals. Do your case studies help your customers as much as they help you? Do your partnerships with industry experts promote their services as strongly as your own? Do you create opportunities within your social business network, or do you just sell to it? In B2B social media, what goes around online comes around online, and offline. If you want customers, partners and industry influencers supporting your business, then you have to give something in return. Driving referrals builds reciprocity, and reciprocity turns weak ties into strong ones.

B2B Social Business Right #5 | Convert Weak Ties to Strong Ties

B2B marketers would call this right the “influencer marketing” right or “customer reference” right. I frequently use these terms myself. The problem is that these selfish words obscure the means to their own end. They’re all about us. Do we really want to market to the influencer, so the influencer can influence our prospects? Or, do we want to expand our social business network by providing useful information, referrals and business opportunities to our industry influencers in order to build a relationship founded on reciprocity? Every good salesperson knows that asking a customer for a referral is the last thing you do, not the first, because it is the trust and early deposits in the reciprocity bank that make it possible.

Some products and services are so emotionally charged that they engender advocates just by doing what they do. These are usually consumer products, because we as consumers sometimes define ourselves by the products we buy and use. They say something about who we are. B2B customers define themselves by their company and industry relationships. B2B brand loyalties are a function of the B2B social business network as much as the product. B2B social media can help turn prospects into customers and turn customers into champions, but not by running an ad on Facebook. B2B social media turns weak ties into strong ties and customers into advocates by energizing the B2B social business network.

In the articles to come, I’ll provide well grounded social business tactics for specific B2B marketing programs based on the B2B Social Business Bill of Rights presented here, including the following.

• Social Media for B2B Lead Generation
• Social Networking for B2B Public Relations
• Social Networking for B2B Sales Enablement
• B2B Influencer Marketing with Social Media

Taking the social networking-centric view, these posts will explore specific ways to improve your B2B social business strategies and tactics. Please stay tuned!

The post B2B Social Business Bill of Rights | Don’t Get it Wrong! first appeared on Chaotic Flow.