There is good news and bad news for software companies in the shift to the software subscription model of the Cloud. The good news is that revenues have become much more predictable and stable. The bad news is that you have to keep re-selling the sale in order to retain those customer income streams over time. The good news is that there is more available data than ever before about your customers. The bad news is that the data is scattered all over the company and is therefore not easily accessible. The good news is that adding and supporting application features and functionality is easier to do in the Cloud. The bad news is that your competitors will soon be adding those same features to their applications too.
The meaning is clear. In the SaaS/Cloud business model, what is really being sold is a relationship rather than technological features & functions, and keeping that relationship profitably going for as long as possible is the core issue for long-term success as SaaS company.
The High Cost of Churn
Why should a SaaS company, especially if they think that they’re in their “land-grab” phase and therefore don’t have time or resources to worry about churn at this point, invest time and money now in building dedicated customer retention resources?
SaaS-Capital, a provider of debt-based growth capital for SaaS companies, answers the question. Churn is a cumulative beast. The income that you lost last quarter continues to be lost next year and the year after. Consider their model of two SaaS companies. Both sell only software subscriptions; no other income conduit is included. Both sign 10 new customers per month @ $1,000.00 each. Both spend $120K per month on sales & marketing to acquire those relationships (CAC). The only difference between them is that one has a customer retention rate of 95%; the other’s only 80%. At the end of 5 years, the difference in bottom-line company valuation between the two was $15 million dollars. Along the way, the company with the 95% retention rate also had increased revenues to work with, up to $24K per month. That’s a lot of money – your money – both now and later.
The Need to Know
To make the initial sale, you needed to know quite a bit about your prospective customer. What were their business needs and requirements? Who were the decision makers and influencers? What were the timetable and the budget factors? All of that knowledge and more made the signature on the first contract possible. To get the renewal signatures, however, you’ll have to keep that data up to date and to add to it. Customer Intelligence is a process that can’t have an end. It’s what you don’t know about your customer relationships that can cause you to lose them.
If the key to keeping SaaS customers is to know everything necessary about them and appropriately applying that knowledge, that function is too important to be left unmanaged. Does your company have a Customer Intelligence team? For collecting, updating and analyzing all relevant data about your customers as individuals, value tiers and as a base? If you haven’t formally chartered an individual or a team to be responsible for customer intelligence, it’s time to put that initiative before the senior management team for active consideration.
In this white paper, I’ll present a high-level view of the customer intelligence role, looking at the strategy, the process of gathering, evaluating and disseminating data, the people who are involved in that effort, and the technology that will be needed.
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