3 Customer Success Lessons From 400 SaaS Companies

What’s more interesting than being able to sneak a peek through a hole in the fence at your peers and competitors to see how successful they’re being? The 2017 Private SaaS Company Survey from David Skok and KBCM Technology Group provides SaaS business leaders exactly that pleasure.

My last blog post referenced some of the seminal work David Skok has delivered on the critical role SaaS unit economics play in the success of SaaS companies. In its sixth year, the annual Private SaaS Company Survey is another example. This survey delivers excellent insight into the growth and operations of private SaaS companies. Use it as as a great way of benchmarking your own business.

The 2017 Private SaaS Company Survey has just been released and the full 69 page report can be downloaded here (along with previous years). Over 400 private SaaS companies provided data this year. I have analyzed the results and identified key lessons on how you can use Customer Success to meet and exceed benchmarks identified in the results. Here, Ishare 3 of these lessons.

1. YOU NEED TO INCREASE INVESTMENT IN CUSTOMER ADOPTION…ESPECIALLY IF YOU HAVE AN INSIDE SALES MODEL.

Why? Because your company is extremely likely to have a leaky bucket.

The survey report includes a comparison of companies that use a field sales dominated model versus an inside sales dominated model. The comparison is performed across a number of metrics including Annual Gross Dollar Churn and Net Dollar Retention Rate. (Check out this article for a great starting-point for understanding types of churn)

Companies with inside-dominated models outperformed the field-dominated cohort in a number of categories including ARR growth. However, companies with inside-dominated models had 5% higher Annual Gross Dollar Churn and 4% lower Net Dollar Retention rate.

Companies with inside-dominated models had more holes in their leaky buckets. WHY?

The selling of Value-Based Outcomes designed to achieve value realization is unlikely to be the problem for the inside-dominated cohort. Their category-beating growth results support this theory. Instead, the recurring delivery of Value-Based Outcomes across the customer lifecycle is a probable weakness for these companies.

If your customer is not realizing sufficient value at renewal time, the customer will churn or at least downgrade their subscription causing Gross Dollar Churn and impacting Net Dollar Retention Rate. By investing in Adoption Methodologies that focus on achieving, maintaining and measuring recurring value realization, you can plug this leaky bucket.

2. YOU SHOULD USE CUSTOMER SUCCESS TO DRIVE EXPANSION REVENUE

Why? Because your Sales team can’t effectively hunt and farm at the same time.

The median survey respondent achieved 19% of their new ARR from what the report specifies as successful expansions and upsells.

19%?!

Leveraging the significant Customer Acquisition Cost (CAC) efficiencies associated with expansion selling across only 19% of your total revenue achievement seems a big missed opportunity.

I believe it’s safe to assume the vast majority of respondent companies target their Sales orgs to execute upsells and expansions. Maybe SaaS companies just aren’t incentivizing their Sales orgs well enough to have them want to achieve upsells and expansion?

Not true according to the survey report. Median upsell commissions (9%) were nearly as high as commissions for new customer sales (10%). Plus 71% of respondents paid full commission on upsells (full commission is defined as the same commission rate or higher for a new customer sale). So what’s the problem?

Why aren’t the Sales orgs in these companies taking the CAC-efficient route and achieving more of their ARR targets through expansion and upsells?

I believe the problem is rooted in the misconception that a salesperson can effectively both hunt and farm SaaS customers. They typically can’t and they shouldn’t. Acquiring new customers (hunting) and expanding existing customers (farming) in a SaaS business are far too critical and need to be specialized strategies. They are two different disciplines which should be separated as much as possible. Of course, such a separation is never going to be clear cut, nothing ever is. Is the sales opportunity with the UK-based entity of your existing U.S based customer expansion or a new customer sale? Probably the latter, but that’s up to you.

Overall, I believe SaaS companies will drive more expansion ARR if:

• Sales focuses on hunting.
• Customer Success drives expansion.

I define customer expansion as:

The opportunity to achieve new Value-Based Outcomes that contribute to the overall value realization for the customer.

In a well designed and executed Customer Success strategy, Customer Success is best placed to:

1. Identify the next customer ready to consider investing in the achievement of new Value-Based Outcomes.
2. Understand what new Value-based Outcomes would A) drive the highest value realization for that specific customer and B) can be delivered via the SaaS solution with the help of Customer Success.
3. Leverage strong customer relationships rooted in the success of achieving past Value-Based Outcomes together
4. Use solution and industry-specific knowledge to explain the ROI available to the customer and how that ROI will be delivered

The combination and completion of these four steps will lead to a customer investment decision to acquire additional users, access to additional parts of the solution or access to the new product just released. This decision can then be processed into a purchase order and invoice by the order processing team (or ideally software) working alongside Customer Success.

3. SECURE LONGER CONTRACTS AND MORE REVENUE UPFRONT BY DE-RISKING THE CUSTOMER’S FUTURE

How long is your ACL? Look up! The answer is not in your knee.

If you are a B2B SaaS company and your Average Contract Length (ACL) is less than a year, it’s worth asking why.

This one is maybe more targeted at you B2B SaaS companies opposed to you B2C companies. Monthly contracts are still the norm in the world of B2C although this is changing. Assuming this norm was true in 2016, the survey respondents must largely be B2B because the median average contract length was 1.4 years. Additionally:

• 83% of the survey respondents’ ACL was over a year
• Approximately, 90% of respondents with an Average Contract Value (ACV) of 6–25k had an ACL of 1 year or more
• The % of respondents with an ACL of 1 year or more increases as their ACV increases, reaching 100% with the $100k ACV or above segments.

I’m not suggesting that the longer the subscription contract the better for your SaaS business or customer. I am suggesting that, for a B2B SaaS company, you should be securing at least 1 year contracts.

One of the big advantages of an annual contract is the improved chance to secure payment of a higher % of the contract value upfront. This upfront cash is often very important for cash hungry early-mid stage SaaS companies and highly valued by any SaaS company in order to manage CAC expenses.

Maybe your SaaS company is not yet offering annual contracts but wants to. Maybe your SaaS company is trying to secure annual contracts today but is struggling and often has to resort to major discounting.

To turn this situation around, focus on reducing the risk of an annual commitment in the prospect’s mind through an effective Customer Success strategy.

Start by designing Adoption Methodologies that de-risk your customers’ journeys to value realization. Next, integrate those Adoption Methodologies as part of your sales strategy. By doing this you will increase the chances of the prospect both contracting annually and paying a larger portion of that contract upfront.

To learn more, visit Valuize