The Rise of Customer Success and the SaaS Metrics Driving It
Though the words “customer success” are weaved into almost every single conversation taking place around the software industry right now, the rise of customer success has been fairly recent and can be traced almost directly to the rise of Software-as-a-Service (SaaS).
Most SaaS platforms use a subscription-based model, which means the company subscribing to the service usually pays a yearly, quarterly, or monthly fee for the product and/or service. And for SaaS companies, this new subscription-based model has changed the way business is done across the entire company. No longer is a sale “won and done”. In today’s SaaS businesses, the sale has to be won many times over in the form of renewals. Now, the customer is in charge and unless your SaaS company is delivering above and beyond, it’s fairly easy for your customers to shop around and move to a different provider or start the search by issuing an RFP to make sure they are getting the most competitive pricing and the best product for their needs. Openview Ventures details out 6 metrics that SaaS companies must keep close track of, including:
6 SaaS Metrics Driving Customer Success
1. Churn Rate
It may seem obvious to suggest that SaaS companies need to track how many customers they lose year over year, but obvious doesn’t always translate to “must-do.
Far too many SaaS businesses overlook this number in favor of more sophisticated or derivative metrics — and that’s a big mistake, the Openview Ventures’ blog details. At the end of the day, there is nothing more important to a SaaS company than its ability to retain existing customers while also acquiring new ones.
2. Monthly Recurring Revenue (MRR)
Growing SaaS companies tend to concentrate on bookings and revenue numbers and lose sight of their secured monthly revenue flow. Monthly Recurring Revenue (MRR) is a simple but powerful metric that tracks new sales, up-sells, renewals, and churn on monthly basis.
3. Committed Monthly Recurring Revenue (CMRR)
More or less a modified version of MRR, the goal of tracking committed monthly recurring revenue is to show what a SaaS company’s revenue stream will be going forward if the business halted its sales and marketing efforts.
It may seem like an overly simple KPI, but cash is one of the most important performance indicators for SaaS businesses. Why? Because the nature of SaaS is that it takes significant working capital and initial resources to come up with a good product, and the repayment on that investment occurs over a long period of time.
5. Customer Acquisition Cost (CAC)
This metric isn’t exclusive to SaaS companies, but it is absolutely critical to monitor. Customer acquisition cost (CAC) measures the cash that a SaaS business burns to acquire new customers, and indicates how long it will take a company to recoup the initial investment used to capture those customers. Consequently, SaaS companies can use this metric to determine whether they can afford to boost sales and marketing spending, or whether they should be cutting back.
6. Customer Lifetime Value (CLTV)
If a SaaS company’s CAC is higher than its average customer lifetime value (CLTV), the business is in trouble. Essentially, that scenario equates to selling a product for less than what it costs to make it — and that’s not exactly the best route to profitability.
Almost every single one of the metrics above are contingent upon the customer? In SaaS companies, the customer is king. The customer is the sole reason the company exists – and will continue existing.
This is where Customer Success Managers comes into the equation (also referred to as a “CSM”). The CSMs’ primary role is to help manage the entire SaaS subscription process for the business from marketing and messaging, to initial sale of the subscription, to renewal (which is key for the SaaS model), to up-selling, to relaying product information for future releases. But more importantly, CSMs play a huge role in helping to expand revenue, drive end user adoption, reduce churn rates and identify advocates for businesses using the SaaS platform – coincidentally, all relating to metrics listed above.
As SaaS platforms continue to grow in popularity, so is the role of a CSM. SaaS expert Jason M. Lemkin, who co-founded EchoSign (later acquired by Adobe), suggests that hiring a CSM as soon as you can is advisable. According to Lemkin, “each sale is worth about 6x the initial ACV over its lifetime.” With this logic, hiring someone to manage this relationship early on is a low-risk way to maximize value over scale.
If you’re new to the SaaS industry or perhaps haven’t implemented a customer success strategy yet, it’s time to start thinking about your most valuable relationships: the relationships with your customers. Building customer relationships early on prevents problems in the customer lifecycle, inevitably decreasing turn-over and turning your customers from businesses that use your product or service to brand advocates. When your customer succeeds, your SaaS company succeeds.
For more information on customer success and best practices, check out these recent ClientSuccess resources:
Customer Success Complimentary eBooks
8 Ways to Ensure Your Startup is Customer Success Focused
3 Steps to Putting Your Customer First This Year
Learn more about how ClientSuccess can help your company develop a strong customer success methodology and strategy with easy-to-use customer success software by requesting a 30-minute demo.