With acquiring a customer being five times more costly than retaining an existing one, it’s not surprising that customer success management (CSM) has become so ingrained in many SaaS companies. Loosely defined, customer success management involves strategies that ensure your customers are successfully using your product and continue to get the full value they originally expected, if not more.
This now often means taking steps to build and maintain multi-faceted, ongoing relationships with customers. While this kind of ongoing engagement is a very different approach compared to what traditional software firms have done, increasing competition for users has made high user retention essential for SaaS firms to be successful. More successful users are more likely to continue using your software and can provide the added bonus of becoming a brand advocate for you in the future.
Yet, despite the clear advantages of focusing more on customer success, a 2014 report by Totango found that most SaaS merchants still prioritize new customer acquisition over customer retention. But fully integrating customer success management to reduce churn is key in the SaaS space to grow revenue and create loyal brand advocates. This, in turn, leads to increasing customer lifetime value and healthy recurring revenues.
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While subscription business models continue to grow in popularity, one major disadvantage is that it takes a long time to recover costs. With SaaS companies often needing at least 6 to 12 payment terms just to recover customer acquisition costs, it can be especially damaging if users tend to unsubscribe soon after sign up.
Fortunately, this is where customer success management comes in to proactively improve ongoing value for customers and reduce churn. This requires a great deal of commitment and coordination between all of the customer-facing elements of your company from customer support and product development to marketing, sales and finance. Some SaaS companies have even established customer success executive positions to coordinate the priority across the organization and keep it out of departmental silos.
Once customer success is established as a priority, you can begin to figure out and address your main causes for churn. For many newer SaaS companies, one of the biggest challenges is providing the training and follow-ups necessary to effectively activate customers after signup. For more established firms, some have a hard time effectively evolving their service to meet changing customer expectations.
By creating customer processes, programs, best practices, deployment tips and blueprints, customer success managers have been able to reduce churn and even upsell customers.
An excellent example of an effective customer success management program is Gainsight who, in addition to adding a number of new marquee customers, saw a net renewal rate of 134% over 2014 as a result of their strategies. In turn, this led to revenue growth of 357% compared to the year before!
Gainsight did this through collecting and analyzing data to figure out where users were having the most difficulty. They then worked to fix those issues and put in place an ongoing process to pre-emptively avoid issues that may cause customers to unsubscribe in the future. Gainsight demonstrates that a proactive, informed and actionable strategy across your service touch points will lead to more renewals and will provide a better segue for upgrading subscription packages.
An added benefit of customer success management is the opportunity to create brand advocates. If your churn rate is low, this is probably a good indication that your users are happy with your service and may be willing to recommend you to others. This is a potential marketing boon. Marketing-induced customer-to-customer word of mouth referrals generates more than two times the sales of paid advertising. To help things along, make it easy for your users to recommend others with prompts or incentives.
While the adoption of customer success management within SaaS companies may be a relatively new way of thinking about things, its popularity is rapidly increasing as companies begin to realize the benefits. Given that subscription models usually derive only 5-30% of revenue from the initial sales while 70-95% comes from renewals and upsells, it’s clear that merchants need to shift as much, if not more, of their focus from customer acquisition to customer retention. In order for companies to reduce churn, increase profits and create a network of brand advocates, you need a proactive, customer success oriented approach.