This week we hosted a well-attended webinar on – Customer Success & Finance: Get Aligned! Getting a customer to retention and its financial impact.
The webinar discussed the process and impact of the renewal from both the Customer Success and Finance point of view.
Topics discussed included:
• Processes that can help drive customer retention
• SaaS metrics the CFO and CS leader both need to know
• The total financial impact of customer retention
No worries if you missed the webcast, we’ve got you covered. You can now view the webinar on-demand here.
The audience also engaged in some great Q&A with our speakers. Below is a recap of the webinar Q&A.
Chris Weber, Product Manager, SaaSOptics
You Mon Tsang, CEO & Founder, ChurnZero
Q: What advice or resources would you recommend for a business transitioning from a perpetual product to a SaaS model?
Chris: I have a fair amount of experience and have been through that transformation myself. Hopefully, if you are a perpetual model today you might have a maintenance component of your business. If you have a maintenance component and you’re in a perpetual model currently, you might want to start building around these metrics. Because you can really kind of generate the same metrics for either model leveraging the maintenance component. If not, you are just going to have to slowly transition. It’s really more of an executive team decision to transition. Also, are you going to continue to sell perpetual? If so, you are going to have to do some math there. Because you certainly are going to want to make sure that your subscription product is priced so your customers can adopt to it. The big thing that you probably want to focus on is that recurring revenue stream.
From the Customer Success side, you are really going to have to build a lot of processes around it, because it is no longer a onetime sale. The good thing is you don’t have to reinvent yourself every month, you are going to continue to have revenue coming in from that customer that you sold prior. But you are also going to need to make sure your product is at a point that it will continue to support them, and they will be passionate champions of your product so that they continue their growth.
You Mon: Let me add a few things. It is the move by the way from perpetual products and licenses to the SaaS model that has created Customer Success to begin with. It used to be that you would sell a perpetual license and they paid you all upfront and they maybe pay you another 10-15% every year but since they get it to you all upfront, there was less of an incentive for companies to service them well. It’s like alright – if you don’t use the product, it’s not a huge deal. It’s completely different now. So, if you are moving from a perpetual product to a SaaS model, really dig into Customer Success, because they will now be able to cancel the subscription.
In terms of resources – there’s a couple of folks out there that do a good job on education about SaaS. Do a search for “SaaS metrics” and you’ll get things from SaaStr and Entrepreneur.com and they will go over the metrics very deeply for you
Q: What are some best practices about asking for NPS. In other words, how often and in what context?
You Mon: Yea, I can answer that. Generally, the NPS survey traditionally was done as a blast that was sent out on a certain day. And that’s really a horrible way of doing it. Partially because if you sent it out on a Monday where everyone’s a little crankier or maybe you sent it out after a day when you had bugs in your product – you are just putting too much into one basket. What we tell our clients to do is – you should really focus in on the customer, and once they have been on-boarded and have been using your product for a week, two weeks, whatever length of time it is that you think they will actually have an opinion to share – then you can automatically fire off an NPS survey. Now that’s a tricky part, right. You can get technology to help in saying when a customer crosses this threshold.
In terms of best practices, we have customers doing NPS surveys as often as every 3 months. I think that’s a little bit too often. But 6 months I think is not too much and definitely at least every year. This is such a short survey, it’s not asking a lot of your clients. So, my recommendation is every 6 months and have the first surveys fire when your customer actually has a sense of what your product is supposed to be doing for them.
Q: A follow-up NPS question. Do you recommend surveying in-app or via email?
You Mon: So those of you who have web applications, I think the answer is both. A good NPS technology will make sure that they only collect one of the scores. If you do both – what we’ve seen is that your response rate will go up 15-20%. So, a response rate depends on how you survey, how big your group is and how engaged they are. We’ve seen response rates on the low end at 15% percent and at the high end as much as 60% of customers respond to an NPS survey. So I highly encourage you to do it. Now some people debate the survey, but where else can you ask your clients for 10 seconds of their time to give you feedback in such an easy way.
Q: At what annual churn percentage should you stop and re-think the product fit?
You Mon: This is definitely a it depends answer, and I know that is unsatisfactory. I’ve seen a lot of churn rates in my days. If you sell to small businesses that patronize you monthly – I’ve seen churn over 50% on a monthly basis. And by the way you could survive that if you are actually getting your customers at a very low cost. In trying to understand if you have a good financial model – it really is a combination of your churn rate and then your customer acquisition cost. So, imagine if you could get customers for free, where you don’t spend any money. They come, they sign up for your product, they use it – you can actually withstand a whole lot of churn and still make money. But if you’re spending a lot of money to get a customer, let’s say you spend $1,000 to get a customer that’s paying you $100 a month, that means it will take you 10 months just to get to profitability from that customer. And if they are churning within the first 6 months, then that’s not going to work. You do not have a business there. But just in general, on the SMB side I see churn rates anywhere from 20% annually to 35-40% annually and they can still be a healthy business. If you’re an enterprise sale, where you’re spending a lot of money, paying expensive sales reps, taking your prospects out to dinners, doing lots of events, you probably need 90%+ retention and you probably need net negative revenue retention. Which means that you are really selling more to each customer. So, it really does run the gamete. There’s no set answer, but certainly the more you spend to get a customer, the higher your retention will need to be.
Q: What do you do if CS and finance come to the table and have different numbers? How would you go about reconciling?
Chris: As far as the different numbers, I think it’s really important that everyone’s speaking from the same source of truth. So, it will be really critical to get on the same page as far as where those numbers are coming from. From my experience, Finance is really good at making sure everything balances out. So, where I’ve seen a good number come from us typically Finance, but I’m going to caveat that and say- what’s really important is combining both sets of data. So, understanding what’s driving that churn. The original source needs to be the same data set so the calculations are the same, because you can’t be operating under incorrect data. So, you want to get together, have a meeting and make sure you reconcile that.
You Mon: Yea and I’ll add something to that for the CS folks. So, if CS comes with a let’s just say one retention rate and argues for that and Finance comes in with another – I will say historically because Finance keeps the books, a typical CEO or board will favor the Finance team. So, on the CS side if you do believe that the number is wrong you will have a higher burden to prove than Finance. So, be ready for that.
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Customer Success Around the Web
- What is Customer Lifetime Value? – Learn how to calculate CLV in your SaaS business.
- The Ultimate Guide to Customer Loyalty– Learn how to turn satisfied customers into your biggest advocates.
- 6 Surefire Strategies to Increase Customer Retention – Boost SaaS business growth with these simple strategies.