The evolution of the SaaS (Software-as-a-Service) community has redefined the traditional relationship between businesses and their customers. SaaS companies have moved away from a sales-driven model, where value is achieved through customer acquisition. Instead, these businesses are adopting a model where revenue is earned incrementally over a long period of time.
To stay competitive, SaaS companies now look past old measures for success and align their goals with those of their core customer base—adoption, renewal, and ROI.
“Software vendor ROI is achieved by selling more copies to cover your R&D investment, whereas SaaS ROI is achieved by maximizing customer lifetime value through up-selling and retention to cover your customer acquisition cost.”
Joel York, CMO and VP of Direct Sales at Xignite
The days in which consumers were tied to poorly performing vendors by the large capital investments involved in installing on-premise systems are long gone. Now, if customers feel that vendors are not meeting their distinct operational expectations, they can simply choose another company.
This means that organizations must adapt their internal processes in order to provide continuous value to their existing customer base. No longer are customers a passive part of the business, they now play an active role in a truly reciprocal business relationship.
Putting the Focus on Customer Success as a Mechanism for Renewal
Such a seismic shift in the structure of client-business relationships means that a proactive policy of customer renewal is critical to overall company success. SaaS industry numbers showcase this trend perfectly. For example, only after Salesforce retains a customer for five years does it receive $2 for every $1 it spends on customer acquisition. Conversely, if Salesforce retained a customer for one year, it would only receive a fraction of the dollars it spent acquiring the customer.
Math like this shows why the major players in the SaaS industry value customer renewal so highly. Truly, it’s the lifeblood of the industry. That’s why Salesforce.com coined the program—“Customers for Life”. As SaaS vendors evolve, their number one focus after customer acquisition has to be product adoption. This can be accomplished in a number of ways, but primarily through building out a customer success program that’s managed by Customer Success Managers.
This will ensure customers meet their goals and achieve success in their field. Note this is a level above customer satisfaction. Even companies outside the SaaS space are adjusting their marketing budgets around customer retention.
According to spending forecasts from media and advertising experts BIA-Kelsey, SMBs plan to allocate a mere 30% of their budgets towards traditional advertising by 2015. They will spend the remaining 70% on digital online media and customer retention business solutions.
“The traditional product sale is an artefact of the past. Enterprise customers want to consume business improvement—not product features”
Thomas Lah, Author of Bridging the Services Chasm
Customers Taking the Wheel…
Customers have taken a leading role in relationships with vendors. And organizations that don’t make customer success their top priority will waste valuable revenue trying to replace dissatisfied clients.
Today, customer service is customer success. Are your company’s customer service practicess flexible enough to meet your customers’ evolving demands? Your answer to that question could have serious implications… (to be continued in Part II: Strategies for Customer Renewal through Customer Success).