The economic headwinds buffeting the U.S. are already reaping significant damage on SaaS companies around the world. From public stock prices to private valuations, overfunded and overspent SaaS companies are proving to be some of the most vulnerable and hardest-hit by high inflation, rising interest rates, and the market’s collapsing valuations on grow-at-all-cost recurring revenue.
As the era of “cheap money” comes to a close, many SaaS leaders are acting swiftly and decisively as they plan for accompanying declines in new-customer sales. Meanwhile, both public stock investors and their counterparts in private equity and venture capital are losing patience with SaaS firms that continue to lose money and burn through cash at an uncontrollable rate.
The new status quo: durable, efficient growth driven by metrics such as net retention rate (NRR), customer acquisition cost (CAC), and free cash flow (FCF) margins.
As capital infusions become harder to obtain and each existing account grows more precious, SaaS companies are under increasing pressure to not only retain their customers but also generate more top-line revenue through customer expansion rather than new-customer sales. And to do so while spending significantly less.
Beware of the “leaky bucket”
At a time when every customer counts, the last thing you need is a “leaky bucket.” Given the likelihood that your firm will acquire fewer logos in the short term, you need to make every effort possible to deliver the level of value and outcomes that encourages current customers to not only renew their contracts but increase their spend with you.
In the world of B2B SaaS, when the going gets tough (anemic sales), the tough get going by accelerating their adoption of Customer Success (CS). According to a recent survey of leading SaaS investors and CEOs by Gainsight, only 14% of investors and 18% of CEOs were considering cutbacks to CS.
Numbers don’t lie. That’s why more and more SaaS business leaders are doubling down on customer success to drive customer-led growth and increase Net Retention Rate (NRR) by shifting their focus to retaining, upselling, and cross-selling to their existing customers. And, in turn, transforming users and customers into advocates and turning customer success into a key strategy in their efforts to reduce customer acquisition costs (CAC).
Start simple and scale as you grow
Having helped thousands of SaaS companies implement Customer Success strategies and technology over the years, one thing is abundantly clear: simply throwing bodies at the problem doesn’t work. Neither does doing too much, too soon. Customer Success is as much about the “customer” as it is about the “user”—the individual consuming and deriving value from your product or service on a daily basis.
Assembling and operationalizing the right strategy, data, processes, workflows, and communication channels to drive both user and customer success is a marathon, not a sprint.
Here are a few guidelines to help put you and your customers on the right path:
1. Start With the Essentials. Instead of bringing in everydata source to build multiple, complex scorecards andworkflows, focus on the fundamentals. Start by centralizing and building your first customer health score or Customer 360 view from your CRM data, your support or ticketing system, and, most importantly, your product. Then build out the essential workflows, playbooks, and communications based on the new business intelligence you’ve just uncovered. Don’t attempt to fly before you’ve learned to crawl, walk, and run.
2. Customer Success Requires User Success. As a software company, especially one with a product-led growth strategy, your first and most important Customer Success Manager is often the product itself. That’s why your in-product experience and access to product and user telemetry data are absolutely critical to your overall customer success strategy.
Data that every CS department should collect include: how often users are accessing your product and key features; how users are adopting your features that deliver the most value; which features are sticky (and which are not); and how users move through your product from one feature to another.
The collection and analysis of this product and user data is one of the most important activities that CS can perform. But in far too many companies, Customer Success and Product teams are still not well aligned which means that key data is underutilized, and golden opportunities for retention and expansion are missed. In reality, the two teams should be the best of friends.
3. Lean-in to Metrics and Metrics-Driven Leaders. Don’t assume that the best CS leaders can only be found in customer-facing departments such as Sales or Support. Customer success is perhaps the most data and operations-driven department in your business, so do yourself a favor by considering candidates with backgrounds in operations, data science, and product management. But regardless of their background, you can never put too much priority on metrics. It’s imperative to find someone who can not only identify and understand the customer and usage metrics that result in success, but also dive into operational metrics such as capacity planning, margins, and operational efficiency. And who has the confidence and presence to clearly convey the value that your customer success organization is delivering to your customers, executives, board members, and investors.
It’s safe to say that SaaS companies are entering the dawn of a new world where cash flow, margins, and efficiency are top of mind, especially when it comes to raising your next round of funding. But to really increase the odds of a better multiple and higher valuation, perhaps no metric is more important than net retention.
By also reducing CAC and helping you develop a base of customers who are willing to provide invaluable market advocacy and clear and concise feedback for your product roadmap, customer success is the optimal tool for boosting NRR and enhancing efficiency across your organization. And there has never been a more important time for CEOs to adopt a CS program and drive durable growth than the present phase of economic volatility and uncertainty.
So, what are you waiting for?