SaaS companies – Aim higher than renewals!

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By Adam Hale, ScaleUp Group Member and Chairman of the ScaleUp Institute

This is an extract from the talk to the CEO Forum in February 2021 and the ‘Success Through Customer Success’ Webinar on the 15th of April 2021.

The focus is ever more on Customer Success, but back before cloud, the software industry was littered with software ‘on the shelf’ at customers, either not successfully deployed or even worse not used.

Nowadays ‘renewals’ are often used as the key measure with organisations aiming for 90%+ ‘gross’ renewals- the value of subscription revenue renewed.  In addition, there may be new licenses/upsell meaning that ‘net’ renewals are over 100%.  However, world class customer success means more than that.

This article sets out 12 areas to make your customers active advocates.  

Contents

  1. Renewal is not success; it just means not being replaced
  2. Change your customers’ business for the better
  3. Be proactive & ‘renewal date blind’
  4. Act as a Trusted Advisor
  5. Removing Services may be guaranteeing customer disappointment
  6. Configure, don’t customise
  7. Where is your Consulting Partner’s filing cabinet?
  8. Customer Success is not part of Sales
  9. Your customers are heroes, help them tell their stories
  10. The power of the Community
  11. It’s (always) about People
  12. But you still measure renewal, right?

| Read this piece about a Fund’s perspective on Customer Success


1. Renewal is not success; it just means not being replaced

Customers do not usually want the bother of changing solutions they already have. So that’s what renewal means, your solution is good enough to avoid being thrown out. , that’s all.

The bar should be SO much higher than this. The customer should actually be getting business value, and the SaaS company should be helping them maximise this all the time. For customers this happy renewal should be a no-brainer, the only decisions being for how long and on what terms.

2. Change your customers’ business for the better

SaaS businesses generally go to a lot of trouble in the go-to-market cycle to understand ‘Why’ a customer needs their solution. They have also (hopefully) jointly agreed ‘What’ should be achieved and articulated it in a Business case or equivalent.

But how many of that Why & What is communicated to those responsible for implementation?

Business change is hard and without people & processes changing in parallel, it won’t achieve lasting benefit. QBR focus should be on managing and measuring the change in the customers business, not the suppliers’ SaaS statistics.

3. Be proactive & renewal date blind

SaaS businesses need to be proactive; customers may not contact you with issues until they are really fed up. It’s not good enough to check in with a customer after 6 months or a year, by then the project may have significant issues that are hard or even impossible to fix. There should be a defined cadence to speak to all of your customers regularly at key user and executive level. This should be coordinated by the Customer Success team and include the CEO/Chief Customer Officer and other execs. As CEO I maintained personal relationships with the execs of the top 30 customers, speaking to them regularly and visiting (when visiting was a thing).

A focus on renewal can focus attention and work around the renewal date.

Customers aren’t stupid, they know calls like this are from companies who don’t really care about their success they just want to renew, in many situations customers have already made the choice to change. 

4. Act as a Trusted Advisor

Being a Trusted Advisor to your customer means understanding their objectives and success and delivering against them (I highly recommend reading David Maister’s book if this is an area of interest). Trusted Advisors are partners, not suppliers

Every person in business has personal objectives, good SaaS companies think about how they are helping to achieve their customers’ business & personal objectives. Are they trying to deliver their products/services quicker; are they trying to drive automation, are they working to improve their team? If you can help them, that will help to build a trusted relationship.

5. Removing Services may be guaranteeing customer disappointment

There is a valid debate in SaaS about what Professional Services (PS) a SaaS company should provide, as PS will always have a lower gross margin than subscriptions and is often not recurring. Businesses are often valued on multiples of ARR, so there can be a temptation to remove PS from the business to push up margins and have a higher % of recurring revenue.

However, think about the implications of this from your customer’s perspective. Technology on its own never solves business issues, so they will likely need to change their processes and people too.

Change is hard. A huge number of SaaS solutions do not work out of the box (OOTB). SaaS companies do projects usually more than their customers so can they really do this successfully without any of your people & time? If the answer is ‘no’ then removing services may be guaranteeing customer disappointment- not good.

6. Configure, don’t customise

Sometimes used synonymously but should not be. ‘Configuration’ changes a SaaS solution for a customer so that it is set up to work for them and feel like theirs e.g. user interfaces; workflows for their people/processes/systems and so on. – all by ‘flicking switches’ not changing the core solution. ‘Customisation’ is code change of the core product done by the development/engineering team. PS teams do configuration only and are wholly separate from the dev team. Development work to build configuration libraries & templates should be repeatable and themselves configurable.

7. Where is your Consulting Partner’s filing cabinet?

I started my career in Consulting in the 80s delivering system integration projects. When talking to a Partner about clients and what was happening, they would often look into their filing cabinets, with records of all the customer interactions.

That was then, I’m shocked when some SaaS companies now don’t have that simple client level view instantly accessible. 

It’s not ok to have some info on the CRM, some in various cloud storage, some in different portals. In addition, there should be a leadership/board level view of Red Amber Green (RAG) status of the whole customer base.

8. Customer Success is not part of Sales

Readers of Lobster Tales will know that I use a 5-point framework to help businesses become market leaders: Purpose; Focus; Customer Success; Innovation & Team.

Businesses without great Customer Success will not become enduring market leaders and certainly won’t grow as fast as ones that do have it. The sales function is focused around new ARR from new customers. In that structure, Customer Success does not get the attention or focus it needs.

The most effective organisation structure I have seen in SaaS is to have a Chief Customer Officer reporting to the CEO who takes responsibility for all of the elements that touch customers post-sale: PS, Customer Success, Support and Training. This person is the primary voice of the customer in the business.

I have seen this ‘Customers for Life’ function also have full responsibility for customer renewals too and achieve 99% gross retention, because customers didn’t leave unless they went out of business or were acquired. There may be complex sales expansion opportunities within the customer base, in this situation the CCO team ‘whistles for help’ from sales to lead a campaign to expand to another business unit/geography/function/solution, that’s fine.

9. Your customers are heroes, help them tell their stories

Thank goodness the world has changed; great customer success stories now are videos. Good ones are short, interesting and give an insight into how the company looks and feels different while using the solution.

This is your chance to let your customers tell their stories and about how their lives and businesses are better. They are heroes and heroines and deserve to tell their stories, give them a platform to do that. It’s about them and their success.

10. The power of the Community

All great SaaS firms put a great deal of thought and effort into their community, which is the mechanism by which their customers interact with the business, but also each other.

People in a community tend to have the same job functions depending on the solution: Developer; HR manager; Sales operations; enterprise architect.

I have seen them become friends and trusted industry colleagues from being part of a SaaS community even though they are employed by different businesses. It’s really powerful and useful for your customers if you put this community together online and/or in person.

11. It’s (always) about People

People talk about customer relationships and how important they are. But relationships are with the people at that company. People move between companies, I often hear it talked about as a risk when the executive sponsor leaves. It’s also an opportunity, talk to them about where they are going and whether you can work with them there. 

I know people who have been customers of the same SaaS solution in four different companies, bringing it in wherever they go. 

Key decisions will always be made by people and not by technology.

12. But you still measure renewal, right?

Yes, absolutely. High renewal rates should be a by-product of doing all of the right things above. SaaS companies measure Net renewal rate (NRR) and Gross renewal rate (GRR).

What is a good level for these metrics? In the B2B world with annual (not monthly) subscriptions, 90% is a common target for GRR. At that level it means that every year 10% of your customer subscriptions leave – that’s actually a lot and leaves significant room for overperformance. I have seen companies with targets of 95%, Fairsail achieved 99%, more details here.

In terms of NRR, this should clearly be over 100%, although if a customer signs up across the whole business from day one with all users (common in Financials/People) there is less scope for expansion than say collaboration tools which can expand from business area to business area.

Depending on the commercial terms, there is also sometimes an annual innovation increase built into the subscription price which can tick the NRR up. High performing businesses have NRR of above 110%, I have seen then go above 130%. 

What this means in effect is that companies could remove the entire go to market team and still have a business that grows by 20-30%. Add in a productive go to market team and ‘just’ doubling in a year will be easy!

Easy, isn’t it!!

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