Software as a Service (SaaS), also called web-based software, is a manner of providing software over the internet or cloud. Due to the software being delivered online, SaaS eliminates the necessity of complex hardware and software compatibility issues or the inconveniences associated with using CDs to install software. Also, since the software is ready-to-use, it saves much time and effort for the customer. Hence, it would not be incorrect to say that SaaS is a natural progression and evolution of software. SaaS has gained immense prominence in recent times with organizations such as Salesforce, Dropbox, SurveyMonkey, HubSpot, MailChimp, and WordPress leading the pack.
From a user perspective, the SaaS model is easy to use – all that is required is a web browser. However, for the business to become successful, SaaS requires its customers to be happy and successful. This is why customer success is imperative for a SaaS business.
What is customer success?
Customer success is a fledgeling business function though it is now seen as a mandatory one in most SaaS businesses. It is a term used to describe the art of customer relationship management post a sale. As the name itself suggests, the customer success function intends to make a customer as successful as possible, resulting in increased returns for both, the customer and the organization. Simply put, customer success guarantees that a customer gains what he expects from the software.
It is easy to confuse customer success with customer service. However, the two terms are widely different. Customer success is a proactive function that works with the customer at all times to ensure that the customer is successful. It is an all-encompassing term that includes customer service.
What are the roles of a customer success function?
The roles and responsibilities of a Customer Success team include but are not limited to the following:
- Converting potential clients that come by means of trial requests and demos to customers
- Making potential clients see value in the product and increasing the trial request to paying customer ratio
- Ensuring an effortless onboarding process
- Closing the gap between expectation of the customer and reality by providing what the customer signed up for
- Taking consistent feedback from customers to improve the value proposition of a software
- Understanding and resolving technical issues to add valuable and actionable insights into the product roadmap
- Keeping customers close and building robust relationships to reduce churn and increase customer lifetime value
- Upselling and cross-selling to existing customers
- Measuring customer success and happiness regularly
- Creating and maintaining a convenient billing process
Why is customer success important for a SaaS business?
Let me start with a quote from Marc Benioff – the founder of one of the most successful SaaS businesses – Salesforce:
Once you know what you want and what is important for you to achieve, also define the values associated with it. What is important? That is something a lot of entrepreneurs pass by too quickly. For us, the things that were important were, number one, customer success. Nothing is more important to us than making sure every customer is successful in our service.
This sums up the importance of the customer success function. It is, probably, the only way to achieving sustainable growth.
Below are a few pointers that reinforce the importance of customer success for a SaaS business:
The subscription model reduces barriers to churn
The basic model that SaaS companies follow is that of subscription, which is in contrast to the traditional software businesses that follow a one-time upfront payment model. Hence, to generate a consistent revenue stream, it is important for a SaaS business to ensure that its customers are happy. The barriers to churn in SaaS are very low; hence, an uneasy and strained relationship with a client can result in customer churn.
Further, because the model is one of subscription, customers can periodically review and evaluate their choice. If they believe that the service is not adding value, they have the option of deflecting.
The above chart clearly elucidates the deleterious impact that customer churn can have on the revenue of a SaaS business. While only a 2% churn causes revenues to increase only by 25%, a negative 2% churn causes a 100% growth in revenue. In such a scenario, the customer success team ensures that the customers never even reach the point of wanting to deflect.
A significant part of the revenue is generated from existing clients
A considerable portion of a SaaS company’s revenue comes from upselling and cross-selling to existing customers and recurring billing through renewals. Therefore, a SaaS company can be successful only if its customers continue to do business with it.
The cost of acquisition of customers might not be recovered fast
For a SaaS business, the cost of acquisition of a customer might take longer to recover because the upfront cost that the customer has to pay is minimal. It would be difficult for the sales and marketing costs to be recovered in the initial year. Rather, such costs are covered during the lifetime of the customer, making it crucial for such businesses to maintain harmonious relationships with their clients. Hence, the customer success team can have a positive impact on the revenue of a company by increasing the Customer Lifetime Value (CLV).
Success does not come with a great software alone
The success of a SaaS business depends on multiple factors. A great product or software is necessary but not sufficient for the business to flourish. The entire experience matters! For instance, even if a product is fantastic, users need to be onboarded seamlessly and effortlessly into the system. This will result in an increase in the number of paid users, increasing the overall revenue of the business. Similarly, the billing process must be smooth. A customer sucess team manages all these processes effectively and ensures that the experience beyond the software is also frictionless.
Building relationships is the way to grow
Marc Benioff, the founder of Salesforce.com, one of the most prominent SaaS companies said, “You must always be able to predict what’s next and then have the flexibility to evolve.” And how does a business ensure that it is proactive about customer wants and needs? Only when it is listening to the voice of the customer closely. This mandates taking continual and consistent feedback from customers on all aspects of their experience. Customer success is, again, responsible for keeping in touch with the customers and collecting structured as well as unstructured feedback. This feedback helps to improve the experience beyond just the software.
Add insights into the product roadmap
I believe the one amazing reason for having a customer success team is that the feedback it collects from the clients gives important perspectives on your product roadmap. Many times, it might happen that you want some features to be incorporated into the product. But, the feedback that you get might point to the opposite. In an earlier blog, Vivek, the founder of Omoto conveys how customer feedback added some valuable inputs into the product. This could not have been possible if it were not for the feedback.
How to make customer success work effectively?
Ensure a firm handshake between sales and customer success
The sales and the customer success team must be working in tandem to ensure that the customer is successful. Often times, due to the lack of communication between internal teams, the customers’ experience is impacted negatively. However, cogent communication between the two teams can eliminate such issues. For customer success to be effective, cross-functional alignment is important.
For instance, once the sales process is complete, the team must handover the client to the customer success team, which can ensure that the onboarding process is effortless. It is really the elimination of the small hiccups that contribute towards the success of the customers!
Keep the customer informed and aware of the customer success process
Apart from the internal teams being aligned, it is crucial for the customer to be aligned with the customer success process. Clients must understand the process that you follow to help them become successful. They must be aware of whom, when, and how to approach you for any assistance. You might want to give out some user-help manuals to aid you in this process.
For instance, a simple policy on notifying customers of a downtime a day in advance can go a long way in setting the expectations of the customers right.
Empower employees to delight customers
In a SaaS business, not all employees might face the customer directly. However, irrespective of the likelihood of their interactions with customers, they must feel empowered to delight them. For instance, if a member of the tech team believes that a particular feature is going to add value to customers, he must feel empowered to express his opinion and build that feature.
Similarly, the customer success team must know that within a predefined budget, it has the freedom to make decisions that would delight the customers. In one of our older posts, we have discussed how Ritz-Carlton is an epitome of success because it gives its employees the freedom to make decisions. It empowers its employees to do anything to ensure that the brand is sacrosanct.
Use customer success tools
At the end of the day, one must remember that customer success optimization is the way forward. In the market today, there are multiple tools that could help make customer success a success. For instance, Intercom is a messaging platform specially designed for internet businesses. Another great tool is Totango, a platform that leverages customer data to gain actionable insights to deliver business results.
How to understand if customer success is working?
Measuring is done by monitoring. SaaS businesses can measure if customer success is working by measuring the following parameters.
Free to paying customers ratio
If a customer has obtained a paid service after using the software as a trial for free, he has clearly found it valuable and his experience has been positive.
Customer Churn Rate
One of the most prominent metrics for measuring both, customer success and the financial health of a SaaS business, is the customer churn rate. Simply defined, the customer churn rate for a particular period can be calculated as the number of customers who cancel their subscriptions to the total number of customers in that time period.
Monthly Recurring Revenue (MRR)
MRR is a measure of the predictable revenue stream of any SaaS business. As the name suggests, it is the monthly recurring revenue that the business and can be calculated as the sum of the monthly subscription fee that is paid by all the customers. It excludes the one-time fee such as the set-up fee.
Customer Effort Score (CES)
This is a metric that measures the effort taken by the customer in doing business. More effort is less ease of doing business, resulting in less loyalty and consequently, less retention and more churn. Apart from speaking volumes about the software, CES in SaaS can also give insights into whether the customers are successfully able to attain what they were promised.
According to Jason Lemkin, Co-Founder and CEO of EchoSign
Customer success is where 90% of the revenue is.
The success of a SaaS business predominantly lies in making its customers successful. In the times to come, this business function is going to become more important than ever.