What You Didn’t Know About Customer Success In SaaS
There isn’t a SaaS startup CEO worth his or her salt who hasn’t been recently lectured on customer success: how best to measure it, how much to spend on it and how lack of it can be dismal for the revenue curve (and valuations).
There are indeed some good metrics out there worth considering. SaaStr’s Jason Lemkin has written extensively on the right time to hire a success team. Industry CAC statistics from the annual Pacific Crest SaaS surveys have shed interesting light on the relative profitability of growing revenue from existing versus new customers.
Among the new breed of customer success management vendors, Totango has published its own customer retention cost metric, and Gainsight has been vocal on the optimal customer success metrics SaaS winners should be tracking. Sapphire Ventures’ own Rajeev Dham recently wrote on the tangible value of the “CLTV to CAC Ratio” in determining profitability — an implicit reminder that the bottom line shouldn’t be forgotten in the midst of the customer success euphoria pervading the industry right now.
But how does a fast-growing SaaS company execute, to land on the right side of those metrics? That was the subject of Sapphire’s first-ever Customer Success Summit on October 6, a gathering of CEOs and customer success leaders from Sapphire’s portfolio; executives from tech titans such as Concur, SAP and Oracle; and IT buyers from Pandora to the San Francisco Giants.
Below are the seven most revealing lessons that emerged from this gathering — practitioner insights that debunk industry myths and mantras and guide SaaS CEOs towards lesser-known tactics on the road to a hyper-successful customer base.
- Industry mantra: The faster you implement a customer, the higher their satisfaction.
- In practice: Don’t over-optimize for speed. Sure, three-week implementations for global SaaS rollouts are impressive and look good in marketing case studies. But sometimes speed can backfire. Concur President and keynote speaker Elena Donio described a time when implementation teams were measured purely on three things: time to deploy, time to first transaction and time to close a case. Teams obsessed about onboarding velocity KPIs until this fatigued customers who felt rushed to the finish line. Concur responded by incenting one team to implement (the speed indicator) and another to get to the first 1,000 transactions (the success indicator). Optimal velocity will vary by customer: motivate your teams to know it, and deliver accordingly.
- Industry Mantra: The ideal measure of customer health will include some mix of NPS, upsell, customer sat and retention metrics.
- In practice: Measure success in the language of your customer. Go a few extra miles beyond the usual metrics. Delivering specific dollar savings per transaction is a company-wide customer metric each DocuSign employee signs up for, according to head of enterprise sales Chris McLain. Anita Absey, SVP of customer relations at email marketing vendor Return Path, described a client for whom all the standard “health” metrics were shining; except this customer wasn’t selling more of a certain product line, the original intent of the purchase. The success team proactively moved to turn those results around. While this may be more feasible for larger accounts than for the “long tail”, showing customers you care equally about their outcomes wherever possible will set you apart.
- Industry Mantra: Hit a certain ARR threshold ($2M is a popular benchmark) before you hire customer success.
- In practice: There are CEOs, such as Patrick Quinlan of Convercent, who staunchly believe that if customer success isn’t within your first four or five executive hires as a SaaS startup, you’re going to regret it. Kevin Akeroyd of Oracle Marketing Cloud agreed, chiming in that those first referenceable logos could transform your path, and pay for themselves many times over. The takeaway here is to avoid being too beholden to industry benchmarks: if you see an exceptional opportunity to seed your market with major lighthouse customers, don’t be afraid to hire customer success earlier on.
- Industry mantra: The most critical operational relationship for acing customer metrics is the one between customer success and sales.
- In practice: Don’t overlook the pivotal relationship between product and sales. While the sales and customer success relationship is well analyzed, several executives at our Summit highlighted the under-valued, but critical, relationship with product. According to Donio, this is easily the most important peer relationship for Concur’s success teams. Measuring customer success and helpdesk calls down to individual product features is a sacred practice at Concur, and one of several ways to establish a close feedback loop between those functions. As SaaS startups pursue “land and expand” ambitions, this relationship is a necessary ingredient for upsell and engagement.
- Industry mantra: Strong enterprise SaaS account management entails meeting with your customers as frequently as possible.
- In practice: Know your customer’s engagement style; sometimes less is more. One of the most revealing panels at our Summit didn’t have a single SaaS guru on it: in a discussion titled “In the Customer’s Shoes: Defining Customer Success”, we assembled actual SaaS buyers — the CIO of the San Francisco Giants, a seasoned IT procurement leader and a business leader from Pandora. They concurred that not every customer loves inbound vendor outreach. Bill Schlough of the SF Giants knows fellow enterprise CIOs who love hearing from their vendors and others who dread that recurring invitation to lunch. On the flipside, Concur’s Donio said that it is critical to follow up religiously with SMB customers to ensure renewal, where term lengths often don’t exceed 90 days. So, leverage what you know about your customers, and set an “affirmative” engagement plan with them.
- Industry Mantra: The place of customer success in the organization directly impacts customer success outcomes.
- In practice: Taken a step further, reporting lines impact not only outcomes but customer perception of your company’s values. A customer success leader that reports to the CEO, on par with the CRO, signals to end customers that the success team isn’t an upsell machine in disguise, but a resource optimized around them. Sapphire’s own survey of Summit attendees showed that of over 60 percent had customer success leaders reporting directly to the CEO. We see this trend increasingly in our conversations with SaaS CEOs. Of course, it’s important to build strong alignment between revenue and success owners, to ensure the customer-orientation is generating top-line results. Whatever your individual reporting structure, be mindful of what your reporting line tells the world about your priorities.
- Industry Mantra: SaaS enterprise relationships are at higher churn risk and less sticky than on-premise deployments.
- In practice: Counter-intuitively, SaaS solutions can drive more stickiness because so much of the customer’s data is housed within the vendor’s cloud. Our customer panelists talked about how the average SaaS buyer wouldn’t know how to get their data back after termination of major contracts. That is always a reason in favor of sticking with an existing SaaS vendor. While we don’t recommend complacency, SaaS vendors should take heart that the cloud model gives them a great foundation. For Dave Smith, VP of monetization at Pandora, the stickiest SaaS relationships are those where vendors take his data and show him things he didn’t know about his business. Educate your success reps to tease out insights from customer data where possible, and move up the pecking order of relationships.
Companies acing retention and upsell are clearly positioned to climb the SaaS food chain. So naturally, customer success leaders are poised to be critical contributors to hyper-growth. But they’re also on the cusp of becoming something more — strategic leaders who can influence company direction and see important moments in a market’s evolution.
Among Concur’s most transformational pivots was its decision to begin selling its software via subscription at a time when client-server/on-premise was still the norm. But as company veteran Donio recalled, they weren’t necessarily visionaries who saw the SaaS train coming. The company’s leadership simply spent a lot of time listening to customers who were saying they didn’t like the upfront pricing model, wanted little capex and even wanted leasing options. Five years later, as the SaaS industry exploded, Concur was beautifully positioned to ride that wave, with a vast majority of its customers consuming via a subscription model.
Elevating customer success promises to deliver more than exceptional customer metrics. It can give you a leg up in detecting transformative market shifts and opportunities before your competitors do.
The information set forth herein is not intended to constitute investment advice and under no circumstances should any information provided herein be used or considered as an offer to sell or a solicitation of an offer to buy an interest in any investment fund managed by Sapphire Ventures. Sapphire Ventures does not solicit or make its services available to the public and none of the funds are currently open to new investors. Past performance is not indicative of future performance.
The portfolio companies referred to above do not necessarily represent all of the investments made or recommended by Sapphire Ventures, and were not selected based on the return on Sapphire Ventures’ investment in them. It should not be assumed that the specific investments identified and discussed herein were or will be profitable. Not all investments made by Sapphire Ventures will be profitable or will equal the performance of the companies identified above.