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Achieving SaaS Customer Alignment | Ebook

When your SaaS business is well aligned, your SaaS customers consistently take positive actions that lead to positive business outcomes: they try, they buy, they upgrade and they refer you to a friend. When you are poorly aligned, your SaaS customers consistently take negative actions that lead to negative business outcomes: they bounce, they negotiate, they complain, and they churn.

SaaS businesses develop intimate, long term relationships with their customers. Like many long term relationships, it is founded on a recurring cycle of needs fulfilled and expectations met, or not. And I don’t just mean customer needs and expectations. There are two sides to every relationship. SaaS businesses need to make money as much as SaaS customers need to spend it. SaaS customer alignment means aligning the goals and actions of the SaaS customer with the goals and actions of the SaaS business at every stage of the SaaS customer lifecycle.

saas marketing strategy

Click the image or link to download the complete SaaS Marketing Strategy – Achieving SaaS Customer Alignment eBook

A compilation of recent popular articles at Chaotic Flow, this detailed eBook outlines the important SaaS marketing concept of SaaS customer alignment. It examines the challenges of maintaining SaaS customer alignment throughout the SaaS customer lifecycle. Along the way it provides 16 tips for achieving SaaS customer alignment in customer acquisition, customer success and early product-market fit.

Enjoy. And if you like it, please share it!



Making Markodojo | Untold SaaS Product Secrets

saas product secretsToday, I’m excited to announce the launch of Markodojo, my agile marketing management SaaS startup and an entirely new breed of enterprise marketing software. You say: “That’s great Joel, but what’s in it for me?” Well, if you are a marketing manager, please skip to the shameless plug below, then head straight to the Markodojo website and sign up for a 30-day free trial. If you are a SaaS founder or a SaaS startup executive, then stick around for the entire blog post, because I’m going to share some closely held, untold secrets of SaaS product design.

First the plug.

Markodojo Marketing Management is Here!

marketing management softwareIf you are a marketer, then you must check out Markodojo. I guarantee you have not seen any other marketing management software like it. If you are not a marketer, then please do me the small favor of passing this along to everyone you know who works in marketing.

Tweet it!

Markodojo marketing management software combines agile principles with the best of CRM, project management, and innovative Internet collaboration to give marketing teams what they have been sorely lacking, a true enterprise app for marketing.

In classic Chaotic Flow style, there is a free 30 day trial and you can buy Markodojo by credit card right inside the app. Check it out!

End of plug.

With that out of the way, I thought I’d use this auspicious occasion to share a little of my own experience over the past year as the Markodojo chief product designer in the hopes that it will prove useful to other SaaS founders and SaaS product executives. You might also want to check out this previous post: Eleven Secrets off SaaS Product Design, because this current post builds on the ideas presented in them with real-world Markodojo examples.

Two Clear Paths to Great SaaS Products

I talked to a lot of entrepreneur friends before starting Markodojo: founders and early employees of companies like Zendesk, Marketo, Salesforce, etc., in whose footsteps I would like Markodojo to follow. In the course of those conversations, two clear paths emerged for creating great SaaS products.

Path #1: Do What You Love…and Hate
This path to great SaaS products was followed by founders who had spent their career in a particular industry sector. Based on their own frustrations with the tools at hand, they struck out to solve the problems they knew all too well.

Path #2: Talk to a 100 Potential Customers
This path was followed by founders who were looking for that great next opportunity wherever it may be. When they found it, that opportunity led them into unknown territory, so they needed significant validation outside their own area of expertise.

The paths that led to lackluster SaaS products all had one thing in common: dabbling with the customer. These paths were followed by founders who cared more about making money, than meeting the needs of their customers. You just can’t fake SaaS customer affinity. You must know your SaaS customers, know their needs, and care about solving their problems. Anything short of this will show in your SaaS product. Markodojo has followed path #1.

A CMO’s Tale: The Thin Line Between Love and Hate

love hateI’ve spent the bulk of my career in B2B software and enjoyed ten years of it in the CMO spot. However, I have always been confounded, frustrated, and indeed embarrassed, by the fact that there is no decent enterprise software for managing marketing. While sales, engineering, manufacturing, finance, support and even customer success have identifiable systems of record, most marketing departments are still managed by spreadsheets. As a result, marketing is messy, misunderstood and always reinventing the wheel.

It is doubly strange that the modern marketing department often has the largest technology budget. What isn’t obvious is that all that money is spent on “individual contributor tools.” Every person in marketing drives a tool: designers have design software, online marketing managers have marketing automation, PR managers have PR databases, and so on. Yet any CMO will tell you that marketing is a team sport. Just think of the number of people that might touch a simple email before it is sent to a customer: a product manager, a copywriter, a designer, a web developer and an online marketing manager would not be unusual. In fact, most of the money spent in marketing is spent on people. It is sad that so little attention is paid to managing that investment.

marketing investment

In the course of my career, I’ve tried every available tool for managing marketing: spreadsheets, project management, enterprise collaboration, and even simple white boards—they’re all weak, they don’t scale, and I hate them all. Marketing management is a difficult beast to tame. Marketing projects come in a staggering range of size and complexity from tweets to trade shows. Each marketing role is unique, yet they must all work together to produce quality results. Moreover, marketing requires ongoing collaboration with a wide array of contributors outside the marketing department, including customers, sales, engineering, vendors, industry influencers, executive teams, and so on. And today more than ever, marketing is expected to produce results. These are not the kinds of customer problems you can solve by dabbling.

SaaS Product Design Secrets Courtesy of Markodojo

Why do I believe Markodojo can tame the enterprise marketing management beast? Unfortunately, there is no simple answer to this question. If it were simple, it would have been done already. If I try to condense it, I’d say it is because the Markodojo product design reflects a true sympathy for the marketing customer, while applying healthy doses of SaaS and agile innovation. And, if Markodojo doesn’t deliver, I’ll have to eat my blog!

saas product design challenge

In the interest of not doing so, the rest of this post builds upon one of my most popular articles, Eleven Secrets of SaaS Product Design with 6 untold insider secrets of SaaS product design, bringing the total to 17. While it’s easy to find marketing copy describing any SaaS product, it’s not so easy to find a discussion of the design thinking behind a SaaS product—founders just don’t share this sensitive information. The difference between these 6 untold secrets and the previously published 11 plain vanilla secrets is that I’m going to tie them to real-world Markodojo design choices from a founder’s point-of-view. Enjoy!

Markodojo Agile Project Management

SaaS Product Design Secret #12 | Innovate with Purpose

saas product innovationThere is no room for extraneous bells and whistles in SaaS. Features that are not useful just get in the way and innovative features require customer education. On the other hand, it ain’t 2005, so you can’t just deliver a commodity SaaS product and bank on lower TCO to drive adoption. You must innovate. They key is to innovate with the purpose of addressing specific, important customer needs.

The Markodojo approach to agile project management is unique, but it isn’t arbitrary. It is designed with two complementary goals:

  • Provide a simple way to manage the incredible range of marketing projects.
  • Enable a minimalist path to agile marketing best practices.

Specifically, Markodojo projects form a hierarchy that starts at the top with major marketing functions, campaigns and product launches, and flows down project by project to the smallest tasks. Every project has a place in the hierarchy, and the depth of the hierarchy has no limit. While I am hard pressed to say this is innovative in the iPhone sense of the word; it is innovative in that generic project management tools don’t use this approach. As a result, they do not scale for marketing.

saas product learning curve

The Markodojo project hierarchy allows projects to contain anything from a simple task list for a weekly blog calendar to complete project plans for trade shows and product launches, and indeed entire departmental plans that mirror the marketing organization. At the same time, it enables the agile best practice of incremental work by making it dead simple to break big things into little things by expanding any project into subprojects. It also provides the extra benefit of complete visibility to everything going on in marketing, a veritable CMO Holy Grail.

Generic project management tools do not solve these problems. They follow a well-worn and rather technical model of project tasks lists with perhaps some modest grouping of projects into ‘folders’ ala desktop software file systems. They simply do not scale. The Markodojo project hierarchy is purposeful innovation directed at the specific marketing needs for agility, scalability and visibility.

Markodojo Sharing

SaaS Product Design Secret #13 | Do Something Incredible

saas product innovationInnovation with purpose is great; sexy innovation with purpose is better. Markodojo online marketing collaboration is sexy. Marketers must work with a broad array of people outside of marketing to do their jobs, including engineering, sales, customers, executives, journalists, industry pundits, vendors, and so on. But, most marketing collaboration is still done by email. The area of marketing collaboration was so green field that we just went to town in Markodojo.

Virtually every significant item in Markodojo is “sharable” in the same way you might share an online meeting or put a widget on a website. You can share a project with a vendor to collaborate online. You can share a graph of marketing results with your CEO. You can share a calendar of marketing plans with your sales team. You can share a project request form with sales to foster internal collaboration. You can share a 5 star rating widget on your blog, so customers can rate your content. And by sharing, I don’t just mean showing. Pages and widgets shared outside the Markodojo app are as interactive and secure as they are inside the Markodojo app. The sharer controls what can be read, edited, uploaded, deleted and so forth. If you have the opportunity to do something incredible with your SaaS product, then do it!

Markodojo Project Sheet and Online Tour

SaaS Product Design Secret #14: Build a Bridge for Beginners

bridge for beginnersThere is a lot of innovative stuff in Markodojo. Unfortunately, every innovation increases the learning curve for new users. SaaS Product Design Secret #4: Design for Discovery encourages you to make your SaaS product self-learning, such that it adapts to the interest and expertise of users over time, but it doesn’t give much guidance on how to do this. There are some generic things you can do, for example Markodojo has a online tour available throughout the app. With the tour turned on, you can browse through Markodojo and the tour will tell you about everything you see and how to use it.

However, the more critical bridges for beginners often require an intimate understanding of the context of your customer in the first time use of your SaaS application. For example, I mentioned earlier that most marketing departments are still managed by spreadsheets. If you open up the Markodojo agile project management module, the first thing you will see is a ‘project sheet’ that looks an awfully lot like a spreadsheet. This is by design. The Markodojo project sheet is most certainly NOT a spreadsheet, but it looks and feels like one on the surface to make easy for the beginner. Once you start using it, the underlying innovations surface naturally with a minimum of education.

Markodojo Project Customization and Unlimited Custom Fields

SaaS Product Design Secret #15: Architect Broadly, Implement Narrowly

saas product architecturePerhaps the most difficult challenge of SaaS product design is the requirement to balance the need for simplicity, particularly for the first-time user, against the need to address complex business problems in all their variations. In plain English, first time users want one thing to work really fast, really well, while advanced users want to tailor your solution in very specific ways to automate their very specific business processes.

The ability to bridge this gap defines the most scalable SaaS products. Most project management tools used by marketers today do not bridge this gap. They do not scale beyond the simplest use cases. Many enterprise SaaS products do not bridge this gap. They can only be sold to the largest customers. Products like Salesforce and Zendesk bridge this gap with finesse. As a result, their potential markets run from small groups to large organizations and from simple use cases to complex business processes.

Here is the dope: architect broadly, implement narrowly. Do not sacrifice architecture in your agile go-to-market frenzy, or you will permanently lock yourself into a limited customer segment. Build a strong foundation for configuration, customization and extensibility, but only implement and expose the most important use cases in your minimum viable product. That’s a lot to take in, so here is a Markodojo example.

saas product architecture

Out of the box Markodojo functionality is limited to common customer needs and best practices. All significant items in Markodojo: projects, people, surveys, etc. come with a very short list of standard fields. For example, a person has a name, title, email, phone number, a website address and not much more. This follows the minimalist SaaS product design theory of adding the fewest features required to satisfy uniform customer requirements.

At the same time, all significant items in Markodojo can be customized with an unlimited number of custom fields. This allows the advanced customer to do things like create separate profiles for bloggers and vendors, or to track items that are unique by the type of project, such as story points for product management and leads for online marketing.

The difference is that the standard, out-of-the-box capabilities derive from a clear understanding of common customer needs, whereas the custom capabilities derive from a solid architectural foundation that enables mass customization. Architecture cannot be bolted on one use case at a time. On the contrary, good architecture simplifies the design and implementation of any given feature, because it tells you how to do it.

Markodojo Themes and Backgrounds

SaaS Product Design Secret #16 | Make It Fun

saas product funIt’s very easy in B2B software to get so lost in business processes, customer pains, efficiency and usability that you forget that your ‘users’ are actually human beings. Don’t just design your SaaS products to be efficient, make them pretty to look at and fun to use. Do something for the personal satisfaction of your customers, not just their business satisfaction.

Making your SaaS product fun will not close a sale, but it will build brand loyalty. And frankly, it’s not that much extra work. You can decide for yourself whether Markodojo appeals to you own sense of fun, but there is no denying that we made the effort. Markodojo users can upload profile pictures and project mascots, they can choose their favorite color scheme, and they can spice things up with background images. I’m not saying these things are in any way cutting-edge, they’re not even table stakes in consumer software. But, they are often overlooked in business software. Your SaaS customers can spend an unusually large amount of time inside your Sass product; don’t let them get bored.

Markodojo Web Client and APIs

SaaS Product Design Secret #17 | Make It Fast

saas product fastThere are few things more annoying to a user than waiting on your SaaS product. In an ideal world, the software is always faster than the user, not the other way around. Unfortunately, this almost universal SaaS product requirement rarely appears on a SaaS product development backlog, until it is too late. Like mass customization, speed is fundamentally an architectural problem. For a SaaS product to be fast, it must be designed to be fast from the beginning. Trying to speed up a slow SaaS product always entails architectural changes that are expensive and time consuming, whereas designing speed in from the beginning is virtually free.

First, if you are still using a server-centric approach like PHP, stop. Push your client to the client. Today’s computers, tablets and smart phones have more processing capacity than ever. Don’t do on the server, what you can do on the client, because there are a lot more clients than servers. Second, wait time is mostly network delay. Speed up your APIs and slim down the data you send over them. Most importantly, think about speed from day one. You can relax though; I’m not going to go into the architectural choices that make Markodojo fast. In fact, you couldn’t pay me to do it—gotta keep something secret. But, you can try Markodojo marketing management software and see for yourself.

The Missed Opportunity of Agile SaaS

I’ve been thinking a lot about how my SaaS experiences have shaped my thinking on agile management, and visa versa. SaaS and agile present complementary aspects that enable a uniquely symbiotic relationship. Agile aims to help businesses increase responsiveness to customer needs, while laying a foundation for continuous improvement. SaaS opens up real-time customer communication and product delivery channels, while simultaneously establishing a long term customer relationship. The high velocity at which SaaS customer value can be understood and then delivered through the SaaS product enables faster, more accurate fulfillment of SaaS customer needs to reduce SaaS churn and drive SaaS growth. IMHO, adopting and mastering agile software development, agile marketing and pretty much agile everything should be a priority of every SaaS business.

A Little Agile History

The roots of agile software development and agile marketing lie in agile manufacturing, lean manufacturing and total quality methodologies. The original total quality goals were very simple: increase quality and improve productivity. Two goals that were seen as opposite were made to be one. As global manufacturers mastered total quality, they upped their game and looked to increase responsiveness to customer needs, while maintaining productivity. Again, two goals that were seen as opposite were made to be one. This is the origin of agile.

agile saas customer feedback

Agile software development and agile marketing have followed similar, but unique paths. Buggy software, product delays and death marches were the norm in the 90s. A groundswell formed around the idea of taking the agile principles that had been so successful in manufacturing and applying them to software. Could we turn a death march that produces bugs into an efficient production line that produces quality software? In 2001, this culminated in the publishing of the Agile Software Manifesto. Since then, agile software development has become the industry standard.

Today, we are seeing a similar groundswell around agile marketing. The emergence of modern marketing as an essential revenue driver has led to high pressure performance, inflicting many marketing organizations with the same ills that plagued their pre-agile software engineering peers: too much work, too little time, and too little understanding in the rest of the organization of the work required to produce quality results.

The Forgotten Agile Customer

agile saas customerAs agile evolves and adoption expands throughout the SaaS sector, one thing concerns me greatly. What happened to the customer? The very first line of the principles behind the Agile Software Manifesto begins: “Our highest priority is to satisfy the customer…”, but all I ever hear is SCRUM, collaboration, backlogs, sprints, and story points. The voice of the customer has somehow been lost. On most agile development teams, a single ‘product owner’ represents the voice of the customer and must compete with CEOs, VPs and VCs to be heard.

agile marketing scrum

There are three ideas at the center of any agile methodology.

  1. Customer-driven products and services enabled by real-time customer data
  2. Increased productivity from higher quality and reduced waste
  3. Iterative, continuous improvement over the long run

It is #1 that defines agile; #2 & #3 are borrowed from earlier methodologies. The overarching idea is that productivity and quality are table stakes, whereas real-time customer responsiveness creates sustainable competitive advantage in a fast-moving market. There are few markets moving faster than SaaS, but we are missing the agile SaaS opportunity. Agile is not SCRUM. Agile is not sprints. These are just means to the end. Agile SaaS aims to accelerate SaaS business growth increasing the velocity of value delivered to your SaaS customers.

Agile SaaS and the Velocity of Customer Value

We use the word ‘value’ alot in SaaS: lifetime customer value, average subscription value, total contract value, SaaS company value, and so on. However, we rarely use it in the agile sense of the word: customer value. Not the value of a SaaS customer to the SaaS business. Not the value of a SaaS business to its investors. The value a SaaS business delivers as judged by its SaaS customers.

agile saas opportunity

Agile SaaS creates a continuous loop of customer feedback and product delivery:
listen, build, deliver…listen, build, deliver…etc., that responds rapidly
to SaaS customer needs, increases competitiveness and drives SaaS growth.

When we choose a feature off the backlog, publish a blog post or handle a support ticket, the opinion that counts in agile is the customer’s. Your SaaS customer must say it, read it, write it, click it, rate it, review it, share it, try it, buy it or recommend it to provide a measure of your work. It is a core competency of any agile SaaS business to collect, analyze, disseminate and act upon feedback from its customers. If your SaaS business has implemented agile software development or agile marketing, but it doesn’t have a continuous real-time flow of feedback from your customers indicating the value of your work, then you don’t really have agile.

agile saas velocity of value

On the other hand, you might be the most customer-focused SaaS business on the planet, but if you don’t have the ability to act on it faster than your competitors, then it will do you little good. An agile competitor can learn from your customers as well as its own, copying and improving whatever innovation you deliver before you have time to sell it. Agile SaaS businesses set up a continuous loop of customer feedback and product delivery: listen, build, deliver…listen, build, deliver…etc., that responds rapidly to the needs of their customers and keeps them ahead of the competition. The higher your velocity of value, the faster your SaaS business grows.

The Agile SaaS Opportunity

Imagine getting real-time SaaS customer feedback on your SaaS product on a daily basis. Your customers can rate, review, suggest, complain or ask for help from directly inside your product. Then, complement that with real-time product usage data and ongoing customer surveys. Then, expand that feedback beyond your product to everything you do from your blog to technical support. Now, imagine that information being accessible to everyone in your organization, not just a product manager or market researcher. Finally, imagine your teams using agile methods to take that feedback and turn it into new product releases, new marketing campaigns and new services in a matter of days and weeks as opposed to months and years. This is the Agile SaaS opportunity.

No other industry has the same intersection of intimate long-term customer relationships, potential automation of customer feedback and product delivery, and intense market competitiveness. No other industry has more capability to reap the benefits of agile or the need to do it. Does your SaaS business measure up to your agile imagination? Or, are you missing the opportunity of Agile SaaS?

Finding SaaS Product-Market Fit

Finding product-market fit is a central, early stage challenge of every startup. SaaS startups, however, have unique advantages. Unlike consumer Internet products, SaaS products are essential business tools. SaaS customers take them very seriously. SaaS customers want to provide feedback and they want to see that feedback acted upon in a timely fashion. In other words, SaaS customers want product-market fit as much as the SaaS vendor. Unlike offline B2B products, the SaaS product creates an always-on connection between the SaaS company and the SaaS customer. By leveraging that connection, the process of getting and acting upon SaaS customer feedback can be automated and accelerated.

This is the fourth post in a series that explores the importance of SaaS customer alignment. Previous posts in the series have focused on establishing SaaS customer alignment throughout the SaaS customer lifecycle, creating a list of SaaS Customer Alignment Tips along the way. This post continues that list, but take us back to the earliest and arguably most important stage of SaaS customer alignment: finding SaaS product-market fit.

Try, try, try again

There have been many great books and articles written on the topic of product-market fit. Surprisingly though, you are unlikely to find any better advice than that given in the old nursery rhyme: “If at first you don’t succeed, try, try try again.”

saas product market fit customers

Of course, you don’t want to just try things at random. You want to try things that will systematically improve SaaS customer alignment and move your SaaS business closer to product-market fit. You need to test your current product-market fit, then make adjustments in the right direction based on the results. In other words, you need to create a continuous loop of SaaS customer feedback and SaaS product development that increases product-market fit on each iteration: listen, build, deliver…listen, build, deliver…try, try, try, again. The unique advantages of SaaS, however, allow you to increase the velocity at which you ‘try, try, try’ and accelerate your path to product-market fit.

SaaS Customer Alignment Tip #13

Let Your Customers Be the Judge

saas product market fit thumbsWhen angling toward SaaS product-market fit, it is essential to understand the different roles played by the product and the market. The product proposes and the market judges. SaaS startup founders, product managers, UI designers and software engineers all have strong ideas and even stronger attachments to the SaaS products they build. This vision and ownership is an integral aspect of technology innovation. Once that innovation is out there, however, you need to get the clear and unbiased appraisal of your potential SaaS customers. Talk to them. Listen to them. Build a customer-focused culture that continually seeks to understand and better meet the needs of your SaaS customers.

saas product market fit customers

SaaS customer focus doesn’t mean SaaS product design by committee. After the market judges, its the product’s role to re-propose. Beyond modest improvements to existing features, it is unlikely that the feedback you receive will translate verbatim into the capabilities your SaaS product needs to reach product-market fit. You may need to innovate and provide an unforeseen solution to an unforeseen problem. You may need to walk away from a particular segment of the market, because it will never fit. It is also unlikely that your second or your third try will be perfect. The faster you iterate, the faster you will achieve product-market fit.

SaaS Customer Alignment Tip #14

Accelerate Feedback through the SaaS Product

product market fit accelerateGetting direct, in-person feedback from your customers should be at the top of your priority list when you are working toward SaaS product-market fit. That said, your SaaS customers will naturally spend much more time in front of your SaaS product than they will in front of you. Don’t waste it. In the same spirit as SaaS Customer Alignment Tip #8, the best time to get SaaS customer feedback is real-time.

Open as many feedback channels as possible to your SaaS customer directly inside your SaaS product. New feature requests, current feature ratings, bug reporting, support inquiries, and so forth are just one click away from the events that precipitate them when you enable them inside your SaaS product. Long before SaaS product usage data helps you convert trials and reduce churn, it should help you improve SaaS product-market fit. Product usage metrics provide unbiased insight about what is being used and what isn’t. It can also tell you what is being used with difficulty versus what is being used with ease. By turning on real-time feedback directly within your SaaS product, you accelerate the SaaS customer side of the listen, build, deliver loop and increase the velocity at which you approach SaaS product-market fit.

SaaS Customer Alignment Tip #15

Go All Out Agile

agile marketingAgile software development has seen wide adoption throughout the software industry. However, there is one often overlooked aspect of agile software methodologies that has been lost in their loose translation from their agile manufacturing roots: the customer. Many software engineering teams turn to agile as a means to increase productivity and manage risk. However, the primary goal of agile is not higher productivity; it is increased responsiveness to customer needs. In most agile software development teams, the product manager provides a surrogate voice of the customer. This is not enough. A fundamental tenant of agile is that the output of your team, your SaaS product, must be of value to the customer, otherwise it is not real output. That is, features that have no value to the customer are waste.

agile marketing goal

Adopting agile software development in your effort to achieve SaaS product-market fit is a good idea. Complementing it with agile marketing that plugs unbiased customer feedback directly into the software development process is a great idea. Agile should not end at the SaaS product manager. SaaS product and marketing managers shouldn’t just gather and analyze customer feedback, they should take the lead in collecting as much of it as possible and sharing it with the entire team to reinforce a culture of customer focus. Bring the feedback gathered through SaaS Customer Alignment Tips #13 and #14 full circle and make it the foundation of your SaaS product development process.

SaaS Customer Alignment Tip #16

Automate SaaS Product Integration, Testing and Deployment

product market fit automation

Like agile, automated integration, testing and deployment have seen wide adoption in the software industry. And like agile, they are often pigeon-holed as engineering best practices. They are not. They are SaaS business best practices, because they enable rapid reaction to market demand and specific customer needs. Automated testing is particularly important when you are redesigning and refactoring on a regular basis to improve SaaS product-market fit. When combined with agile software development and agile marketing, they create a SaaS product delivery machine capable of rapid innovation that follows the SaaS customer’s lead and drives rapidly toward SaaS product-market fit.

Aligning SaaS Customer Success

SaaS businesses develop intimate, long term relationships with their SaaS customers. Keeping that relationship positive and aligned over the years is a real challenge. In fact, many public SaaS companies have yet to turn a profit. If they don’t keep their customers around for years, then all that capital invested in customer acquisition will have gone to waste.

This is the third post in a series that explores the importance of SaaS customer alignment across the SaaS customer lifecycle. The last post examined the challenges of aligning SaaS customer acquisition, resulting in a short a list of SaaS Customer Alignment Tips. This post continues the list of tips into the second half of the SaaS customer lifecycle by examining the challenges of aligning SaaS customer success.

Churn Starts on Day One

It is typical in B2B software for customer acquisition to eat up 50% or more of total costs. In traditional licensed software, that cost is immediately recovered when a deal is closed by the revenue of the deal. There is very little uncertainty about the value of any new contract: it is the margin reaped between license revenue and acquisition costs. In SaaS, however, customer acquisition costs are recovered over time as the customer renews each period. There is a great deal of uncertainty about the value of any new contract, because the customer might cancel early or stick around for years.

saas marketing - saas customer alignment stock

The economics of a SaaS contract are like that of buying a stock or a bond, where you make an up front investment based on the promise of future returns. As the future unfolds, the value of that investment has little correlation to the price that you paid. It is determined by how effectively the underlying business manages its future. In SaaS, the work doesn’t end when then deal it is signed. It begins, because churn starts on day one.

SaaS Customer Alignment Tip #7

Don’t Fumble Your Handoffs

saas marketing - saas customer alignment fumbleSeparating hunters and farmers is a common SaaS sales best practice. Deals are closed by an aggressive quota-carrying sales team: the hunters, and then handed over to a more service oriented group of account managers and customer success reps for on-boarding, renewals and up-sell: the farmers. Your SaaS customer has only one SaaS customer life cycle. Every time you hand-off a SaaS customer relationship, you create the opportunity for that SaaS customer to fall through the cracks in your process. When you break up responsibility for the SaaS customer life cycle, you must put processes in place that sew it back together. It might be as simple as an onboarding checklist and a formal meeting with all the relevant parties. Or, you might create teams that link specific sales reps to specific account managers and success reps. Use whatever approach works best for your particular SaaS business, but don’t fumble your hand-offs.

SaaS Customer Alignment Tip #8

Onboard in Real Time

saas marketing - saas customer onboardingSales, marketing, customer success, and technical support teams all play critical roles in servicing SaaS customers and driving SaaS business revenue. However, they should always be considered the second choice when the same goal can be accomplished directly by innovative SaaS product design. As much as we love our teams, they don’t have economies of scale. More importantly, they are not in front of the customer when the customer needs help with the product. The SaaS product is. Oboarding is best when it is done in real-time as the the SaaS customer uses the SaaS product. Build your SaaS products to detect and react to the needs of the SaaS customers based on their experience and usage. Don’t clutter up the user interface with advanced features for first time users. Strive for instant gratification. Design for discovery to expose deeper capabilities based on deeper usage. When all else fails, provide ques, tips, education and immediate access to support within the product itself.

If They Use It, They Will Stay

There are many potential causes of SaaS churn. SaaS products that don’t deliver enough value to justify their use. SaaS products that are so hard to use, such that SaaS customers never really get up and running. SaaS products that are so casually used that SaaS customers don’t incur any switching costs. Or, SaaS customers that simply go out of business. Whatever the root cause of SaaS churn, its impact is always measured by use. They might not come if you build it, but if they use it, they will stay.

Its a bit of a tautology to claim that SaaS product usage is the best predictor of SaaS churn. In one sense, churn is simply non-use. Over time, however, SaaS product use tends to deepen switching costs as SaaS customers put more and more of their data into the SaaS product, invest more of their time learning the SaaS product and bake the SaaS product into their business processes. The cumulative impact of ongoing SaaS product use creates an economic hysteresis that makes it easier to go forward and renew, than to go backward and churn.

SaaS Customer Alignment Tip #9

Use Your Usage Data

saas marketing - saas product usage dataSaaS product usage patterns provide unprecedented insight into SaaS customer alignment. Well aligned SaaS customers get up and running fast, use your SaaS product on a regular basis, discover new capabilities in the course of regular use, and expand their use over time. Only SaaS products offer this level of customer intelligence. Many other products from vending machines to automobiles embed SaaS-like components for the sole purpose of obtaining this kind of information. Use your usage data to gain a deeper understanding of your SaaS customer’s needs and habits to improve SaaS customer alignment.

SaaS Customer Alignment Tip #10

Qualify Churn like You Qualify Leads

saas marketing qualify leadsSaaS sales and marketing organizations spend an enormous amount of time and energy qualifying leads. They track conversion rates, create A/B tests, develop lead scores, put lead development teams in place, and so on. Lead qualification increases the probability of closing a deal and enables the SaaS sales and marketing organizations to focus on the best prospects. So it is with churn. Churn is just negative retention, and retention is revenue. Whereas lead scoring models are built on weak, superficial metrics for SaaS customer intent, such as click streams and page views, SaaS customer success models can be built clear indicators such as product usage, support tickets, and direct customer feedback. If you can qualify your current customers likelihood of cancelling better than you qualify leads, then you will have developed a significant advantage in the never-ending battle against SaaS churn.

Help Your SaaS Customers Help Themselves

There is no market for lemons in SaaS. SaaS customers gain a complete understanding of your SaaS product before they pay you. If they don’t like what they see, they churn. On the other hand, the SaaS business incurs the same customer acquisition costs. If your SaaS sales and marketing machine is too aggressive, your reps may make quota, but your SaaS business will pay for it in the end. Many enterprise software vendors pay lip service to solution selling, but SaaS vendors must deliver. The only sure way to build a sustainable, recurring SaaS revenue stream is to help your SaaS customers help themselves.

SaaS Customer Alignment Tip #11

Avoid The Downside of Upsells

saas marketing upsellUpselling is a critical component of many SaaS business strategies. For some SaaS businesses, long term profitability hinges on upsells. The importance of upsell revenue and retention revenue lead many SaaS executives to the natural conclusion that these revenue streams should be on quota to get the same level of individual motivation and accountability that sales has for new revenue. Putting account managers and success reps on aggressive quotas, however, is a double edged sword. Bad cops can’t be good cops.

A lost deal only implies an opportunity cost: revenue we might have had. Unlike new business, a lost customer is a real cost: revenue you would have had. If your upsell effort is so aggressive that it creates bad SaaS customer alignment, they your cancellations might very well cancel out your upsells. Avoiding the downside of upsells requires striking a careful balance between revenue accountability and customer success. In that regard, culture matters more than quotas. Make sure your SaaS customers are successful first, and your upsells will sell themselves.

SaaS Customer Alignment Tip #12

Advocacy Compounds Lifetime Value

saas customer advocateA SaaS customer that upgrades can easily be worth 2X one that doesn’t. A SaaS customer that brings your new SaaS customer, each of which might upgrade, can easily be worth 10X. The best SaaS customer advocates do more than provide logos for your website and quotes for your press releases. They recommend you to their colleagues and bring in new business at a fraction of your average acquisition cost.

Smart SaaS businesses put in place ongoing programs that identify, nurture and enable SaaS customer advocates, because the lifetime value of a SaaS customer advocate compounds with each referral. But remember, your SaaS customer advocate is not helping you. You have been paid for your services. She is helping the colleague she refers to you, because she thinks your SaaS product is genuinely valuable. And, she is helping herself to the good feeling of doing a colleague a favor. Help her, help her friends, and help her, help herself.

Aligning SaaS Customer Acquisition

SaaS businesses can be overwhelmingly complex. If the multi-tenant, cloud-based technology isn’t enough, there’s the recurring revenue model which creates all kinds of challenges from accounting to sales compensation to funding. Then, there’s the marketing. Getting noticed on the Internet gets harder every year and almost every SaaS product category has a crowded field of competitors. And of course there is mobile, which should come first right? In my own SaaS experience, be it scaling a sales and marketing team, consulting for SaaS startups or bootstrapping my agile marketing SaaS, Markodojo, I find myself returning to a common theme that always cuts through the complexity: SaaS customer alignment.

This is the second post in a series that explores the importance of aligning the goals and actions of the SaaS customer with the goals and actions of the SaaS business. The first post in a series introduced a simple framework for understanding SaaS customer alignment and its many benefits. This post digs deeper into the challenges of achieving SaaS customer alignment in the early stages of the purchase process. Along the way, we kick-off a list of tips to help SaaS businesses improve SaaS customer alignment at every stage of the SaaS customer lifecycle.

Not Everyone Needs Your Stuff

We love our SaaS companies and we love our SaaS products. They’re our babies! But, your baby always looks cuter to you than it does to everyone else. Selling to everyone is one of the biggest causes of poor SaaS customer alignment. Some people just don’t need your stuff, and they will never appreciate the unique qualities of your baby. Selling to everyone is an ill that inflicts many businesses, not just SaaS businesses, because it is baked into the economics. When growth is the primary determinant of SaaS company value, then there is always pressure to expand your available market. Unfortunately, your available market was probably determined a long time ago when your baby was conceived. Expanding your available market generally requires a new product module, a new SaaS product or even a new business unit.

saas marketing - poor saas customer alignment

SaaS customer acquisition should focus on maximizing available market penetration, not increasing available market size, and to do that you have to have a very clear picture of your target SaaS customers. Who truly needs your stuff? Why do they need it? What do they get out of it? How many are there? And, how can you reach them? This information goes by a lot of different names: market segments, qualification criteria, pain points, buyer personae, customer profiles, use cases, etc. The important realization is that they are all the same thing in the end: tools that reinforce SaaS customer alignment. The primary difference is in the depth of data; because you tend to have more of it the deeper the SaaS customer proceeds into the purchase process.

SaaS Customer Alignment Tip #1

Create a Common Customer Understanding

saas marketing - saas customer alignment knowledgeChances are your SaaS Marketing VP has some version of market segments, buyer personae, and lead scores, while your SaaS Sales VP has some version of qualifying criteria and pain points, and your SaaS Product VP has some version of users and use cases. Do they match? Are they shared? Do they use the same language? In the end, they define the same customer. Work as a team to create one definition of your SaaS customers, a shared understanding of who they are at a detailed level and a common language to describe them. Once you’ve defined each type of SaaS customer at a detailed level, then give each one a short, descriptive, meaningful name that can serve as a short hand for all the underlying detail.

SaaS Customer Alignment Tip #2

Learn to Say No

saas marketing - saas customer alignment noOnce you have a clear and common understanding of your ideal SaaS customers, you will find that you also have a clear and common understanding of your poor prospects. Qualify them out, early and often. When you’ve just raised that B-round and growth expectations are running high, it is easy to fall into the trap of over-selling your SaaS product. Bad prospects waste precious sales cycles and marketing dollars, driving up your customer acquisition costs. If you do manage to close them, they drive up your success and support costs, because your SaaS product is not a good fit for their needs. Ultimately, they cancel and drive up your churn rate. It’s better to say no up front, and make expanding your available market an element of your SaaS product strategy, not SaaS customer acquisition.

Are You a Commodity or a Contraption?

One often overlooked item to include in your common customer understanding is the messaging you will use to communicate the value of your SaaS product to each SaaS customer type. That messaging should be consistent at the core in all of the places it might appear: website, sales pitches, email, direct mail, event presentations, press releases, blogs, webinars, and so on. However, poorly aligned messaging consistently applied produces consistently bad results.

saas marketing - poor saas customer alignment

Your SaaS product messaging must align with your SaaS customer’s understanding of your SaaS product. If your SaaS product is a commodity, keep the content simple. If your SaaS product is a contraption, you have to map out an educational journey.

Your SaaS product messaging must align with your SaaS customer’s understanding of your SaaS product. Are you a commodity or a contraption? A commodity is a product that is generic. Customers have seen it, used it and are completely familiar with it. It is virtually synonymous with the product category itself, like a Kleenex or a Coke. That is not a bad thing, if you own the category. In fact, that is a very good thing. A contraption is innovative, complex and poorly understood. Knowing where your SaaS product falls along this spectrum is essential to achieving SaaS customer alignment.

SaaS Customer Alignment Tip #3

Don’t get Caught Up in the Content

saas marketing - saas customer alignment contentToday’s SaaS marketers have a very broad communications toolkit that includes websites, email, blogs, ebooks, videos, ads, webinars, presentations, press releases and everything in between. It is easy to generate a lot of content. It is even easier to generate a lot of really meaningless content. If your SaaS product is a commodity, keep the content simple and focus it on getting the customer to the next stage: trial. They don’t need education.

If your SaaS product is a contraption, your SaaS marketing must be commensurately more sophisticated. In the end, you’d like to lead your SaaS customer to a commodity-ish understanding of your value, such as two words that say it all. It’s almost always a good thing to get your message down to two words, but contraptions can’t lead with that. As simple and clear as your two words might be, early stage prospects just won’t get it. You have to start with the level of interest and understanding of your target SaaS customer and map out an educational journey that brings their pains to the forefront, demonstrates your SaaS product’s value and ultimately leads to real understanding of your two words.

SaaS Customer Alignment Tip #4

Seeing is believing

saas marketing - saas customer alignment free trialAt the risk of repeating myself, I have yet to see a SaaS product that would not benefit from a free trial. That is, benefit SaaS customer alignment. While it is often difficult for the contraption to pull of a great free trial, even the commodity can run into difficulty if the adoption costs are high. For example, accounting software is a very well understood SaaS product category, but it is difficult to show the real value of the product until you have loaded it up with your SaaS customer’s chart of accounts, product SKUs, and so forth. I don’t care, and neither does your SaaS customer. Seeing is believing.

Find a way to demonstrate the value of your SaaS product in a real-world customer experience. The ideal scenario is that the customer signs up and is instantly gratified by the first thing she does with your SaaS product. Every SaaS business should strive for that ideal. If you are a bit of a contraption, then you need to help them out along the way with in-product ques and education. If you are a large complex, enterprise, transaction-oriented system with no hope of delivering a live system pre-purchase, then set up a production environment that your qualified prospects can test drive. Let them see it. If your product is good, they will buy it. And, even if it has some rough edges, they won’t be surprised later on. You will be more aligned with your SaaS customer.

The Cloudy Nature of SaaS Pricing

SaaS pricing is one of the most important dimensions of SaaS customer alignment. SaaS pricing isn’t that hard to do. It’s just hard to know if you are doing it right. Many SaaS businesses just give up and copy or some other category leader similar to them. SaaS pricing is difficult for two reasons. First, pricing is inextricably linked to volume, and most SaaS businesses don’t have that much volume to work with. Second, SaaS pricing recurs renewal after renewal. To test SaaS pricing, you need lots of purchases. And, you need to be able to separate those purchases in a scientific A/B testing sort of way. Unfortunately, most SaaS customers don’t make good test subjects.

saas pricing learning curve

The difficulty of getting real data when it comes to such an important decision as your SaaS pricing model significantly ups the ante on the quality of your SaaS pricing judgment. You need to make the best SaaS pricing decisions your can, because you will be stuck with the results. The average SaaS business might change its SaaS pricing model every couple of years. The SaaS pricing learning curve is very slow. You must try to get it right the first time.

SaaS Customer Alignment Tip #5

SaaS Pricing Should be Simple

saas pricing There is a natural tendency to over-complicate SaaS pricing. Don’t. Your SaaS product might be overflowing with features, but your SaaS customers probably only come in a couple of flavors. Your SaaS pricing choices should say more about your customers, than they do about your features. Moreover, you’re just fooling yourself. You don’t know if one low-level feature is more important than the next. You can’t test it. So, why make it complicated?? Keep it simple and create bundles based on your SaaS customers and their list of needs, not your SaaS product and your list of features. If you started with SaaS Customer Alignment Tip #1, you will be in a very good position to do so.

SaaS Customer Alignment Tip #6

Build Upsell in from the Start

A good SaaS pricing model separates your SaaS customers based on their choices and maximizes both your revenue and their value. Customers that value capability A, pay a little more for A, but not so much more that they don’t benefit or don’t buy it. Economics 101. What you generally don’t cover in Economics 101 is the SaaS customer that sticks around year after year. SaaS customers evolve as their businesses grow and their use of your SaaS product deepens. This evolution demands that you stay aligned with your SaaS customer over time. From a SaaS pricing perspective, it offers the opportunity to create time-based bundles and usage-based pricing that reflect the natural evolution of your SaaS customers and build upsell into your SaaS pricing model from the start.

Stay tuned for the next article in this series: Aligning SaaS Customer Success!

Avoiding Poor SaaS Customer Alignment

When I’m not completely absorbed with my agile marketing software startup, I do a bit of SaaS consulting on the side. SaaS colleagues come to me with a wide variety of problems from positioning to sales compensation to churn analysis, but lately I’ve noticed a common theme: poor SaaS customer alignment. SaaS businesses develop intimate, long term relationships with their customers that are enabled by the always-on connection between the SaaS customer and the SaaS business through the SaaS product. Like many long term relationships, it is founded on a recurring cycle of needs fulfilled and expectations met, or not. And I don’t just mean customer needs and expectations. There are two sides to every relationship. SaaS businesses need to make money as much as SaaS customers need to spend it. SaaS customer alignment means aligning the goals and actions of the SaaS customer with the goals and actions of the SaaS business at every stage of the SaaS customer lifecycle.

This is the first post in a series that explores the importance of SaaS customer alignment. This first post introduces a simple framework for understanding SaaS customer alignment and its many benefits. Future posts will examine the challenges of achieving SaaS customer alignment in customer acquisition, customer success and early product market fit.

saas customer quality

In SaaS, customers are the fundamental unit of measure. Each new customer brings a new thread of subscription revenue that is woven into a larger tapestry to form the total recurring revenue of a SaaS business. The quality of that tapestry hinges on the quality of your SaaS customers. But,what makes for a high quality customer? A high quality SaaS customer is aligned with your SaaS business goals and your SaaS business processes throughout the SaaS customer lifecycle. SaaS businesses that are well aligned with their SaaS customers have high recurring revenue growth, low acquisition costs and low churn rates. Poorly aligned SaaS businesses struggle to survive and satisfy their customers.

When your SaaS business is well aligned, your SaaS customers consistently take positive actions that lead to positive business outcomes: they try, they buy, they upgrade and they refer you to a friend. When you are poorly aligned, your SaaS customers consistently take negative actions that lead to negative business outcomes: they bounce, they negotiate, they complain, and they churn. In theory, the solution is simple: just get your customers to take positive actions. In practice, it’s a little more complicated.

saas customer alignment

When your SaaS business is well aligned, your SaaS customers
consistently take positive actions that lead to positive business outcomes.

Know Thy SaaS Customer

The good news about actions and outcomes is that they are easily measured. The bad news is that they are not as easily managed. Achieving strong SaaS customer alignment requires the ability to manage SaaS customer actions toward the positive and away from the negative. To do this, you have to understand the underlying motivations for those actions. You have to know how your customers think and why they do the things they do. That means you have to get meaningful and deep feedback from your customers at each stage of the SaaS customer lifecycle—real people. Clickstreams just don’t cut it.

That said, it is next to impossible to get inside the head of every single SaaS customer at scale. At each stage of the SaaS customer lifecycle, the SaaS business learns a little more about the SaaS customer and the SaaS customer learns a little more about the SaaS business. Not all of this information is useful or relevant. The key to scaling SaaS customer alignment is to link your understanding of real-world customer motivations to motivational indicators that are more easily measured.

saas customer motivation

The key to SaaS customer alignment is to link real-world customer motivations
to motivational indicators that are more easily measured.

The table above provides a strawman example of what I mean by linking motivation to measurable motivational indicators. What I call ‘motivational indicators’ go by a lot of different names, e.g., demographics, clickstreams, qualification criteria, pain points, or if you are a statistician: independent variables. In the early stages of the SaaS customer lifecycle, you have very little information about the prospect, so the indicators are largely demographic or early buying behaviors. Later in the SaaS customer lifecycle, you get access to product usage data and direct customer feedback. By the time they are renewing customers, you usually have more data than you can reasonably deal with. The two main takeaways are that the measures only matter if they are indicators of positive customer actions and they will only indicate positive customer actions if they are measures of customer motivation. Most demographics are meaningless.

The two most common roadblocks to achieving SaaS customer alignment are that a SaaS business either a) doesn’t talk to its SaaS customers on a regular basis to understand their underlying motivations at each stage of the SaaS customer lifecycle or b) doesn’t link real-world SaaS customer motivations to the oceans of data coming out of marketing, sales and support systems. Predictive models are developed by throwing spaghetti at the wall to see what sticks without any real understanding of why they work, or more often why they don’t.

If It Quacks like a Duck

If you can make a detailed table of motivational indicators by correlating direct customer feedback with your available process metrics, then you are halfway to SaaS customer alignment. The first thing you will notice is that your customers tend to fall into buckets based on specific bundles of motivations and motivational indicators. Like the indicators themselves, these buckets also go by many names: market segments, customer profiles, buyer personae, churn cohorts, or again if you are a statistician: customer populations.

A common mistake is to create arbitrary customer populations based on off-the-shelf demographics that do not indicate any real SaaS customer motivation, such as industry. This doesn’t mean demographics like industry are bad. Its just that you are likely to find that there are five industries that matter, because those SaaS customers have specific motivations that align with your SaaS business. And, fifty industries that don’t matter, because they don’t indicate anything other than an absence of positive motivations. Focus on the five.

Another common mistake is to create customer populations based on internal criteria, such as date of purchase, that corrupt pure external customer motivations with the internal actions of the SaaS business itself. When buckets are created this way, they say as much about your marketing, your product, your sales and your support as they do about your SaaS customer. These measures are useful when you are trying to determine the effectiveness of marketing programs and changes to your product, but they should not be used to describe your SaaS customers.

saas customer quality

Once you can create meaningful buckets of motivational indicators, then the next most important thing to do is to give each SaaS customer type a simple, highly descriptive name. This small thing will do wonders for your SaaS business. When you give your high quality customers a name, it changes how you think and communicate about your SaaS business. Because industry doesn’t matter if industry doesn’t indicate motivation. Customer profiles don’t matter if they don’t profile motivations that lead to positive business outcomes. On the other hand, if it walks like a duck and it quacks like a duck, then it must be a duck! Call it a duck. When you can discuss your customers efficiently in a shorthand that describes their motivations, i.e., ducks need to quack, birds need to fly, firemen need to put out fires, bakers need to bake, truckers need to deliver, SaaS executives need to make money, etc. then you will find yourself making better, fast business decisions that consistently improve SaaS customer alignment.

SaaS Inside Sales Benchmarks Survey | Take It!

As many of you may know, Trish Bertuzzi and the folks over at the Bridge Group publish a lot of great stuff on Inside Sales strategy and operations, including inside sales compensation benchmarks, lead development rep best practices, outbound selling strategies, and on an on.

Their upcoming 2015 Inside Sales Metrics and Compensation report will feature expanded coverage and focus of SaaS inside sales benchmarks in an extra effort to service the SaaS community. But the numbers are only as good as the data, so I’m reaching out to all my SaaS sales colleagues to TAKE THE SURVEY!! It only takes 6 to 8 minutes to complete. As motivation, SURVEY PARTICIPANTS WILL RECEIVE A PRE-RELEASED COPY. If you don’t do it, your competitors will ;).

saas inside sales benchmarks

For reference as to how great the fruits of your labor will be, here is a link to the 2012 Inside Sales Compensation and Metrics report. And, if you haven’t come across the other inside sales resources the Bridge Group has published, I highly recommend you check in out.

The Metrics-Driven SaaS Business | Ebook

The SaaS community has gained a solid understanding of SaaS financial metrics, as well as many of the operational principles required to achieve them. However, there has always been an obvious gap between what happens on the top line and what happens on the ground. This is about to change! The SaaS industry is maturing beyond simple, historical SaaS financial measures toward sophisticated operational measures in the form of new SaaS customer success metrics and predictive analytics. We are witnessing the emergence of The Metrics-driven SaaS Business.

saas customer success metrics ebook

This new Ebook is a compilation of recent posts inspired by my ongoing collaboration with Bluenose Analytics that explores the new Metrics-driven SaaS Business and its foundation of emerging best practices in customer success metrics.

Please enjoy, comment and share!


The SaaS Metrics Maturity Model

Becoming a Metrics-driven SaaS Business is no easy task. It takes time, commitment and plenty of customers. However, the financial rewards of moving beyond standard SaaS financial metrics to SaaS customer success metrics and ultimately to sophisticated predictive analytics are significant. Each step toward SaaS metrics greatness builds upon the last. The stages of development can be classified into a natural progression of increasing SaaS business understanding from financial stability to operational measurability to revenue predictability outlined at the very beginning of this series. These stages define a SaaS Metrics Maturity Model that provides a SaaS metrics roadmap along with benchmarks at each stage of development for SaaS companies that aspire to become a Metrics-driven SaaS Business.

saas metrics maturity model

The SaaS Metrics Maturity model provides a SaaS metrics roadmap
along with benchmarks at each stage of development
for SaaS companies that aspire to become a Metrics-driven SaaS Business.

This is the fourth and final post in a series inspired by my ongoing collaboration with Bluenose Analytics that explores the new Metrics-driven SaaS Business based on emerging best practices in SaaS customer success metrics. The last two posts discussed the potential uses of SaaS customer success metrics for reducing churn and accelerating customer acquisition. This final post defines The SaaS Metrics Maturity Model, a path for SaaS companies to follow on their way to becoming a Metrics-driven SaaS business.

SaaS Metrics Maturity Model Stage 1:
SaaS Financial Metrics Mastery

The first step along the path to becoming a Metrics-driven SaaS Business occurs when a SaaS business achieves a stable SaaS business model that allows management to monitor the key SaaS financial metrics, including recurring revenue, customer acquisition cost, churn, growth and cost of service. Financial plans and targets are produced using these now standard financial metrics. In addition to the basic financial metrics, more advance metrics such as the customer lifetime value, churn cohorts and the various SaaS magic numbers may also be calculated.

The stage one SaaS business has a solid understanding of SaaS economics grounded in SaaS financial metrics. As the use of SaaS metrics becomes the company standard, they are pushed out into departmental plans. Sales is compensated on recurring revenue and avoids discounts based on total contract value. Marketing makes demand generation plans around revenue, upsell and acquisition cost targets. Customer success focuses on churn reduction. And, executive compensation is based on non-GAAP SaaS financial goals.

SaaS Metrics Maturity Model Stage 2:
Reactive Customer Success with Customer Success Metrics

At stage 2, The Metrics-driven SaaS Business gets serious about customer success and discovers the panacea of information available from product usage data complemented by customer demographics, transaction history, engagement tracking and primary customer research such as surveys and focus groups. It starts to delve into statistical methods and descriptive models to better understand the root causes of churn, upsell, trial conversion, purchase and onboarding. These models produce customer success KPIs and benchmarks than uncover operational opportunities for improving SaaS customer success.

saas financial metrics churn

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Stage 2 is an important transition stage for the Metrics-driven SaaS business. Most companies enter stage 2 out of churn frustration. The SaaS financial metrics mastered in stage 1 give the perils of churn very high visibility, but they offer no guidance for reducing it. This motivates management to explore new operational metrics and approaches to customer success. The need for account-level financial information and product usage data within the SaaS customer success organization becomes obvious, but CRM systems, marketing systems, accounting systems and the product itself often don’t provide easy access. Stage 2 is a struggle.

SaaS Metrics Maturity Model Stage 3:
Proactive SaaS Customer Success with Predictive Analytics

In stage 3, the perseverance required to slug through stage 2 really begins to pay off. The SaaS customer success metrics discovered in Stage 2 become standard KPIs that are used to construct predictive analytics. These predictive models help The Metrics-driven SaaS Business get out in front of churn and acquisition in a systematic way. Health indexes and alerts are incorporated into the daily routines of customer success reps and sales reps to increase revenue and reduce operational costs. Predictive models are plugged directly into the SaaS product to automate communications that facilitate purchase, use and upsell.

The stage 3 Metrics-driven SaaS business is becoming the master of the SaaS metrics domain, moving from art to science. However, predictive analytics in SaaS is a big data problem that only a few companies could conceivably tackle on their own. It is virtually impossible to succeed in stage 3 without significant investment in new customer success systems, as well as the integration of those systems to the product, CRM and accounting system.

SaaS Metrics Maturity Model Stage 4:
The Recurring Revenue Machine

Finally, the stage 4 Metrics-driven SaaS Business has a complete top-to-bottom understanding of the drivers of SaaS financial success. Financial planning goes beyond simple what-if spreadsheets that have no basis in operational reality. Financial goals are linked directly to operational goals using SaaS customer success metrics and predictive analytics. Targeted churn reductions are tied directly to root causes and operational initiatives with predictable results. Growth plans are based on specific improvement programs with well understood impacts on trial conversion, purchase, churn, and the productivity of sales and custom success reps.

metrics driven saas business machine

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Success in stage 4 requires an integrated management approach, especially between finance and customer success, two departments that have historically had little to do with each other. The finance-customer success partnership is essential to the Metrics-Driven SaaS Business, because it links continuous operational improvement to financial goals through SaaS customer success metrics. The stage 4 Metrics-driven SaaS Business is a well-oiled recurring revenue generating machine.

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