There was a time when product based companies used to depend only on fresh sales to grow their business which was decided by the number of customers they acquired. The products were designed in such a way that only a one-time purchase was needed for the customers to own the product. The relationship between the customer and the company would terminate after the sale, or after a short period of post-sale support if applicable, and won’t resume until the product expires and if the customer decides to repurchase from the same brand. This is the dynamics followed by all the companies selling tangible products and the software companies too continued with the same momentum in their initial days until the advent of SaaS based customer engagement model.
The concept of membership as a model for generating recurring revenues has existed for a long time but the adoption of subscription based business models by the software companies has seen a recent surge in the past few years, if not decades. The Saas customer engagement model has opened new avenues for business growth and sustainability for the companies. This cloud based technology has improved in many ways – either directly or indirectly – the companies build and maintain their products, offer their services, acquire buyers and earn retention. Since it is a shift in the delivery model from one-time sale to subscription based, the most defining aspect for this model to succeed is the customer retention. Companies have to innovate new ways through which they can get their customers to continue using their products and renew their subscriptions. This is where a SaaS Customer Engagement model as an organizational process comes into picture. It is a relatively new process in organizations that deploys a win-win strategy to retain customers unlike a traditional “me first” approach acquired by the businesses. In this article we are going to examine this process in detail and see how it helps resolve the challenges faced by the subscription based businesses and eventually helps them succeed.
Challenges of SaaS Based Organizations
Acquiring a new customer has always been one of the most expensive processes for a business. Large scale organizations spend months of time in running their marketing campaigns on different channels by partnering with external agencies. The costs associated with converting a prospect to buy a product has to be borne by the business owners by paying every individual in the marketing and sales division as well as the third party agencies. Owners invest heavily in these areas only with an intention to cover the cost through long-term relationships with the customers. And if the companies fail to generate ROI even after the initial sale by not being able to retain their customers then it becomes difficult for them to sustain in the longer run. There could be various reasons for a customer to not renew their services and that can range from behavioral aspects of the customer to the quality of experience they derive while using the product.
Lower Product Adoption
The time taken for the buyers to get familiarized with the product is crucial for retention. This is called product adoption. More precisely, it is the process which covers all stages between when a user hears about the product for the first time, starts using it, starts driving value from it and finally becomes habituated to it. Most of the user churns occur during the initial period post sale if the user fails to drive value from it due to any reason. For B2B complex products the churn may happen because the user didn’t start using all the features that can hook them to the product. These products are designed to either automate various processes or generate data or insights for high level managers to work towards their goals. They usually take some time to sink in by getting used to the user interface as well as all features of the product. A lack of technical support, FAQs or user manual may prevent the customer from adopting the software.
Mismanagement in the Relationship
Another reason why customers won’t return to the buyer is because of the poor relationship management of the vendors towards their customers. A wrongly qualified customer success manager may not have the domain knowledge of the customer’s business and hence may fail to add value in the relationship. A lack of SaaS Customer Success function can have disastrous impact of losing the customer without prior warning. According to Esteban Kolsky, a leading customer strategist, customers don’t tell you they’re unhappy. In fact, only 1 in 26 unhappy customers actually complain.
The product has to be sold even after the purchase by highlighting the key features by the CSMs that a customer finds useful. There could also be chances of personality clash between the representatives of the two parties if one gets offended due to any reason during the interaction. A lack of process for quickly switching to another CSM can have adverse effects on the customer. On the other hand if the CSM has managed to gain trust of the customer over a long period but decides to quit their company then the buyer may lose the same support to which they got used to and eventually lose credibility. After all the CSMs are the product evangelists who regularly encourage the user to use their products.
There are chances that the product was not meant for the customer at all. The sales team may have set over-expectations for the customer which they find out after not being able to meet business goals by using the product. This kind of reason cannot be controlled and the vendor has to let their customer go without investing further in the interaction.
A lack of SaaS Customer Retention process for the situation when the product goes out of service due to technical issues could also be a setback for the user. If this downtime results in financial loss of the customer then it can turn out to be a serious situation for them to decide whether to continue the service or not. A lack of compensation by the vendor to make up for the loss can cause an adverse effect on the customer experience and may result in the termination of the service.
A Customer Engagement Model Can Help Mitigate the Risk of Customer Churn
Customer engagement model is the process followed by an organization for nurturing its relationship with the customer post sales. A customer success manager is appointed in the company who represents the customer’s interest to other functions of the organization. Saas based companies are realizing more and more that the key customer success strategy to retain their customer is to invest in building an outstanding customer experience thereby resulting in greater customer satisfaction. The Temkin Group found that companies that earn $1 billion annually can expect to earn, on average, an additional $700 million within 3 years of investing in customer experience. For SaaS companies in particular, they can expect to increase revenue by $1 billion.
The renewal decisions made by the customer are totally based on the perceived value of the product. Companies who focus more on Saas Customer Engagement Model are able to make their customer realize more value of their products and services which eventually leads to customer renewals and increased customer lifetime value ultimately fetching profitability and growth for the business.
Types of Customer Engagement Model
There are basically four approaches around which a customer engagement model is built to serve the customer.
- High Touch Onboarding: The customer experience starts right from the moment they decide to purchase the product, if not before. If the product configuration is a complex process then this process is owned by the Customer Success managers who take full responsibility of getting the customer onboard. They would either give the orientation by themselves or appoint an appropriate technical staff for getting the customer started on using the product.
- Low Touch Onboarding: If the purchase and configuration of the product has been automated through the vendor’s website and doesn’t need a manual intervention then it is called Low touch onboarding. It is usually carried out by initiating the configuration through online links sent over mail or directly on the vendor’s website after the customer has made the initial payment. The training materials in the form of user manual or video tutorials are enough in this approach for the customer to get to know all about using the product.
- High Touch Post Onboarding: This approach is mainly used for the enterprise customers who pay heavy revenue for using the product to cover the cost of one to one CSM appointed to engage the customer on all aspects of the product. In this Saas customer engagement model the CSMs act as customer’s peers rather than sellers in the journey of the customer’s usage of the product. It is the responsibility of the CSM to help their customer realize the value of the product and help them use it seamlessly until they adopt the product.
- Low Touch Post Onboarding: In this approach, when the Saas customer has been onboarded, the means through which the seller maintains their relationship with customers is through digital or online methods rather than manual. This is a one-to-many approach as the cost of assigning a single CSM to handle a customer account cannot be justified by the revenue generated by the customer. The communication happens through automated alerts and emails and a need based CSM can be appointed only for time being to a customer account.
These are the four approaches a combination of which can be used by the seller for their SaaS customer Success based on the customer and vendor’s business profile. I.e. either of the four combinations can be used:
- High Touch Onboarding / High Touch Post Onboarding
- High Touch Onboarding / Low Touch Post Onboarding
- Low Touch Onboarding / High Touch Post Onboarding
- Low Touch Onboarding / Low Touch Post Onboarding
Having decided the frequency of the touch-points to suit the different kinds of customers by the company, let’s examine the different ways in which organizations follow their customer engagement model that eventually helps them grow their business.
How Customer Engagement Models Helps the Growth of SaaS Business
With more and more software companies shifting to the SaaS based delivery model, the more they are realizing the need of having a greater customer experience for their business growth. Having a great Customer Experience can vastly improve customer retention and customer satisfaction thereby enhancing the opportunities for up-selling and cross-selling.
The strategy they work on for the growth of their business is termed as “Land and Expand”. It is usually the journey that the businesses make with their customer after they have landed or sold their product. Through regular customer engagement they are able to help a customer adopt their product after which it becomes easier for them to retain their customers, up-sell higher versions of their products and cross-sell other related products to the same customer.
Using the Insights Derived from Real-time Usage Data
The customer success managers (CSMs) usually keep in touch with the users of their product through which they are able to fetch the real-time usage data. This data helps them draw meaningful insights so that a predictive analysis can be made and used for the future offerings and actions. In other words, this would help them anticipate the user’s next move and would give clear indication about how likely they are going to renew their subscription. This is one of the most useful insights for a SaaS Customer Retention strategy to be implemented by the companies. For example if the customer is using only 6 out of 25 features of the product then they can easily guess that the customer would not be going to renew their subscription unless they do something about it. Hence, a CSM can proactively send email-tips to the customer, if not intervening manually, for recommending them about other unused features.
This data is also a good indicator for the seller to time their up-selling and cross-selling once the product adoption has taken place by the customer.
Other processes can also make use of these insights based on the product adoption pattern of the customers. E.g. a Marketing team can build its strategies around those features which were most used by their existing customers. Or the product management team can highlight those features more while designing upgraded versions of their product and may consider putting them on the dashboard for quick adoption.
A comprehensive report derived from the individual customer usage history can also help customer representatives to give support with a more personalized experience.
Success of a Business Comes with the Success of the Customer
While every business aspires to grow their revenues and profitability, it is about time that they realize that for running SaaS business, a clear SaaS Customer Engagement model is indispensable. A great CSM should be able to engage at all levels in the customer’s business. They have to demonstrate the value proposition for different decision makers of the customer organization. Additionally, they must also be able to interact with end users showing them how their product helps them reduce time in their workflows. Hence, it is paramount for them to hold domain knowledge as well along with the technical know-how of the product.
A thriving customer engagement team cannot be built until the customer success is kept at the priority of the business. The value realization of the product is not just the responsibility of the sales and marketing team anymore as the customer retention, which is the key responsibility of a customer success function, decides the fate of a subscription based business.