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Chapter 5

Why Is Customer Success Important to SaaS?

Table of Contents
Blank
Introduction: Who's this Customer Success Guide For?
Chapter 1: What is Customer Success?
Chapter 2: Customer Success Everywhere: An Organizaitonal Philosophy
Chapter 4: What’s the Difference Between Customer Success, Customer Support, Account Management, and Professional Services?
Chapter 5: Why Is Customer Success Important to SaaS?
Chapter 7: What Does a Mature Customer Success Organization Look Like?
Chapter 8: Does Customer Success Need Its Own Tool?
Chapter 9: How To Get Started with Customer Success

The SaaS business model, which runs on recurring revenue, needs Customer Success to survive. SaaS businesses realized that pouring money into customer acquisition and marketing without investing in a Customer Success function to retain their newly acquired customers results in a leaky bucket.

Customers purchase your product. Customers aren’t adequately onboarded or trained on your product. Customers don’t use your product to its potential. Customers aren’t held accountable to their product-related goals. Customers fail to realize value from your product.  Customers can’t justify your product cost at renewal (which often masquerades as budgetary issues). Customers churn. You waste money on replacing your old customers with new ones. And the cycle continues.

Now, considering that it’s 5-25x more expensive to acquire a new customer than it is to keep a current one, a SaaS business with a leaky bucket is spending exponentially more just to maintain their business. Companies can no longer take their current customers for granted because the cost of losing them is too high. Recouping your customer acquisition costs eats up 12 to 24 months of subscription revenue.

This means you can forget about growth, and you can forget about expansion, and you can forget about scaling if you can’t retain your customers. Your leaky bucket will bleed you dry – both monetarily and reputationally. Eventually, you’ll burn through your top prospects and then your total addressable market, expending your resources and goodwill along the way.

The investor world has also figured this out. Companies with strong retention and expansion get higher valuations. The M&A advisors at Software Equity Group have real-world M&A figures that plainly show the valuation metrics of a SaaS company with strong retention rates can be twice as much as a company with average rates.

No SaaS business is immune to churn. But investing in Customer Success reduces your risk to its ongoing threat and makes you more resilient when it does happen.

Aside from churn, SaaS businesses face many other shared challenges that Customer Success is best equipped to handle. In the chart below, we outline the benefits and ROI of Customer Success in these common SaaS focus areas.

SaaS Challenges and Customer Success Benefits/ROI

The SaaS business model, which runs on recurring revenue, needs Customer Success to survive. SaaS businesses realized that pouring money into customer acquisition and marketing without investing in a Customer Success function to retain their newly acquired customers results in a leaky bucket.

Customers purchase your product. Customers aren’t adequately onboarded or trained on your product. Customers don’t use your product to its potential. Customers aren’t held accountable to their product-related goals. Customers fail to realize value from your product. Customers can’t justify your product cost at renewal (which often masquerades as budgetary issues). Customers churn. You waste money on replacing your old customers with new ones. And the cycle continues.

Now, considering that it’s 5-25x more expensive to acquire a new customer than it is to keep a current one, a SaaS business with a leaky bucket is spending exponentially more just to maintain their business. Companies can no longer take their current customers for granted because the cost of losing them is too high. Recouping your customer acquisition costs eats up 12 to 24 months of subscription revenue.

This means you can forget about growth, and you can forget about expansion, and you can forget about scaling if you can’t retain your customers. Your leaky bucket will bleed you dry – both monetarily and reputationally. Eventually, you’ll burn through your top prospects and then your total addressable market, expending your resources and goodwill along the way.

The investor world has also figured this out. Companies with strong retention and expansion get higher valuations. The M&A advisors at Software Equity Group have real-world M&A figures that plainly show the valuation metrics of a SaaS company with strong retention rates can be twice as much as a company with average rates.

No SaaS business is immune to churn. But investing in Customer Success reduces your risk to its ongoing threat and makes you more resilient when it does happen.

Aside from churn, SaaS businesses face many other shared challenges that Customer Success is best equipped to handle. In the chart below, we outline the benefits and ROI of Customer Success in these common SaaS focus areas.

SaaS Challenges and Customer Success Benefits/ROI

Reduce Churn

For every 1% increase in revenue retention, a SaaS company’s value increases by 12% after five years*

Increases in retention drive a compounding effect of improved Net Revenue Retention over time

Companies with a Customer Success leader see a 6% increase in Net Retention Rate*

Increase Expansion

Annual Recurring Revenue (ARR) growth rate increases through nurtured expansion opportunities

Investors reward businesses with Net Negative Retention Rates (retention rates above 100% which are only possible with expansion)

Establish Advocates

Sales opportunities originating from referrals are proven to have the highest conversion rate

High Customer Lifetime Value (CLTV) increases and sustains business revenue

Improve Business Effectiveness

Single source of truth on the customer establishes company-wide customer insights

More consistent customer journey across all customer touchpoints

Increased adoption with data-driven customer engagement strategy

*Source: SaaS Capital

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Table of Contents

Blank
Introduction: Who's this Customer Success Guide For?
Chapter 1: What is Customer Success?
Chapter 2: Customer Success Everywhere: An Organizaitonal Philosophy
Chapter 4: What’s the Difference Between Customer Success, Customer Support, Account Management, and Professional Services?
Chapter 5: Why Is Customer Success Important to SaaS?
Chapter 7: What Does a Mature Customer Success Organization Look Like?
Chapter 8: Does Customer Success Need Its Own Tool?
Chapter 9: How To Get Started with Customer Success