SaaS Strategies for Attracting and Retaining the Right Customers
Dave Kellogg—tech exec, BI blogger, analytics aficionado—published a think piece last year which detailed how the SaaS industry has transformed marketing more broadly by nudging companies to think less about amassing average-quality leads and more about acquiring “the best overall customers in terms of lifetime value.” Kellogg explains how as little as twenty years ago, brands strove to attract as many customers as possible without giving much thought to customer quality or product fit. With the advent of SaaS companies, however, companies gradually refined that strategy in pursuit of the high-value customer, the “expander.”
Expanders don’t just stick with the product—they upgrade to higher payment plans, recommend the software to colleagues, and improve it by being forthcoming with feedback. Businesses soon realized they could improve their returns dramatically by concentrating their marketing efforts on acquiring and retaining expanders. The only question is how best to go about it.
The first step in acquiring high-value customers is being able to identify what those customers have in common (besides an interest in your product). Finding those common denominators using cohort analysis will help focus your customer acquisition efforts on high-value subsets of your market segment.
In marketing, a cohort is a group of consumers, be they businesses or individuals, who share some objective quality. Customers acquired in Q2 of 2017 could be defined as a cohort, for example, and that cohort could be further segmented by business size or location.
When looking for traits of expander customers, you’ll want to track cohort retention rates, which show how much a cohort’s annual recurring revenue (ARR) shrinks or grows over time.
Retention rate = current ARR [time cohort] / time-ago ARR [time cohort]
Kellogg cautions marketers to be sure they’re taking all of the original cohort into consideration, including those who later terminated their subscriptions. Businesses sometimes make the mistake of looking only at the customers that remain from the original cohort, which defeats the purpose of the analysis.
Think of each cohort as a little experiment. The parameters defining your cohort are the variables, and your overall average annual retention rate is the control. When you happen upon a variable or combination of variables yielding a higher-than-average retention rate, consider shifting your marketing to focus on those demographic groups.
In the event that the most retentive cohorts pull your product in two opposite directions, as they did for HubSpot back in 2012, it may be necessary to pick a side and specialize. HubSpot found itself “splitting the baby” between small business persona Owner Ollie and midsized company persona Mary Marketer. Neither cohort was better than the other, but the product wasn’t serving either one sufficiently well; so Hubspot picked a side and started focusing all its efforts on attracting Mary Marketers.
The fiscal impact of this decision was tremendous. “Instead of getting a 2.5x return on the investment to acquire a customer, it is now about around a 5x return,” wrote CEO Brian Halligan in 2016.
In HubSpot’s case, neither cohort boasted a high number of expander customers initially. Instead, the company focused on “delighting Mary” and cultivated that cohort into a high-value group. In other words, attracting expanders isn’t just about finding the right audience for the product, it’s also about committing to that audience in word and in deed.
Retaining and Upselling
Once you’re acquiring more customers, keeping them is the imperative, upselling them the goal. But in order to do either of these things, there need to be clear and uncluttered paths of communication between you and your customer base.
SaaS companies aren’t alone in resorting to surveys as a means of keeping tabs on customer satisfaction, but sometimes, as Crazy Egg co-founder Neil Patel remarks, “the very fact that a customer receives a survey can reduce their satisfaction level.”
Consider keeping tabs on customers using one or more of these survey alternatives:
Targeted Feedback. Ask, “Was this helpful?” and provide Yes/No answer buttons and a space for customers to elaborate. These touchpoints are non-intrusive and don’t require the level of commitment it takes to respond to a survey. Sometimes these interactions can lead to larger conversations. Try this tactic wherever your customers go for information, be it in your application, on your website, or in your documentation.
Support Followups. Patel also recommends that support agents follow up with clients after helping them resolve an issue instead of simply waiting for another problem to arise. If restaurant wait staff acted like most support technicians, they would never offer to refill a drink or ask if everything was to a customer’s satisfaction. They’d simply wait for the customer to develop a need and submit a request for assistance. Anticipating a customer’s needs can improve overall satisfaction and help head off concerns before they snowball.
Dedicated Customer Success Team. Allocating full-time employees to customer success can relieve other departments from having to perform regular check-ins. Funneling all customer contact through a dedicated account executive helps create a unified narrative about that customer’s standing while shielding the client from a barrage of communications from other departments.
Forums. Ticketing and product management solutions often come with a platform customers can use to interface with the software vendor and each other. These forums are a great way to aggregate client feedback.
Whatever method you use to gather insight into customer satisfaction, it’s important to map those insights to upselling opportunities. One way to help customers ascend the subscription ladder is to have multidimensional pricing axes.
When HubSpot was making its pivot to Mary Marketers, it also went from a one-dimensional pricing model (e.g., Standard, Advanced, Enterprise) to a multidimensional model by charging for the number of leads in the customer’s database. Other axes might include things like add-ons or the number of users or administrators using the software service.
In any case, additional pricing axes allow customers to inch up the pay ladder by increments rather than by leaps and bounds. It might take a long time and a lot of growth for a customer to go from a Standard plan to an Advanced plan, but a Standard customer might happily pay a little more each month for an extra admin or new widget. As smaller charges accrue, the customer eventually reaches a point at which it makes fiscal sense to ascend to the next pricing tier.
Many SaaS providers charge, as HubSpot did, according to a metric corresponding to the customer’s scale—the number of admins, users, leads acquired, etc. In all these cases, it’s important to recognize that the pricing model discourages growth by design, compelling customers to pay more as they scale and become more successful. One might argue that rising costs are a natural byproduct of growth and that these charges are therefore warranted. But flat rate models, like those Exago employs, actively incentivise growth and can be deployed in tandem with other pricing axes independent of the customer’s scale.
Do you have other customer retention tips to share? Let us know in the comments! To read what customers have to say about Exago BI, download a free copy of G2 Crowd’s Spring 2017 Usability Index for Embedded Business Intelligence report. Or, get in touch with us to learn more about our pricing.