Just the other day, while talking to a cloud software vendor, we started talking about customer satisfaction and retention. They shared with me their examples of what is becoming a story that I hear all too often from SaaS vendors – that is, they have a great product and get lots of initial sales, but they lose a ton of customers at renewal. And, it’s really hurting their bottom line.
SaaS vendors now realize that they cannot afford to just sell software, rely on the user interface (UI) design and overall user experience (UX), and hope the customer uses it. Retaining customers – and preserving revenues – means needing a comprehensive, actionable strategy to drive and sustain customer success. Here are six reasons why this is true.
1. SaaS software transfers IT adoption risk from the customer to the vendor.
In the old days of traditional, on-premise software, customers made big up-front software purchases. The software vendor made their profits based on license sales, regardless of usage. With subscription software, customers will only pay for (rent) licenses that are actually being used. Lower usage (IT adoption) = lower license revenues.
2. SaaS profits require long-term customer renewals and retention.
The low cost, pay-as-you-go pricing means that customers need less up-front cash to purchase software. However, the lower up-front fees means that vendors need to retain customers longer to get the same amount of revenue. Suddenly, customer retention is critical to vendor profitability.
3. If customers are not successfully adopting your software, they are not renewing.
OK, this is a no-brainer. Savvy customers – and even the not-so-savvy customers – will not keep paying for things they are not using. If customers are not adopting your software, they will not keep paying for it. Now, this doesn’t mean they will drop all licenses (though many will). It may just mean that they dramatically cut the number of paid licenses to eliminate those that are not being effectively used.
Software vendors love to talk about how “usable” their product is, and many (most?) claim almost prescient intuition on the part of the UI. So suggesting that people might not actually use the software is virtual heresy. But really, it’s not about the software. It’s about the fact that the software is a change in users’ daily work lives. Some will love it, some will hate it, but left on their own, not all will use it to its fullest, business-value-creating extent.
5. Customers will not buy more until they use what you have already sold them.
Software vendors love to add new features to their products. It’s how they keep the product fresh and competitive. It is also how they can charge you more per user.
The problem is customers won’t pay additional fees for new features if they are not using what they have already been sold. So, if you are a software vendor, before you go paying developers to create lots of new features for your software, you better make sure that people are using what they already have. And this should start with your existing customers.
6. Customers don’t know how to maximize and sustain successful IT adoption.
This is by far my favorite. For years, customers and vendors alike assumed that if they deployed a system and trained people to use it, that everyone would. The reality is that very few systems are fully adopted. In fact, one report shows that up to 24% of the value of an IT system is lost due to poor IT adoption.
SaaS vendors need to invest in Customer Success Management Strategy
SaaS vendors are quickly learning that having a great product alone is not enough. They now need to have a strategy in place to help customers quickly adopt it and make sure it is delivering business value. We are already starting to see SaaS vendors create new positions – such as Customer Success Managers – to help clients get the most from their software. This is just the first step. In the future, customers will demand – and vendors will need to provide comprehensive customer success management programs.
Want to learn more? Tri Tuns partners with SaaS vendors to develop and implement customer success programs. Contact us today to see how we can help.
I agree, you need to be able to show your customer tangible numbers showing the effectiveness of the solution you are giving them (before and after). This is harder to do in a SaaS because you can’t measure the before too well. I think it’s best to break down the business process the SaaS is trying to help. If you can ask your target customers how many hours they spend per day/week/month on the task, and how much they value the time spent you can figure out how much that one process is costing them. You can figure out pricing from there. It’s might even be best to have this in the form of a questionnaire when signing up for your service. From this they can better decide if your SaaS is a good investment.