When I first took over the Siebel CRM OnDemand division in 2004, I realized very quickly there were a lot of differences – some subtle, some not so subtle – that separated a SaaS business from a software business.
At the time, many of the metrics that those who currently run or invest in SaaS businesses now take for granted were then relatively new concepts and not necessarily a part of a traditional software business – Annual/Total Contract Value, Monthly Recurring Revenue, Cost of Customer Acquistion Ratio, LTV Customer, etc.
A few days into the job, I received my first set of waterfall charts and I remember poring over the numbers trying to cull out the critical information. The first numbers I noticed were “Bookings” and “Monthly/Annual Contract Value”. These were straightforward enough but the second number that popped out at me was “Churn Rate”. It didn’t take a rocket scientist to figure out that a large Churn Rate is an awfully large hole to plug in the bottom of this business model. Our Churn Rate at the time wasn’t outrageous but the trend was concerning.
As a result, I realized there were three critical areas to making this business model work:
- Number and cost of prospects acquired
- Velocity rate and conversion costs of turning prospects into customers
- Churn Rate
I had a function in place responsible for the first (Head of Marketing) and the second (Head of Sales) but no one specific function in charge of number 3. In my experience, if there is a critical business function where there is no single individual/team who wakes up every morning concerned about achieving the objectives of that function, it is unlikely to get done — or at least not as well as it could be done.
As a result, I held a number of discussions with the sales, products, support and services organizations. We elected to create a function called “Customer Success”, put in place a team and team lead responsible for achieving its objectives and had that lead report directly to me, as the GM of the division. This, I felt, would demonstrate to our employees and customers just how important this role was.
We determined the key metrics of success for this group would include:
- Onboarding rate
- Adoption rates
- Usage rates
- Renewal rates
- Customer satisfaction scores
The result of this decision took our then-current Churn Rate and lowered it by 2/3rds. And, it served as a direct conduit to our Products team in terms of prioritized feature sets for future releases.
Consequently, I have become a firm believer that a SaaS company that does not have a senior executive in charge of Customer Success is one that doesn’t understand its business model and not one I am likely to invest in.