Christoph Janz, a SaaS enthusiast, and a Venture Capitalist had published a brilliant article way back in 2014. It was about the “5 ways to build a $100 million ARR business”.It was meant for SaaS companies. The key takeaway was to get to $100 million in ARR(Annual Recurring Revenue), and to find customer acquisition channels that are highly scalable, repeatable, and profitable.
He created the animal framework as shown below.
The y-axis shows the average revenue per account (ARPA) per year. In the x-axis you can see how many customers you need, for a given ARPA, to get to $100 million in annual revenues. Both axes use a logarithmic scale.
To build a company with $100 million in annual recurring revenues(ARR), the following are the 5 ways to do it-
- 1,000 enterprise customers paying you $100k+ per year each; or
- 10,000 medium-sized companies paying you $10k+ per year each; or
- 100,000 small businesses paying you $1k+ per year each; or
- 1 million consumers or “prosumers” paying you $100+ per year each or
- 10 million active consumers who you monetize at $10+ per year each by selling ads
People sometimes refer to “elephants”, “deers” and “rabbits” when they talk about the first three categories of customers. Let’s extend the metaphor to the 4th and 5th types of customers, and call them “mice” and “flies”.
I’m assuming here that you’re on the way to acquiring 10 million, you already have acquired many thousands of them. BUT you are now witnessing churn. A churn you never accounted for, churn which is eating your portfolio like a termite. It’s that leaky bucket which you’d have to fill asap!
How do you address the churn problem? Let’s look at different animal categories. Try to understand what you need to do to retain your target customers.
How to retain SaaS business?
“Most of the biggest SaaS businesses grow by selling expensive subscriptions to large enterprises”Christoph Janz
And that’s true enough. These big businesses are the customers belonging to the ‘elephant’ category having the ARPA > $100K! You need only 1000 enterprise customers to achieve the $100 million mark.
This target market is looking for some really critical business issues to be solved. It could be related to:
- core infrastructure,
- scaling of business operations,
- some unresolved strategic issues, etc.
Enterprises such as SAP, Salesforce, Workday, etc fall in this category. You would have to solve their pain point by bringing out a solution that is product/market fit.
However, there’s a key point to be understood here. There are too many stakeholders involved in this category of business enterprises. You have heads of various departments, different functions, various inter-departmental resources with different motivations, etc. To manage them, you need different champions. Example- account managers, CSMs, other champions, internal teams, etc to manage your team. Once you have all these teams you must design an effective way to collaborate on accounts & share customers’ knowledge.
That’s easier said than done. Once you succeed, the next step is to retain them with you for the longest time possible. Large enterprises require:
- a dedicated CSM,
- on-demand human training,
- custom configurations,
- 3rd party software integrations, etc.
There will be a dedicated team of professionals for onboarding, support, sales, and managing accounts.
The review meetings (QBR/EBR) are conducted with the respective stakeholders to see if your customers:
- have got the value that they were promised,
- Are they getting value?
- have they achieved the outcome they were supposed to, etc
These are some important milestones to identify and understand. The following could work out in your favor if you try:
- Great coordination between Account managers and CSMs
- Prepare a success plan per customer.
- Handle onboarding effectively to avoid the prospects of churn.
- Track their Account health early on.
- Monitor and handle the Customer Onboarding process.
- Provide automation wherever required.
- Know which customer and when is the customer ready to upgrade.
- Involve Support team in analyzing customer’s ticket and SLA.
- Provide the sales managers with the real time customer account insights.
You would require a customer success tool that can accomplish the above tasks. A CS software platform like CustomerSuccessBox that suits your and your customer’s needs.
Deers have an ARPA of about $10K-$100K. If you’re a deer hunter, your SaaS business is looking at:
- providing real complex, strategically important solutions to your customers.
- Help with analytics, Business Intelligence (BI), CRM, ERPs, Workflow management, etc. can be some examples.
Due to the complexity of the nature of your customer’s business here, their expectations are sky-high! And rightly so, as the price is high and more people would be involved in the processes. Clear distinctions between a buyer, a user, and the configuring or onboarding team can be made out.
Even though the product can be self-served, personalized product guides or product walkthroughs are a must. The customers need to be handheld wherever it’s required and timely training by CSMs needs to be given to them. A dedicated CSM needs to be assigned to customers. The usual onboarding process takes anywhere between 4-12 weeks. There would be an onboarding specialist who can monitor the process along with the CSM.
EBRs or the QBRs are recommended to be conducted with the respective stakeholders.
Your customers can store their data on various other platforms and software. It makes sense when they want to bring in their data to get a complete 360-degree view of their customers.
Standard Integrations ensure a smooth self-serve data import. This allows you to sync your data from your SaaS platforms in minutes! The CS tool should provide integrations to different business function platforms like CRM, support, billing, email, engagement, NPS, etc.
Now you know the complexity involved in hunting deers. Retaining them is going to be even tougher! See, there are various stages in a customer journey. The day your customer signs up with you is the day you start thinking about preventing their churn.
Retaining 10,000 deers (to achieve $100mn in ARR) is not easy. It’s upon the senior management to take care of processes like:
- monitoring the customer Onboarding process,
- tracking their account health and product adoption data,
- enabling real-time customer insights for CS, sales & support functions, etc
If you want to know more about retention, the renewal playbook guide is the must
Hunting Flies, Mice and Rabbits
Flies are the customers with ARPA <$1K or pay you $10/year and mostly require one or two feature solutions for their concerns. For a fly, you’re likely solving a very simple point problem. Say calendar booking, cloud email for a very large market. The only way your customer success unit economics will work if you’re able to onboard the customer in say 15 – 60 min.
Product is expected to be intuitive or self-guiding. For the price, there is no scope for any human intervention. Simple problem, simple solution, quick value delivery for a sweet price of mice $10/year. So to answer this simply, the customer success here will be 100% tech. No confusion here at all. Best will be if the product experience itself drives customer success. I will call this customer success or customer retention ownership of a product manager.
Growth via expansions and upgrades will also be tech-driven.
- Gentle nudges to try next plan features,
- Auto coverage charges above the plan quota, etc.
This will drive both expansion revenue and will also work as an upgrade push.
The issue should be resolved in the “Onboarding” stage itself. The relevant analytics will help your product and support teams resolve it. Since there’s no dedicated CSM for these customers, other teams have to step up to resolve any issue.
Retaining mice is going to be a bit more complex than the fly as the revenue to be generated per customer is higher. You would need a million customers who pay you $100 per year.
The product is expected to solve simple issues for your customers and provide point solutions. Examples can include MailChimp, Evernote, etc. Most of the product features would resemble the one offered to the flies. Human intervention will not make any economic sense here. Similar to a fly, the product manager is supposed to take ownership of the customer’s success.
Upsells, expansion, renewals, etc are supposed to be entirely tech-driven. The management should try to onboard the customers smoothly. This way you can ensure that your client is happy with the process. S/he likes you for solving his/her issue and decides to stay with you.
The problem steps up a notch here in complexity (rabbits)when compared to the mice. These customers’ ARPA fall anywhere within the range of $1K- $10K. Hence the price is more and likely will also be the time and effort to value. It is completely fine to offer a few quick touchpoints (30min X 2 calls) to guide the customer through a standard onboarding process.
Pointing them to the self onboarding guides is a usual approach. The product is intuitive in design to help the customer navigate through easily. Training is given and documented through recorded videos. Self-serve and in-app guides assist in case of easier use cases.
A dedicated helpdesk tool helps the customers in getting their issues resolved. Examples of some of the tools targeted for this category of SaaS animal could be:-
- Zendesk (helpdesk tool),
- Reply.io ( email outbound),
- Quickbooks (accounting tool),
- LeadWorx (Point MarTech tool), etc.
You can expect the onboarding here will be 1 to 14 days of effort for the customer. But keep in mind that you’re here giving some specific point solutions to your customers.
For retaining the rabbits, some processes that you can put in are:-
- Monitoring of the onboarding process
- Self-onboarding tutorials for end-user onboarding
- Needs to be a dedicated Onboarding Managers
- You can’t have a dedicated Customer Success Manager/Account Manager
- Need to have automated alerts to identify proactive risks
- Expansions and upgrades through proactive identification of upsell triggers renewals.
- Resolving tickets within the support SLA
- Figuring out the relevant data through analytics
Keep a track of the above-mentioned processes diligently. You can keep your customers satisfied this way. It will ultimately lead to better customer retention.
Suggested read: Gross Retention or Net Retention – which to track
Final thoughts on retaining your target SaaS animals
Retaining customers is way cheaper than acquiring new customers. The above-mentioned are some of the best practices that you should carry out to protect and grow ARR or MRR
Irrespective of your target audience, start monitoring the onboarding process. It is the first potential point of churn. As the complexity in the business increases, so does the effort to retain customers. Retention is not only about preventing churn. It’s about providing your customers with an extraordinary customer experience. Ultimately, making them your brand’s advocates! Using customer success technology can help achieve your retention goals faster and more predictable.
P.S. – The main image has been taken from pexels.com