Yes, you heard that right! Also, you must have heard this multiple times as well. As a Customer Success leader or VP or Head of CS, you must be intrigued by the number. In SaaS businesses, ARR/MRR is the lifeline for their existence. What would you do if you can’t maintain and improve your ARR? Your brand’s very existence is threatened.
Achieving a 125% increase in ARR (Annual Recurring Revenue) is not an easy task. Having said that, it isn’t that hard as well!
Surprisingly, only 10% of SaaS businesses ever get past the 125% MRR rate. Be in that 10%!
But, what must you do to achieve that magical figure?
Let’s dive right onto it!
The following are the key considerations that you must look at (for improving retention, increase renewals & upsells, etc. as these are crucial to improve your revenue), and try not to skip any point.
- Know your North Star KPI
- Setting up CS team as per those KPI
- Choose the right CS tool
- Track, Measure, Improve and build collaborative teams
These actionable points are powerful enough to turn around your CS business’s ROI! Let me try to explain the aforementioned steps using real examples.
Know your North Star KPI
A north star KPI silences noise around raw data and allows you to see what you need to see with clarity. This will help you in deciding whether you’re on the right track to success or not. In B2B SaaS businesses, you have to identify those key indicators which can drive performance.
To be honest, the KPIs will differ, even within the SaaS industry, according to the nature of your business. Usually, there are different buckets into which you can categorize the KPIs. Some of them are
- Account health KPIs- Product adoption, customer usage, etc.
- Business KPIs- NRR, Renewal rate, MRR churn, etc.
Since they differ from firm to firm, tracking every metric out there doesn’t make economical sense. However, the one universal metric is the “Net Retention Rate (NRR)”. If you can focus on improving NRR, all the other metrics would improve as most of them are directly or indirectly affected.
Net Retention Rate (NRR)
NRR takes into account the total revenue earned minus any revenue churn (caused due to departing customers or customers who have downgraded) plus any revenue gained through upsells or cross-sells.
|NRR = [(Revenue from renewals + Revenue from upgrades– Revenue lost due to churn and downgrades) / MRR at the beginning of the month]|
The metric can be further measured at various stages in the customer journey like-
- Onboarding stage- it makes sense to identify how many people churned out.
- Renewal stage- Identify and measure your renewal rate.
- Expansion stage- At this stage, we measure the percentage of expansion done with the existing customers.
The benefit of doing this exercise is to identify where the core problem lies. Is your company’s core churn happening because of poor onboarding, lower adoption or just the upsell is not happening at the speed where you are growing. If you have more renewals, less churn & higher upsell then obviously your NRR is going to be positive and vice-versa. If you’ve customers churning out at the onboarding stage itself, you know what is the issue that needs to be fixed.
Categorizing the same metric segment-wise (SMB, mid-market, and enterprise segments) would further help in analyzing which segment is giving you more renewals, expansions, etc. These metrics when analyzed later will provide you with the exact issue at hand, and also how deep-rooted the issue is.
If you want to have a look at all the KPIs in one place, then check out The Ultimate Cheat Sheet to Customer Success.
Suggested Read: Gross Retention Rate Vs Net Retention Rate
Setting up CS team as per those KPIs
Once you’re clear about your most vital KPI, then setting up a team should be the next step.
For example, Let’s say the issue is at the onboarding level. You’re unable to onboard customers perfectly due to some broken links. Also, you understand that the leak is in the ‘enterprise’ segment. Now, you must be considering hiring a Senior CSM who knows how to onboard the ‘enterprise’ customers perfectly!
However, the hired CSM may still face problems and s/he would need to go back and check where the core issue lies. Knowing about the product in detail and checking about it with the product team is a sensible decision to make in these situations. Example- how much does the product requires handholding, the integrations it can support, etc.
Also, it needs to be checked if the team needs to be split to handle the onboarding + implementation or onboarding + delivery or just onboarding + adoption. Similarly with NRR, if you don’t have many upsells, you need to set up an account management team that can focus on improving upsells. Example- finding right triggers, finding out more and more referrals, upgrades, etc, and, consequently grow the ARR!
You would need to clearly understand where you lag, and then set up the KPI, set up the team accordingly. Once you figure out the issue at all the 3 levels of onboarding, renewal, or upsell- whether it’s a strategy issue, it’s a people issue or a tech issue, you will know what to do. That is where the real growth happens.
Thus, a team developed to look into the issues and take appropriate action would go a long way in delivering the value promised to customers. There are some secret recipes here at – How to start a Customer Success department if you want to know what not to do if you’re looking to revamp your customer success team.
Choose the right Customer Success tools
Let’s continue with our earlier example- that you have an issue in onboarding your customers. You have set up a great team in place to handle it as well. However, you, also, need to have the right tools in place to assist the CS team in tackling the problem.
Customer Success is a practice-driven game. You need to have processes in place to rectify the core issue, which is where the importance of the CS tech comes into the picture.
Customer Success technology is the ultimate enabler to delivering proactive customer success. Teams powered by CustomerSuccessBox rely on leading indicators and know what actions to take proactively. They act on the right account at the right time, reducing missed opportunities.
There are various tools in the market which help your customer achieve their desired outcomes. However, not all the tools qualify for your business.
Hence, the key is to identify the one! How? Let’s check out some of the factors which you need to look at before you can finalize the tool.
- Actionability– The ability to communicate, manage hundreds of accounts, the ability to locate the history of the account, etc.
- Integrations– The CS tool should have the ability to Integrate data sources smoothly and quickly.
- Account Health Score– The platform should be able to present a 360- degree view of the account health. This will give you the complete health status of an account which can be a game-changer for your business.
- Success Strategy- Are you going to be a high-touch or a low-touch or a 100% tech touch success team. Select a Customer Success platform that suits your business needs.
- Playbooks- Have they adopted the relevant features of the product during onboarding? Or identified the product champion? Or configured the system?
- Automation where required– The tool which helps you automate processes wherever required.
- Segmentation- Segmentation lest you bucket the customers with similar characteristics.
These dimensions are crucial to your north star KPI, especially the NRR. It’s because the right CS tech helps you and your team to pinpoint the exact issue at hand.
Of course, this list isn’t exhaustive. There are many other factors or dimensions that need to be considered before making your decision. Check out the Cheat Sheet for Evaluating a Customer Success (CS) Platform if you want to know about these factors in detail.
The underlying principle is this- Take the guesswork out. Put your SaaS on a predictable path to 125% MRR Retention by choosing the right CS tool which suits your needs.
Track, Measure, Improve and Build collaborative teams
You have chosen the right Customer Success platform for your business that will help you measure the right KPIs and metrics. Now, you need to see if the tool is delivering the value it promised.
The processes which you’ve put in place need to be team-driven. Assuming that your team is already working on the issue with a great CS tech, and still, there are some critical links to be fixed, then you must be looking at the way your team is functioning.
Let’s take the issue of onboarding, as an example, again!
- If your product adoption isn’t good despite having a great team, and an excellent CS tool, then it might be because your Customer Success Manager is unable to provide training to every user! Here, you can collaborate with the marketing team to design some emails to be sent to them at regular intervals.
- If your product isn’t performing well, you can ask the product team to rectify the crux of the issue asap.
- If an account handover from the sales team to the CS team is inefficient, you must collaborate with them to understand the underlying problem.
You would have to listen and learn with curiosity. Once you understand the rules of the game it would be easier for you to figure out the real issue and get it back on track. Build relationships with both internal and external stakeholders as the importance of building these relationships can’t be emphasized enough.
You can also check out the Five Steps a VP of CS Needs to Get Started if you need to dive deeper into the nuances of the most important learning points for a VP of Customer Success.
Here, as you can see, more often than not a job of a VP is to act as a mediator between different teams. These collaborations will definitely help in improving the respective KPIs, and not to mention, the KPIs of those different teams as well.
As a VP you’ve got enough on your plate. To cut through the noise and clear your head, you need to devise strategies, figure out if they work, and if they don’t work, then what needs to be done. Identifying your most important metric, setting up a team based on that metric, and choosing the right CS tool to achieve the same are some of the vital points to be understood and implemented well.
But most importantly, listen to your teams and customers. This will put you on the path to achieving 125% in ARR!
This blog was first published on Hacker Noon, part of AMI publication, with 7,000+ contributing writers, 200,000+ daily visitors, and 8,000,000+ monthly pageviews