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Customer Retention as a Success Factor: How SaaS Companies Structure Customer Success to Maximize Profitability

Customer success is one of the central growth drivers for every SaaS startup with recurring revenue. In 2023, the SaaS market will be flooded with many similar or comparable products, so only those who consistently delight their customers will be successful and survive in the market.

But we have good news for you: with well-structured customer success management from the beginning, delighting customers will be a breeze.

Many startups only think about customer success once the company has already grown, but a positive customer experience from the beginning is the biggest differentiator to stand out from your competition, reduce churn, and increase your CLV:CAC ratio.

Therefore, the function of customer success management is not just a "nice-to-have," but an absolute must-have for your SaaS company.

Your customers' success is your success

The goal of customer success in the SaaS industry is

  • to build a good customer relationship and
  • provide the customer with a great product experience from the beginning.
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As the term suggests, it's not just about making the customer happy, but rather about ensuring their success and meeting their needs at all times. Success, in this context, means that the product supports the customer's goals, such as higher productivity or more revenue. Customer success should focus on the customer and their goals, aligning all business processes and resources to enable the customer to derive maximum value from the product.

To achieve this, the following three tasks are essential for the customer success team:

  1. a well-structured customer onboarding
  2. the best possible customer activation
  3. gathering customer feedback

1) Onboarding - the first impression decides

Onboarding starts immediately after the closed won, as the customer's journey with you begins at this point, and you can have a direct impact on a positive customer experience.

The goal of onboarding in the SaaS environment is:

  • to quickly and effectively familiarize the customer with the product
  • to help the customer use the product successfully
  • to avoid unnecessary steps and confusion.
According to Thomson Reuters, 89% of customers are confronted with a laborious and frustrating onboarding process. As a result, 13% choose a competing provider.
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To avoid churn during onboarding, the customer's first experiences with the product should be very well structured, so that the customer feels supported and the next steps are clear. To systematically enable this, an internal customer kick-off should be conducted immediately after the closed won, in which a detailed and structured onboarding plan is created, showing all the dates and answering when the onboarding will be completed. This way, onboarding can give the customer an extremely good guidance for using the product and answer any open questions and topics.

2) Activation - Using Customer Feedback as Fuel

Customer activation refers to the process of turning a customer into an active user who fully understands and utilizes the service's functions and benefits.

The goal of customer activation is to:

  • involve customers in the full benefits of the service as quickly as possible.
  • ensure that customers recognize the benefits and actively use the product.

Successful customer activation helps increase CLV, as active and happy customers on one hand reduce churn rate, and on the other hand, provide upsell potential with either additional features or expanding the relationship by selling the product to other teams within the company.

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To monitor and control the activation process, it is important to keep an eye on the "activation rate" in the first step and the "customer health score" in the second step. Properly set up and structured with "expected behavior rules," the activation process enables the customer success manager to actively manage customer relationships and promote customer satisfaction.

After a successful activation, it is the job of the customer success team to gather customer feedback and understand what customers expect from the product, what challenges they face, and how to further increase the impact. In collaboration with the product team, the product should then be optimized or expanded with new product features.

Top 5 Customer Success KPIs for the ultimate overview

To not leave success to chance and to understand if and why your strategy is working, it is essential to always keep the following customer success KPIs in mind:

Net revenue retention (NRR)

This metric provides insight into the quality of existing customers and is calculated as follows: Revenue at the beginning of the period is adjusted for the effect of upgrades and downgrades, churn is subtracted, and the result is divided by revenue at the beginning of the period. NRR should be above 100%.

Gross revenue retention (GRR)

This metric, unlike NRR, does not take upgrades into account and tracks how much revenue is lost over a certain period of time. GRR cannot exceed 100%.

Customer health score (CHS)

The CHS measures the risk of a customer churning. CHS is usually based on a combination of data on engagement, activity, usage intensity, customer feedback, and other factors.

Net Promoter Score (NPS)

The NPS is a metric for measuring customer loyalty and satisfaction and determines the willingness of a customer to recommend products and services to friends.

Customer Lifetime Value (CLV)

The customer lifetime value determines the average gross revenue generated by a customer before they churn. It provides insight into profitability and helps with decisions regarding customer acquisition, retention, and development.

3) Automated measurement, analysis, and management of customer success

To simplify the monitoring of this and other data and to automate customer success processes, we recommend using a suitable tool.

Planhat is an innovative all-in-one platform that connects all customer data and creates insights to avoid churn and recognize opportunities. As a partner of Planhat, we can recommend this tool without reservation and implement it in your company.

With this tool, sustainable growth and successful customers who happily recommend your product are no longer a matter of chance.

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Michael Jäger
Managing Partner