methods that build customer trust, happiness, and retention. By Jess Iandiorio, VP of Marketing at Drift & Patrick Campbell, CEO at Price Intelligently Opening Thoughts by David Cancel
Iandiorio Designer: Elyse Bogacz This ebook was created in partnership between Drift and Price Intelligently. No parts of this book may be used or reproduced in any manner without written permission from the copyright owner and publisher, except in the context of reviews.
by David Cancel Marc Andreessen once famously said “Software is eating the world.” I think SaaS is eating the software world. Goodbye legacy software models. The revenue model is better. The sales strategy is better. The products are better. The customers are happier. Or are they? For your SaaS business to work you need to retain and monetize your customers. You can add millions of users, but if they churn, or aren’t willing to pay you, you’ve failed. While endless playbooks exist to help SaaS companies acquire customers, no one’s written the playbook on what companies
do to create truly happy & valuable customers. [Tweet This] We chose CEOs for this guide because, simply put, you’re responsible for customer happiness. Everything flows from you. I believe you need to commit to be a customer-driven business if you really want to drive customer happiness. You have to create the approach to customer engagement, service, and measurement of satisfaction, and your team will execute. If you don’t prioritize making customers happy, no one else will. We’ve partnered with our friends at Price Intelligently to create this ebook on what we think you should be doing to create happier customers. I hope this is helpful and would love to hear any feedback. DAVID CANCEL CEO, Drift
Contents INTRODUCTION CREATE CUSTOMER-DRIVEN PRODUCTS How to learn what customers need OFFER VALUE-BASED PRICING How to create the right pricing process MAKE CUSTOMERS SUCCESSFUL How to build your go-to-customer (GTC) strategy MANAGE TO THE RIGHT METRICS How to build & manage the right success metrics CLOSE HAPPIER CUSTOMERS CHECKLIST SaaS CEO’s Guide to Happier Customers 7 9 12 23 30 34 35
CEO’s of SaaS Companies, we have one question for you: “What’s the one thing you could do, such that by doing it, everything else would be easier or unnecessary?” In his book, The ONE Thing: The Surprisingly Simple Truth Behind Extraordinary Results, Gary Keller says the answer to this question is everything. It drives focus on your highest contribution behavior. Chances are you think about focus a lot, but it often changes, especially if you’re starting up. We have the answer for you. What’s the one thing, such that by doing it, everything else would be easier or unnecessary? Make your customers happy.
only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.” -SAM WALTON Happy customers renew, and you need to showcase retention to succeed. Happy customers invest more over time, and you need to showcase increased lifetime value. Happy customers are loyal and serve as references, which make it easy for you to acquire new customers. And you need to showcase growth. Happy customers are the be all end all of your business. And you’re in charge of customer happiness. [Tweet This] We’ve produced this guide, in partnership with our friends at Price Intelligently, to share the four things you absolutely need to do create happier customers.
Create customer-driven products “Figuring out the right product is the innovator’s job, not the customer’s job.” -BEN HOROWITZ, The Hard Thing About Hard Things: Building A Modern Business When There are no Easy Answers While the customer doesn’t know how to build the solution to their problem, they do know their problem. CEOs need to encourage their product teams to create solutions for customer problems. There are a lot of ways insert the voice of the customer to yield customer-driven products, but this is the best
found: ALWAYS LAUNCH WITH A CLOSED BETA, AND OBSESS ABOUT LEARNING. Everyone starts their ideation/creation based on assumptions about customer pain. They may be well-rooted assumptions, but the solution to that pain is not yet validated. This is your validation period. You also need to validate your assumptions about your target market, and closing this period allows you to select in those that fit your initial criteria. You need your product team to exhibit rigor in this period by repeatedly asking these five questions consistently: • What are you trying to accomplish with our solution? • Did our solution work as you expected? If not, why? • Would you use our solution again? Why/Why not? • How much would you pay for this solution? • How likely are you to recommend us to a friend or col- league? HAVE YOUR TEAM CONDUCT WIN/LOSS. The answers to the beta questions above will give you tremendous insight into the quality of your initial product design, and it’s ability to meet customer needs. But once those beta users are asked to pay you, and they choose not to, you’ll
learn more. You’ll need insight to inform your go- to-market and sales strategy. This is where you’ll learn about areas of complexity in your sale. Will your sale be political and involve multiple stakeholders? Will your sale be highly competitive? Will one of your competitors be “do nothing?” How much sales hand holding will your prospect need? Answering these questions can be done early and easily through win/loss analysis. Let the customers drive you to your target market, and your sales/GTM strategy. CREATE A CUSTOMER ADVISORY BOARD (CAB). Many tech companies wait until they have hundreds or even thousands of customers before they consider creating a customer advisory board. This is a huge missed opportunity - early CABs will help you focus on the highest value product innovation across a variety of use cases. The reason a CAB is better than letting a product manager vet periodically with many customers, is it gives you the chance to hand select your best use cases - the industries, roles, and company sizes you intend to impact. When you create a sounding board that exactly reflects who you plan to provide value to, you stay true to that audience’s pain, instead of allowing yourself to be distracted by anyone’s pain. Run the right beta, do the work with win/loss analysis and ensure it always has a feedback loop to product, sales, and marketing, and create your CAB early to avoid expensive product missteps.
Price your product(s) based on value Pricing is one of the most important aspects of your business, because it’s quite literally the center of everything that you do. Everything you work on, from your sales and marketing to your support and product, works to drive prospects to your pricing page or to justify the numbers you’re putting on that page. Yet, even though pricing is absolutely crucial to your success, the software industry as a whole is absolutely awful at taking pricing seriously. [Tweet This] In fact, we found that the average amount of time companies spend on their pricing is 8 hours. That’s 8 hours total...in the entire history of their business. You
more time picking out office chairs. While the lack of focus may seem amusing, not focusing on pricing has an enormous impact on your revenue. Particularly because pricing has 2-4x the impact on your bottom line as improving acquisition or retention. It’s that important. Unfortunately though, most stakeholders just end up arguing with other team members about how they should price and inevitably just succumb to “gut feelings” or worse - cost plus or competitive based pricing. As a result, you end up leaving an enormous amount of revenue on the table that you could be using to reinvest back into your business. By studying over 1100 SaaS companies, we’ve found that companies are on average losing out on at least 30% more revenue, because of poor
help get your business’s pricing on the right track, let’s walk through what value based pricing is, why it’s so important for you and your customer, before finally giving you a playbook to implement more value based pricing methodologies into your business. VALUE BASED PRICING AND NOT COSTS OR COMPETITORS. When asking hundreds of companies how they came up with their prices, we often find that most follow the path of least resistance in just guessing. Some of the more sophisticated companies out there (sarcasm intended) end up going a bit further by utilizing costs and competitors. While these tactics may be easy, they are far from effective. Cost plus pricing, even if you’re in a retail environment, is an extremely poor way to price, because your customers don’t care about your costs; they care about their costs. Even when controlling for customer perception, those individuals who are utilizing cost-plus pricing are typically missing out on an enormous amount of margin, because they end up pricing too low “just to make what seems to be a good margin.” In reality, willingness to pay is likely much higher. Take a look at Salesforce.com as an example. SFDC’s relative cost per user vastly pales in comparison to their actual price per user. Why? Because they price on the value their providing - an enormous amount of time saved managing sales and customer records.
costs that scale is the very reason most of us love the SaaS model. Other pricing aficionados may claim that competitive based pricing is better. Unfortunately though, even if you’re in an exceptionally competitive market (the CRM space for instance), you’re assuming your customers are exactly the same as your competitors. You’re also assuming that your competitors have done their customer research. Yet, as seen from the average amount of time people spend on their pricing, they likely haven’t done any customer homework either. With the above context, this means that pricing can actually become an exceptionally strong super power for you and your business. With even a small amount of customer research and value based pricing, you can start to iterate rapidly on delivering your customers’ wants and needs. Remember, your customer is the actual person who’s going to give you cash for the value you’re creating, which is why you need to price based on their perception of your product. To consumers, price is the exchange rate on the value you’re creating in the world, and it’s your job to evaluate and set that exchange rate properly. To do that, value based pricing requires research and a formal data collection methodology, which sounds complicated, but really isn’t. It’s just a process. Before we go through that process below, let’s walk through why value based pricing is so important to not only you as a business, but also your customer. Yes, we inferred that correctly. Charging more effectively is actually better for your customer.
PRICING ALIGNS YOUR ENTIRE BUSINESS AROUND THE CUSTOMER The benefits of value based pricing may seem obvious, but let’s paint a bit of a picture of what value based pricing means to your business. Value based pricing is so powerful, because it aligns your entire sales and marketing funnel to your buyer personas. Imagine knowing exactly which value proposition your target customers care about most, which features or products they’re specifically looking for, and the exact price they’re willing to pay for that product or package of products. Essentially, you then know what to sell, to which customer, at what price. Your marketing channels will become more efficient, because you’ll stop wasting your time on ineffective messaging. Your product team will start to create the right products for your customers. Plus, you’ll eliminate the friction of a purchase because you’ll be priced correctly. Long story short, everything will begin to fall into place. Everything falls into place, because everything becomes about the customer, which has extremely positive externalities on your team as a whole. Decisions become all customer and data focused. You no longer argue in a manner where the loudest stakeholder wins. Instead, you focus in on the customer and the data that supports or refutes what that customer wants or needs. Sounds pretty great, right? Well, even if company harmony doesn’t get you excited, the impacts on your bottom line are
too. Those companies with value based pricing processes are seeing 2-3x the LTV/CAC ratio (a measure of company efficiency) of other companies. VALUE BASED PRICING IS ACTUALLY BETTER FOR THE CUSTOMER TOO Value based pricing isn’t about all the advantages you get though; it’s actually extremely beneficial to your customers, as well. Particularly because it ensures they have a seamless, high quality purchase process while guaranteeing the company and the customer’s interests are aligned. We’ve all had exceptionally obtuse purchasing experiences.
down to the physical price where we don’t want to pay as much as someone’s charging for a product no matter the need. Others are more failures in packaging or purchasing terms. Aligning your pricing strategy ensures that you and your customer are aligned in what’s the best interest of the customer. We’ve all felt the pain of overpaying for something where we didn’t use 80% of the product - think back to our salesforce. com example or, even more applicable, the hundreds of TV channels you get with a cable subscription. Some of us have also experienced situations where we feel like we’re underpaying for something to the point that we were worried if the company would actually stick around. While underpaying typically isn’t as big of a problem, not aligning incentives with your customers means you don’t have as much of an incentive to keep your product at a high enough quality bar. This is awful for customers, because your interests should be as perfectly aligned as possible. As a consumer you never want to worry about something you rely on every day not being there or being the best that it can be, and your customers shouldn’t either. You truly “get what you pay for” and by using value based pricing, you can ensure customers and producers are perfectly aligned for success and value. GREAT. HOW DO YOU VALUE BASED PRICE? Most pricing advice stops there, but value based pricing a ctually breaks down to three main steps:
BUYER PERSONAS Everything begins and ends with your buyer personas and if you don’t have a running document of your quantified buyer personas, you’re behind. We’re not talking about just pretty pictures and cute names like “Marketing Mary” either. These need to be deep studies on who’s buying or not buying from you. Specifically, you should know: • Main SaaS metrics and unit economics for each perso- na (Lifetime value, Customer acquisition cost, average revenue per user, churn rate, etc.) • Relative preference data for features, value propositions, and any other positioning data • Price sensitivity data • Main usage metrics that you track based on your soft- ware (feature X usage, avg visits, etc.) ENSURE YOU’RE USING THE RIGHT VALUE METRIC As you’re collecting and filtering the above data a lot of your main decision will fall into place. You’ll know which features to put in which plans, how each plan should be priced, and where the focus of your sales should be in terms of personas. One piece that’s crucial enough to pull out separately is the
Your value metric is essentially how your pricing scales and for what you’re charging. Could be number of users, number of visits, or a combination of a number of factors. Keep in mind too that charging based on users is most commonly the worst way to price a SaaS product. To gauge the proper value metric, you should collect some of the above data, but also make sure you’re following three main rules: 1. Make sure it aligns with where your customer perceives value in your product. 2. Your value metric needs to scale with your customer’s usage. 3. It needs to be easy to understand. IMPLEMENTING A PRICING PROCESS WITH A PRICING COMMITTEE Collecting the above data and making sure it’s disseminated throughout your organization isn’t an easy task. To make things easier and part of an iterative process, your company needs a pricing committee made up of main stakeholders from different parts of the business, as well as a main facilitator.
of the committee is to ensure constant motion on price optimization, as well as to make sure that each aspect of the business has a say against the collected data on decisions. Remember, pricing’s central role means that everyone will have an opinion and this committee’s main decision make sure filter through those decisions to constantly run the pricing playbook. Plus, by being an iterative process, data collection will become incremental after the first cycle, making the workload exceptionally manageable.
PRICING IS A PROCESS The above may look like a lot of work, and I’m not going to lie and say it’s not. Yet, the work you’re doing for pricing has enormous impacts on the rest of your business. This work also isn’t difficult, as you’re simply collecting data as you already should be through your customer development process. Start small and grow from there. Just keep in mind that your pricing decisions are likely 10x harder without data and a process than with one that focuses on the customer.
is as a consumer company - for that individual customer who’s voting thumbs up or thumbs down. That’s who we think about. And we think that our job is to take responsibility for the complete user experience. And if it’s not up to par, it’s our fault, plain and simply.” -STEVE JOBS Do you take responsibility for the complete user experience? The job of a CEO is filled with many things. You’re responsible for vision, hiring people that can execute on the vision, championing your culture, and ensuring performance goals are met. Somewhere along the way, you may have decided your Part 3: Make customers successful
too full to also be responsible for customer happiness. You may have given this responsibility to your head of customer success. You need to take it back. You need shared goals with your head of customer success, but you need to ultimately be responsible for it. Harry S. Truman (1884 - 1973) - “The Buck Stops Here” Now that you’ve taken the reigns, what next? You need to create your go-to-customer (GTC) strategy. When you evaluate marketing and sales’ ability to acquire net new customers, you’re evaluating your organization’s Go-To-Market (GTM) Strategy. You need to introduce a counterpart to the Go-To-Market that’s focused on customers - hence, the Go-To-Customer Strategy.
the go-to-customer strategy? A go-to-customer (GTC) strategy is how a company drives customer usage, satisfaction, and growth. [Tweet This] This new approach will align your organization to treat customers uniquely in order to reduce or even kill churn. In this new world order, you’ll need to prepare your sales team to make room for marketing’s involvement to continue post- sale. You’ll need to educate your support and services team, traditionally responsible for customer success, that they need to work in partnership with marketing and sales for the benefit of the customer. You’ll also need to take down the walls between product and marketing. GTC ENGAGE SEGMENT SATISFY GROW
centers around what’s best for your customer. “Every successful business creates a new kind of customer. That customer’s story changes because the business exists. There is a before-the-product story and an after-the-product story.” -BERNADETTE JIWA, Meaningful Here are three disciplines you need to master in order to make customers successful as part of your go-to-customer strategy: 1. ALWAYS BE RELEVANT. When business was personal, it was about companies knowing individual customers and treating them uniquely. As companies scale, that personal touch tends to die. But there’s a way to get it back: Create customer segments before communicating. Your customers belong in distinct groups - whether that’s by subscription tier, job title, industry, and the list goes on. In order to scale relevancy, you need to break your customer segments down in a granular way. Segment is an exceptional tool at helping companies collect their customer data and turn it into actionable segments. Your customer marketer should be responsible for the creation and maintenance of customer segments.
the tactics? Segment. To achieve relevance in all communications, estab- lish customer segments that need to be addressed uniquely. 2. ENGAGE & DRIVE USAGE, WITHOUT SPAMMING YOUR CUSTOMERS. As you create and launch new products, or update old products, customer communications start to become frequent and generic. This is spam. The first rule of never spamming customers is to create segments, and the second rule is communicate in- context, in-the-moment. Companies are deploying in-app chat in order to catch customers when it matters, rather than becoming one more email in a sea of emails. It’s better for the customer, because they receive the communication when they’re logged into your application and they care. It’s better for you, because as Localytics reports, “apps that send in-app messages show 3.5x higher user retention.” Through in-app messages you SEGMENT 1 SEGMENT 2 SEGMENT 3 WHAT TIER? WHAT ROLE? WHAT INDUSTRY? USER OR NON-USER? HOW SATISFIED? LEVEL OF USAGE? Pro Subscriber CMO High Tech Non-User Low Sat Low Usage Ent Subscriber Marketing Mgr Publishing User Neutral Sat Low Usage Dev Subscriber Developer Gaming User High Sat High Usage SEGMENT
your marketing team to create relevant launches and promote calls-to-action, and your customer success team can respond to customer requests. What are the tactics? Engage. To create your customer engagement strategy, set goals and corresponding outreach types and mediums to achieve goals. 3. BE CRAZY ABOUT CUSTOMER SATISFACTION. You need to make customer success everyone’s job. When you tell your people that customer success is now everyone’s job, you need to roll that out with a shared Key Performance Indicator (KPI). Aligning your team with customer success metrics will make sure everyone has skin in the game. One of the best ways to measure this universally is through Net Promoter® Score, a well-known method for capturing universal customer SEGMENT 1 SEGMENT 2 SEGMENT 3 SET GOALS OUTREACH Drive Usage Increate Sat Activate Show Results Build Relationship Increase Sat Cross-Sell Show Results Show New Value Promote Products Upsell Invite to Webinar Show Features Offer Discount ENGAGE
one simple question, “How likely are you to recommend X to your friend or colleague?” against a scale of 0-10. Once implemented, then comes the question of how you operationalize NPS - how often do you ask, in which forums, and what do you do with the data? You need to find the precise timing based on your business, but we generally suggest while onboarding, quarterly while using and being supported, and any time a customer has purchased additional products or moved subscription tiers. What are the tactics? Satisfy. To improve satisfaction, first you need to set your baseline. Ask the Net Promoter question, and then re-ask it at every major event, and track progress. Net Promoter Tip: Your greatest insight comes in the first 90 days of product usage, ask once per month to detect trends. ONBOARDING ONBOARDING CUSTOMER LIFECYCLE CUSTOMER LIFECYCLE USING GROWING SUPPORTING NET PROMOTER NET PROMOTER NET PROMOTER NET PROMOTER NET PROMOTER NET PROMOTER NET PROMOTER NET PROMOTER SATISFY
you do so well that they will want to see it again and bring their friends.” -WALT DISNEY If you’re not data-driven, you’re likely losing money and wasting time. [Tweet This] Before you think you’re a-ok and perfectly executing a data-driven process, think about if you’re truly deferring to data. In a recent poll we conducted with 63 companies that had Part 4: Manage to the right metrics for customer retention and growth
only 3 out of 10 utilized formalized hypothesis testing, 2 out of 5 were calculating MRR incorrectly, and 8 out of 10 admitted to having “arguments where data was used politically.” Utilizing data properly is absolutely critical in a SaaS business, because the beauty of SaaS is that the business model is one giant formula. If you understand your metrics intimately enough, then you know which levers to pull and which to hold steady for growth. Let’s walk through why this is so important by chatting about the importance of a compass metric, as well as the main metrics you should be focusing on throughout your business. A COMPASS METRIC RALLIES YOUR ENTIRE TEAM AROUND ONE GOAL [Tweet this] There are literally hundreds of metrics you can track and work to optimize. Yet, even though you can track a multitude of metrics, focusing on all of them equally isn’t a great idea. After all, you don’t want to be pushing your team in a multitude of directions. You need hierarchy in your metrics because you’re able to rally your team around that metric and ensure you know how sub-metrics feed into that compass metric. To do this, we recommend picking a metric that you as the CEO want to ensure grows (or retracts) specifically over time. For most companies, especially software companies, that number will
combination of growth (either usage or revenue). For later stage companies this may be your LTV/CAC ratio or your retention. Either way, pick a metric and make sure you’re constantly communicating that metric’s progress to your team. Also make sure every team member knows how metric’s they’re in charge of feed into that metric. Product folks might want to connect retention to revenue growth. Customer success might need to know how upsells tie into overall growth. Regardless, aligning everyone ensures when you’re battling time that you don’t drown in too many metrics. Here’s a deeper dive on setting your compass SaaS metric. Remember, just because you’re setting a compass metric, doesn’t mean you’re not tracking or thinking about your other metrics. From the top of your marketing funnel to the end of your retention funnel, there are metrics that are enormously important to keep track of; here are a few: NPS AND CUSTOMER SATISFACTION The biggest leading indicators of customers sticking around or leaving your product in droves is their net promoter score (NPS) or customer satisfaction. You should be tracking this constantly and breaking it down by every possible segment to uncover pockets of opportunity or problems. More on calculating net promoter score here.
MRR GROWTH Your monthly recurring revenue (or annual recurring revenue for larger businesses) is the ultimate momentum metric in your business. Recurring revenue means our growth can compound and through this momentum we can ensure we’re always improving and building something beautiful. Here’s some more on calculating monthly recurring revenue correctly. REVENUE RETENTION Sometimes the money going out of your business is more telling than the money coming in through growth. Hence, why revenue retention and churn rate is so important to track. Here’s a breakdown about calculating your revenue retention and churn rate. LIFETIME VALUE TO CUSTOMER ACQUISITION COST RATIO (LTV/CAC) Getting new customers is good. Getting new customers at a lower rate and keeping them around for longer is even better. Your LTV to CAC ratio measures the efficiency of your business, and ultimately ensures you’re building a business that can actually sustain itself into the long term. Check out more on making sure you’re calculating Lifetime value and customer acquisition costs correctly.
You’re the boss, and the buck stops with you. If you make customer happiness your priority, and ensure your company puts these strategies and tactics to work, it will make everything you care about easy: Customer acquisition, customer retention, and customer monetization. [Tweet This] “What’s the one thing you could do, such that by doing it, everything else would be easier or unnecessary?”
CEO’s Guide to Happier Customers Checklist 1. CREATE CUSTOMER DRIVEN PRODUCTS. • Do you launch new products with a closed beta, and obsess about learning? • Does your team conduct win/loss, with a feedback loop to product? • Do you have a customer advisory board that YOU participate in?
YOUR PRODUCT(S) BASED ON VALUE. • Have you quantified your buyer personas? • Did you ensure you’re using the right value metric? • Have you created a pricing committee? • Do you have a pricing process? 3. MAKE CUSTOMERS SUCCESSFUL. • Do you have a Go-To-Customer strategy? • Do you segment your customers before reaching out to them? • Are you focused on driving value and usage? 4. MANAGE TO THE RIGHT METRICS. • Do you have a compass metric which rallies your entire team around one goal? • Are you measuring Net Promoter Score and prod- uct/service specific satisfaction? • Are you measuring all the necessary SaaS metrics? MRR and MRR Growth, Revenue Retention, and Lifetime Value to Customer Acquisition Cost Ratio (LTV/CAC) Learn more about Drift.
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