Software-as-a-Service (SaaS) companies are springing up at an astonishing rate with the rise of cloud-based services and the decreasing cost to run a web service. However, three quarters of venture-backed startups will never return their investor’s capital, according to research by Harvard Business School lecturer Shikhar Ghosh. An analysis from Allmand Law places the startup failure rate at 90 percent.
We could point to infinite reasons why startups fail: wrong team, bad timing, poor marketing, better competitors, etc. For SaaS companies, I think the difference between success and failure is more straightforward: Companies that acquire and retain customers succeed. Companies that do not acquire and retain customers fail.
If that’s the difference, then any tool that can help a startup retain customers should increase the odds of success. This is why customer analytics has the power to save your SaaS business.
SaaS Is a High-Risk Model
Whereas prior software models collected all payments up front, subscription-based companies are higher-risk endeavors. SaaS companies have to acquire and maintain customers for a minimum length of time to make a profit. In fact, most companies spend the first 12 to 18 months of projected revenue acquiring a customer and only profit after that initial Customer Acquisition Cost has been paid off. Yet customers can come and go at will, usually with one tap or click. Software licensers used to make their sale and win. SaaS companies attract a subscriber and then wait 18 months to win.
If you could understand your customers better – and take action before a customer leaves – you should have a significant edge. Most companies focus simply on what customers say, either on the phone, in email, or via customer surveys. Unfortunately, they might not always speak up when they’re dissatisfied. They may go berserk over a small glitch, and then go quiet after a large problem. Because they don’t want to spend time fixing the problem or dealing with you, they may play off a problem like it’s not a big deal. If you rely solely on what customers say, you will rarely get the real and complete story. Your account managers will focus their energy on the noisiest complainers. Meanwhile, you will lose customers without knowing why.
If your survival depends on retaining customers, relying on comments and complaints won’t cut it. If you want to preserve your customer base, it makes more sense to analyze their actions rather than just their words.
Customer behavior patterns can indicate that the relationship is at risk, even when your account manager insists that everything is OK. Users each have a different pattern of usage – their own “normal.” By recognizing when customers deviate from the norm, you can detect dissatisfaction long before it results in lost subscribers. For a SaaS business, that pattern is visible, but not to mere humans.
The naked eye can interpret only so much data, but good customer analytics can detect unhealthy usage patterns. They also can detect what your customer was doing when the usage pattern turned unhealthy. These two pieces of knowledge give you two huge advantages:
- You know the moment when an individual user has “fallen out of love” with your product, and you can act proactively to save that user or account
- You can fix problems before they frustrate and turn off more customers
Customers love it when you solve their problems and they don’t have to waste any time troubleshooting or writing angry emails. You demonstrate self-awareness and a commitment to solving their issues proactively, which is exactly what people look for in a world-class SaaS provider.
If your entire business depends on growing and maintaining a customer base, tools that can save customers, reduce churn, and increase upgrades are paramount. Customer analytics can eliminate a lot of guesswork. You can identify problems that are driving people away, and also understand what features keep people coming back. This can make you the ultimate problem solver and innovator for your customer base.
Self-awareness is a key difference between the 10 percent of startups that retain customers and the 90 percent that don’t. Your SaaS company might have the right product, team and marketing, but without the self-awareness, you won’t understand your own success or failure. With the odds stacked as they are, you can’t afford to guess anymore.
Michael Geller, CEO of Preact, is a successful senior leader and operator with more than 20 years of demonstrated achievement and technology business leadership at startups and established enterprises. Prior to joining Preact, Michael was an early employee and Vice President at edtech startup Rafter/BookRenter.com, responsible for e-commerce, marketing, and customer success. Previously, Michael was the VP of Marketing and Business Operations in the Mobile and Broadband group at Yahoo!, as well as the President and COO of Tonic, a curated news media site.
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