How the cloud has transformed vendor business models

TRP: How can cloud based businesses prevent customer churn?

MM: If your business is embracing a subscription model, then your own success relies directly on that of your customers. Unless customers realise real value from your solutions, they are not likely to renew, much less buy additional licenses or solutions.

The first step in optimising customer success is to measure and track it. Without a good understanding of where your customers are, you cannot take the right steps to correct problems or develop new revenue opportunities.

But tracking and measuring customer success at scale is a challenge. You don't have the time to conduct detailed interviews of every customer.

You need scalable, automated strategies for identifying customers that are having problems, as well as those that are good candidates for targeted cross-sell and upsell offers. That's where usage data comes in.

Usage data can tell you who is doing what, at what time, and how much. It's great stuff – and invaluable for tracking customer success. But there's more to usage data than meets the eye. It can even lead you astray.

To prevent customer churn, businesses need to:

  1. Know their customers – gain end user insight and monitor customer health throughout the customer lifecycle
  2. Evangelise their value – ensure customers achieve their ROI from your product or services
  3. Personalise customer interactions – run in the right play at the right, based on the customer scorecard
  4. Harness the right skills and incentives – Develop roles, training and processes that deliver a great customer experience
  5. Continually optimise their performance – improve recurring revenue processes through KPIs benchmarks and A/B testing

TRP: What is the key to sustainable growth for SaaS and subscription-based businesses today?

MM: With the change in consumption from pay-to-own to pay-to-use, subscription businesses today must focus on maximising customer lifetime value. It's not only the key to growth, but also to profitability – and viability.

With so much revenue and all of your profit delivered after the initial sale, it's critical to keep customers longer and increase the amount they spend with you to exceed shareholder expectations.

To achieve this goal, you'll need to engage and consistently deliver value across every stage of the customer lifecycle. In the acquisition stage, the goal is to close as many of your target customers as you can while keeping acquisition costs low. So, it is essential to provide the right offers to the right prospects at the right time.

There are several ways to accomplish this, including the use of predictive analytics to engage prospects with relevant content or offers based on their digital buying behaviour. Pair best practices with the right metrics to track success throughout the acquisition stage – and beyond.

When you acquired the customer, you made specific promises to deliver value. How do you ensure that you meet those expectations? You'll need to set the customer up for success through effective onboarding.

Once your solution is deployed, is it actually being used? Is your customer realising the value of your product? Customer adoption is directly correlated to customer retention: If an end user is not loyal within the first 90 days, there is only a 10% chance he ever will be.

Empower your customer success team to ensure customers realise full value by monitoring on-going product usage at the end-user level. In the delivery stage, customers start realising the value you promised.

However, their businesses are constantly changing. You'll need to continuously monitor usage so you can proactively identify trends that may lead to customer churn or revenue growth opportunities.

TRP: What are the challenges to long-term revenue success in a SaaS model?

MM: It's hard to plan for the long term when you're just starting out. Try convincing a new graduate to contribute to a retirement plan – the immediate need for cash often trumps planning for retirement.

New SaaS-based businesses and established businesses adopting a subscription model face similar trade-offs. The best time to invest in ongoing customer loyalty and retention is at the outset. But actually making those investments is a challenge, for three key reasons:

  1. Revenues are lean in early years of a SaaS business model
  2. The payback from customer retention improvements doesn't start showing up in revenues for a few years
  3. If you wait until the business is more mature, corporate culture and practices are often firmly established and change is difficult

To put this discussion in context, it's important to understand the difference between revenue patterns in traditional business models and subscription-based models.

Desire Athow
Managing Editor, TechRadar Pro

Désiré has been musing and writing about technology during a career spanning four decades. He dabbled in website builders and web hosting when DHTML and frames were in vogue and started narrating about the impact of technology on society just before the start of the Y2K hysteria at the turn of the last millennium.