The days are getting shorter, holiday shopping is approaching its climax, and companies are starting to make plans and projections for 2018. But what SaaS metrics should your company use to gut-check your projections? Is the CAC or churn rate you used just optimistic, or downright reckless? Lucky for you, David Skok and KBCM Technology Group recently released the results of their annual SaaS metrics survey of over 400 private SaaS companies. Their findings (Part I and Part II) provide benchmarking data and insights on the growth and operations of private SaaS companies.
Annual planning conversation will inevitably include discussions about customer retention, upsells, and expansions- metrics that fall under the responsibility of Customer Success. This post will look at what the survey results can tell us about Customer Success trends in 2017.
Investments in customer acquisition only pay off when paired with high retention
Data Point: Median CAC payback period~18 months
What this means for Customer Success: If your company needs customers to stick around for a year and a half just to repay the money you invested in acquiring them, retention has to be a top priority. Which means Customer Success should be implementing strategies to increase retentions. Improving retention begins with creating an onboarding flow that quickly directs users towards your product’s aha moment. Exposing additional features over time deepens user engagement and value. And having a framework that ensures product issues and feedback don’t get ignored reduces your risk of overlooking barriers preventing users from realizing value.
Tip: Use the formula above to determine your company’s CAC payback period
Companies are investing more in upsells and expansions
Data Point: Median SaaS company brings in 19% of new ARR from upsells and expansions
What this means for Customer Success: SaaS companies continue to focus on capturing more revenue from their existing customers. Compared to 2016, there was a 4% increase in the median percentage of new ARR from upsells and expansions. Larger companies rely even more on upsells and expansions to drive ARR (up to twice as much as smaller companies). Companies might be using upsells and expansions to shorten the CAC payback period by getting customers to pay more, faster. Upsells and expansions are directly related to the value Customer Success teams have helped existing customers derive from your product. Sustainable upsell and expansion strategies must be built on the foundation of your customers’ success.
Data Points: The cost to acquire $1 of new upsell ARR is 50% of the cost to acquire $1 of ARR from a new customer. The cost to acquire $1 of new expansion ARR is 26%, and the cost for $1 of renewal ARR is 13%
What this means for Customer Success: Post-sales acquisition costs have grown to represent a sizable investment in future ARR. Most notable is a 111% increase in the CAC of $1 of new upsell ARR, compared with 2016. This increase can be partially attributed to higher commission rates on upsells. In 2017, 71% of companies provided full commissions on upsells, compared to 59% in 2016. Customer Success teams need to be careful not to incentivize CSMs to drive upsell and expansion ARR in a way that outpaces the value customers receive.
Tip: A low-friction strategy for capturing additional revenue from your customers is to create a value-based pricing model
Did any of the findings in this year’s report surprise you? Are there any other Customer Success trends the data eludes to? Dying to dig into SaaS metrics from previous years? Check out my 2016 and 2015 summaries.