Selling is hard.
You have to find the prospects, attract their attention, build their trust, understand their needs and goals, and then get them to sign the agreement.
It’s much easier to keep the customers you have, and focus on extending and expanding that relationship.
That’s why there’s been an explosion in the “Anything-as-a-service” models (XaaS)–in the business world.
If you’re in sales, and moving to a subscription model, or even if you’re already selling something as a service and need a refresher, here are some tips to help you attract, engage, retain and expand relationships with the most profitable customers.
From Big Game Hunting to Farming
In a traditional business, the goal of selling is to get the customer to buy. That moment of transaction is when you’re done—hooray! And you go out to sell the next account. It’s like big game hunting, and you’ve brought in the woolly mammoth and left the carcass on the floor of the cave while you go out to win the next big deal.
But today, with SaaS and the emphases on recurring revenue, the goal is to get the customer to come and stay. In this Membership Economy, it’s all about building a long-term relationship, with an emphasis not just on the initial transaction but on extending and expanding that transaction over time. If you need to optimize for lifetime value, you need to bring in the right customer (a customer who is going to get value out of what they’re buying) and then you need to optimize the customer experience for engagement and retention. This means that it’s not enough to close the deal–you also want to make sure that they are onboarded for success, and that your colleagues are tracking engagement.
The sale itself is easier because the up front price is lower and the implementation is faster. But suddenly, it’s critical that the customer is actually using the product, and encouraging their colleagues to do the same. Instead of big game hunting, now what you’re doing is more like farming.
The New Metrics of Subscription Models
The metrics used to measure the health of an XaaS business are quite different than those of a more episodic business.
That quarterly revenue number is not as important as it used to be. What matters most are the underlying metrics that make up that bigger number. How much is new revenue and how much is recurring revenue? How many customers are expanding their spend, vs those who are contracting? Not all revenue is created equal.
Some of the metrics that will be most important to your boss, and therefore to you, include the following.
Customer Acquisition Cost (CAC) How much you spend (sales & marketing) to win a new customer
Customer Lifetime Value (CLV) The revenue customers brings in (directly and sometimes indirectly) between the time you acquire them and the time they cancel their subscription. This includes the value of the entire account, not just the initial foothold of that first deal.
Expected CLV Based on past customer behavior, by cohort, what would you predict to be the future value of a subscriber? Often calculated as ARPU / Churn Rate.
CLV/CAC Ratio This ratio is important because it tells you if the investment you’re making is justified by the customer relationship.
NPS Score “On a scale of 0–10, how likely is it that you would recommend this to your friends, family, or business associates?” Customers that give you a 6 or below are Detractors, those with a score of 7 or 8 are called Passives, and those with a 9 or 10 are Promoters. NPS is % Promoters less % Detractors.
Churn Number of subscribers (or revenue) that cancel in a period / subscribers (or revenue) at the start of the period
Average Revenue per User (ARPU) or Account (ARPA) Total monthly recurring revenue / total users (or accounts)
Annual Recurring Revenue (ARR)/Monthly Recurring Revenue (MRR) The total amount of revenue coming in each period (month or year) divided by the number of active customers, new and existing
Cohort Analysis (by industry or rep or source) Comparison of metrics such as churn and CAC by first month of subscription or by acquisition channel–a different way of assessing effectiveness of sales and marketing investments, including you.
Customer Engagement Depends on the business, but metrics that track recency, frequency, depth, and breadth of usage of subscription features–these metrics can help you predict if a customer is likely to cancel at the end of the period, so you can intervene and get the relationship back on track.
If you understand these metrics, it will help you both focus on the most valuable customers, hit your goals, all while working less hard.
How to Promise Forever to Your Customer
Whenever my neighbor’s wireless isn’t working right, she’d text her nephew, who is a marketing executive at the company. He’s actually responsible for B2B Partnerships.
But my neighbor didn’t care about her nephew’s fancy title. To her, he was her “man on the inside”. She’d call him to ask how to fix her connection, or why the repair truck hadn’t arrived yet.
She’d also text him when she was trying to decide if upgrading made sense, and to ask what kind of mobile phone to be.
None of those things were in her nephew’s job description. But he went out of his way for his aunt because of their personal relationship.
No surprise, my neighbor is super loyal to that telco. And over the years, her relationship has expanded with them.
Do you provide that kind of attention to your customers?
We all want that kind of insider, long-term relationship with the companies we work with.
That’s the kind of connection that justifies a forever transaction.
Customers might join for a specific feature, or to check a box for a short-term priority. But they stay because the organization is focused not on their products but on helping us achieve our goal or solve our problems.
Do you know the goal of your customer? Do you know what their journey to achieving that goal looks like? Do you know whether the role of your product offering helps them get 80% of the way toward achieving it, or only 8%? Can you anticipate the challenges they’re likely to run into, and how your offering can help them, not just now but “forever”? You might want to spend less time memorizing your product features, and more time understanding your customer’s jobs–and what it’s going to take for them to get their bonuses and get promoted.
Responsibility for lifetime customer value goes beyond the moment of acquisition, and it is the responsibility of the entire organization–not just sales and marketing.
There’s a bonus to all of this. When you focus on building forever transactions with the people you serve, you’ll actually be able to see them achieve their ongoing goals and solve their ongoing problems. You’ll truly be part of the solution for them–and that’s incredibly satisfying.