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How to Know That You Have Achieved Initial Success in SaaS

11 min read

Are you an entrepreneur who implements SaaS customer success but is clueless about how to determine its success rate? If so, read on and learn how you can determine if you achieved initial success in SaaS or not.

In this article, you’ll learn four vital points:

  • What is SaaS Customer Success?
  • Which SaaS metrics to track (and the recommended results to target)?
  • SaaS customer success best practices
  • How long does it take for a SaaS business to be profitable?

The importance of customer success in the SaaS industry is rapidly growing. So I put together this guide not only to determine success but also to give you ideas on how to maximize success among your customers.

Now, let’s dig deeper into the specifics.

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What Is SaaS Customer Success?

SaaS customer success is a compilation of strategies that guarantee customers will get the most out of a product. It’s one strategy you can add to your customer experience journey to boost a positive relationship between your brand and customers.

Similar to how banner ads monitoring can help you improve your marketing efforts, SaaS customer success can enhance your sales by keeping your clients satisfied.

It may be a new approach, but SaaS companies have already realized their vital role in long-term revenue growth. The SaaS market’s revenue is expected to reach $171.9 billion by 2022.

As it grows rapidly and as the Coronavirus pandemic continues, SaaS customer success becomes more in demand.

People’s behaviors and spending habits change, which makes attracting new customers more complex and uncertain. Therefore, SaaS business owners need to use a customer success strategy to re-engage their existing happy customers.

Like most business strategies, there are various ways to implement customer success at every stage of your customer lifecycle. But since it’s relatively new, some SaaS business owners have little idea how to determine its success rate.

There’s nothing to worry about because I’ve come up with a list of SaaS metrics you must track. I also include why you should track them, the recommended results to target, and some expert tips.

5 SaaS Customer Success Metrics To Track

You can track several metrics to determine the success rate of your SaaS customer success efforts. I’ll discuss the most significant SaaS metrics to save you time.

1. Achieve A Positive Net Promoter Score

Net Promoter Score (NPS) is a SaaS metric that measures customer satisfaction and loyalty. It’s important to monitor this metric at the beginning of your SaaS journey to develop your product/service based on the customer needs and the actual pain points they experience.

NPS uses a one-question survey, which usually addresses your existing customers’ willingness to recommend a product to someone else. They can rate their answer on a scale of 0 to 10.

Assuming you received the results, you can sort the answers based on the following classification:

  • Detractors (0-6): Current customers dissatisfied with your product/service.
  • Passive (7-8): Neutral customers, someone who is neither satisfied nor disappointed with your product/service.
  • Promoters (9-10): Loyal customers.

How to calculate your final NPS?

The simplest formula is NPS = % Promoters – % Detractors.

As a general rule of thumb, the ideal net promoter score is 50 and above. You can also use your respective industry average as your basis; if you reach equal or more, it means you achieve initial success.

Zero is also considered a good net promoter score at the beginning of your SaaS customer success efforts. It shows that your entire customer base remains loyal to your brand.

You may notice that passives are not included in the computation. It’s because they don’t have any influence to convert a prospect into a new customer. But don’t take passives for granted.

Since they are close to being promoters, most SaaS companies make more efforts to convert them. One way to do it is by offering them small, unexpected perks.

One of the game changers is businesses that provide affordable brought-to-you services.

Instead of fixing a customer’s car breaks in a regular auto repair shop, for example, a shop owner will send mechanics to the customer’s home/office and do the job at their most convenient time.

It solves the problem while giving your customer significant savings (money and time).

Offering discounts, big or small, can also provide the passives a reason to convert. After the initial NPS survey, you can send it quarterly or bi-annually to monitor customer sentiments and see if they evolve.

2. Obtain A Good CSAT Response Rate

NPS is an excellent metric to measure the overall relationship of the customers to the business. If you only want to measure a specific aspect of the business/product/services, the customer satisfaction score (CSAT) is the metric to check.

Like NPS, it uses a rating scale survey to collect customer feedback. Its only difference is its flexible formatting for the answers.

Instead of the standard numeric rating scale, the customer success team can choose visual rating scales like stars or smiley emoticons to make the user experience more enjoyable.

Amazon is one of the many popular eCommerce websites that use the CSAT survey. The company uses it to receive feedback about the quality of its customer support team.

To ensure the customers can describe best their feelings towards their experience, they use simple yet powerful words in the rating system.

How to calculate CSAT?

One CSAT formula you can use is CSAT = (Number of positive responses ÷ Number of total responses) x 100.

The best CSAT response rate to achieve is around 50% and higher. But when you are starting up, it’s ideal to acquire the average response rate of most companies and industries – 15%.

The best time to send CSAT surveys depends on your goal. Send it immediately after the interaction for onboarding, sales, or support feedback. For SaaS product feedback, give ample time for the customer to explore the product’s new features fully.

3. Hit A Healthy Customer Retention Rate

Customer retention is an effective way to increase revenue, particularly when you offer subscription-based products and services.

A consistently higher retention rate means customers value your product/service and will continue to commit to a long-term contract.

The ideal customer retention rate (CRR) varies from industry to industry, but the ideal benchmark for a SaaS business model is 35% and above.

You can calculate CRR using this formula: CRR = ((E-N)/S) x 100. Here’s what the letter stands for:

  • N = customers acquired during the period you are measuring
  • E = number of customers at the end
  • S = number of customers at the start

Take call recording software, for example. People usually buy this software with a multi-year contract to automatically record incoming and outgoing calls.

Since the acquisition is already made, the company would remain to have a positive outlook even if it doesn’t see any retention activity for several months.

However, if your product/service offers no contract commitment (freemium apps), this progress is in danger of churning.

It would be best to build excellent customer loyalty programs (referrals), competitive pricing, and other incentives (business coupons, money-back guarantee, etc.) to improve your retention rate.

Automation is also good to add to the checkout process to prevent transaction failures.

4. Get An Acceptable Churn Rate

Retention rate is essential, but the metric you should focus on more is the customer churn rate. Also called churning, this metric measures the number of customers who stop using your product/services.

Here’s a simple formula to calculate the churn rate: (Lost customers ÷ Total customers at the start of the period) x 100.

For example, your small business has 250 customers and lost 10 customers at the month’s end. Using the formula, you will have a 4% monthly churn rate.

Is this an acceptable churn rate?

Yes, because the average monthly churn rate ranges from 2% to 8%. Higher than that is a threat to your business growth. Whether they switch to another provider or simply terminate your service, the only way to prevent churning is to understand why your customers are leaving.

 

Creating an exceptional customer onboarding process is an excellent way to solve most of the issues. You can start by sending a welcome email to your new users and offering one-on-one support.

You can also go the extra mile by creating informational content (guides, walkthroughs, etc.) and sharing them on your social media, blog, and video channels.

Don’t forget to build an offboarding journey too. This is a strategic method to preserve the positive experience of the customer. They may not use your product/services anymore, but the likelihood for them to return in the future or refer it to someone remains high.

5. Consistent Increase Of Monthly Active Users (MAU)

User engagement is the ultimate metric that can show you if you achieve initial success in SaaS. There are different metrics you can check to calculate the user engagement score.

But during the initial stage, starting with the usage levels is recommended.

Track down how often your customers actively use your product. You can measure the usage level based on the number of active users per day, weekly, and monthly (DAU, WAU, and MAU).

Since you don’t have benchmarks yet, measuring usage levels monthly is advisable.

It will give you deeper data and insights, which will help you identify the gaps in engagement and other aspects that your customers are not fond of. Use all these insights to create a meaningful business strategy to solve these challenges.

You can also count the user engagement actions made from the product. Here are a few user engagement actions to give you an idea.

  • Accounts receivable automation app: Add tasks, capture a large volume of transactions, match invoices, create workflows, etc.
  • Productivity and collaboration app: Add/complete tasks, invite team members, track progress, etc.

The best thing about MAU is that you can use it as a basis for other key performance indicators (KPIs).

  • Growth rate
  • Revenue growth
  • Customer acquisition cost (CAC)
  • Customer lifetime value (LTV)

For CAC and LTV, it isn’t ideal when you are just starting up because you don’t have sufficient data to make a realistic projection. But once you have enough data, you can calculate it by dividing LTV by CAC.

Here’s the individual formula for each metric.

LTV = Gross Contribution x [Retention Rate ÷ (1 + Discount Rate – Retention Rate)]

CAC = Total Sales & Marketing Spend ÷ Number of New Customers Added

Consistently increasing your LTV: CAC ratio is not an easy task. If you can’t achieve it, at least maintain the ideal ratio, which is 3:1.

5 SaaS Customer Success Best Practices

There are various ways to achieve SaaS customer success. In this section, I will discuss the industry best practices you can incorporate into your customer success strategy.

1. Leverage Upsell Opportunities

Upselling is a proven practice that can increase customer happiness, retention, and revenue. The chart below shows all the SaaS customer success metrics most companies invest their efforts into. Most of them take 7 to 8 years before getting solid profitability.

However, upselling (green line) increases SaaS revenue in under 5 years. You can enjoy it, too, by properly implementing upsell strategies. It works by promoting a more profitable product or service.

For example, your customer is buying a standard face mask for kids. Your sales representative can upsell a higher-end version of face masks (KN95), which can protect a child against COVID-19.

You can also offer other sizes and funny designs to entice them more.

Cross-selling is also a good option if you have related or complementary products to sell to your customers.

2. Provide Reliable Communication Channels

Problems happen when you least expect them. Ensure when your customers encounter an issue, they can immediately find a way to contact your sales team or customer success manager.

Email, phone numbers, and forums are the usual communication channels companies provide to their customers.

Level up your game by adding live chat and knowledge base to your website. Website development can be expensive, but it’s worth it as your website traffic organically increases.

Don’t forget to be responsive. Human attention span only lasts for 8 seconds. Make sure to give a good lasting impression.

3. Invest In High-Quality Content

Relevant and engaging content creates a positive experience for your existing customers and prospects. It acts like a magnet that compels them to come back for more.

That’s why content marketing becomes a vital part of SaaS customer success to boost customer engagement and brand awareness.

Consistency is one key to success. Therefore, you must create a content calendar to help you stay organized. When it comes to writing, one effective strategy is positioning yourself as an industry expert.

Let’s say you are running a stock market website; you can create content highlighting different stock ideas and buy/sell recommendations.

You can also share objective market analysis to help investors make better trading decisions. Do it well and become your chosen niche’s go-to person. Becoming a content creator isn’t easy, but you can find inspiration from experts like Chris Hornyak and Neil Patel.

4. Data-Driven SaaS Customer Success

Data is king in customer success management (CSM). The more customer data your product team collects, the more they can create personalized and meaningful interactions.

It’s also valuable for uncovering potential problems before they even arise.

You can start by consolidating all your data in one secure place. You can create your database from scratch or use customer relationship management (CRM) systems like Salesforce.

As the name implies, this system helps you improve business relationships by streamlining processes, focusing on the right leads, and improving customer service.

Successfully doing so will give your team a real-time view of your customer journeys.

5. Follow Rule Of 40

The rule of 40 is the method you should apply to determine if your business is in excellent health. It works by adding your revenue growth and profitability margin, both in percentage.

If the outcome is greater than 40%, your company generates profit at a sustainable rate.

Achieving exactly 40% is also acceptable because you can maintain a healthy balance between your profit and growth. You must re-analyze your customer success strategies if you get less than 40%.

Versatility is the best part of the rule of 40. Here are other purposes you can use it for.

How Long Does It Take For A SaaS Business To Be Profitable?

Profitability is a SaaS success indicator. The time you need to wait depends on the effort you put into it. Some companies take 7 years, but some see progress in just a year.

You can also achieve outstanding results quickly by implementing customer success strategies and industry best practices. Using the right tools and hiring data-driven professionals will save time and help you operate more efficiently at a lower cost.

Wrapping Up

Giving a high priority to customer satisfaction is a powerful strategy to succeed in the SaaS field. Ensure to research, capture, and understand your customers’ feedback to give them the best and most unique user experience.

Don’t forget to offer a good product or service. Logically, all your efforts will go in vain if you sell a product/service that doesn’t meet your customers’ needs.

Ensure to create good products that target the customer’s pain points, outperform the competition, and come with a great price.

Also, encountering problems is inevitable. Make sure you build a contingency plan to address and solve problems quickly before they cause delays, which can increase the potential of churning.

If you need help in developing your ideas into fast-growing SaaS products, you can visit our case studies page.

Author Bio

Burkhard Berger is the founder of Novum™. He’s sharing everything he learned in his income reports on Novum.

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