Customer Satisfaction Key in SaaS

Customer Satisfaction Key in SaaS

“Nothing is more important than customer success.” – Marc Benioff, CEO, Salesforce.com

Today, marketing expert Seth Godin posted an article on his blog entitled, “The Pitfall of Lock In.” The main point of the article was when customers have no choice because they have signed a long-term annuity contract (e.g., SaaS), most companies focus less on satisfying them. That is, when customers are contractually bound, ensuring they remain satisfied becomes less important. The truth is even though they are locked-in, customers can still tell other companies about negative experiences and impact future sales. Dissatisfaction can also impact contract renewals.

The work on renewing an annuity agreement begins the day after a contract is signed. For on-premises software, it starts with adoption and deployment. For SaaS, it starts with activation and utilization. Unless a customer is bankrupt or out of business, losing a contract renewal means the customers does not see value in continuing the agreement. Delivering value requires being actively engaged with the customer during the lifecycle of the agreement to ensure both satisfaction with the relationship and success with the product.

Financially, SaaS business models require strong customer retention rates (95% or better) to recover the upfront costs of acquiring and provisioning customers over the lifetime of the relationship. Anytime retention rates drop below 95%, management must take immediate action to identify and fix the problem. A company’s annuity business is the barometer of its long-term relationships with customers. Customers that have great experiences with companies, on average, spend 30% more with them. Great experiences mean before, during and after the contract is signed.

All contents copyright © 2012, Josh Lowry. All rights reserved.

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