Archive for the ‘Retaining Customers’ Category

8 Creative Ways to Increase Customer Loyalty

Monday, May 1st, 2017

Churn happens. But it doesn’t have to happen to you.

You can minimize churn by maximizing customer loyalty.

While everyone’s focused on getting more customers, it’s actually better to keep the ones you have. In a study by Bain & Co., researchers found that increasing customer retention by 5% improved profits by up to 95%. Plus, acquiring new customers is a lot more expensive than retaining them– up to 25 times more expensive, in fact.

So, if you want to increase customer retention and loyalty, but have no idea how to do it, keep reading. I’m going to share eight ways to increase customer loyalty that you may not have considered yet. Let’s get started.

Here are 10 important takeaways to improve your customer retention.

1. Offer Customizable Service

Are you only offering static plans to your customers? Having basic plans are great, but if you’re focused on customer retention, you’ve got to offer customizable service.

According to Accenture, 41% of consumers prefer and are loyal to the brands that allow them to personalize their service.

The “one size fits all” approach doesn’t work well for retention. Your marketing may draw them, but once they figure out that your product isn’t flexible enough to do what they need, they’ll leave.

To minimize churn, think of your ideal customer, and what they may need that you don’t currently provide. Can you offer those features for an additional fee? Can you offer to take away features that they don’t need for a reduction of price?

For example, create an a la carte menu that allows customers to create their own perfect product that suits their needs.

2. Proactive Customer Service

Piggybacking off of that last point, you should invest in a customer support team. Here’s why:

One of the best ways to predict a customer’s loyalty is to actually allow them to design your product.

This same Accenture study shows that 44% of consumers are loyal to businesses that value customer co-creation. In other words, when you invite customers to create the product that they need, you’ll be rewarded with increased customer retention.

Customers like having a customized product that meets their needs.

The only problem is that you can’t just have customers customizing their own products willy nilly. That leads to confusion, frustrating, and ultimately, abandonment in favor of a friendlier option.

So, you need a customer success team that helps the customer:

  • Know your product
  • Personalize your product
  • Use your product

Compared to customer service, a customer success team doesn’t just wait for customers to initiate the conversation. A customer success manager, or team, should proactively reach out to the customer. And it should be a personal and genuine interaction. No form letters, please.

The primary focus of your customer success team is to develop customer loyalty. Whether that’s through upselling the customer the right product or by customizing your product offerings, your customer success team is an invaluable part of your retention strategy.

Learn more about customer success here.

3. Create a Loyalty Program

Everyone likes to feel like they’re part of an exclusive club. Do you have a club for your customers?

If you’d like to create one, but aren’t sure what to build a loyalty program around, here are two ideas:

  • Affiliates and Referrals – Incentivize word of mouth marketing among your customers by offering perks for referrals. This is two for the price of one– you’re appreciating your customers while also activating them to market for you.
  • Important Milestones – Celebrate important anniversaries (such as when your customer signed up) by gifting them with a special discount or freebie.

If you do create a loyalty program, make it worthwhile and exciting. It should feel special to your customers. Customers are less likely to leave a company that actually values their loyalty with goods gifts (such as exclusive discounts and free upgrades).

4. Invest in Ongoing Customer Education

Customers need to know how to use your product. If someone buys into your marketing and decides to try your product, but once they get inside of your app, they have no idea what is going on, they’re going to leave. It’s that simple.

For this reason, companies that put a premium on education also have higher retention rates.

Here are ways that you can continue to educate your customers well past the landing page:

On your website

Your website should be the central hub of information for using your product. Make sure you have the following:

Via email

Email marketing is my favorite way to educate customers because it’s proactive. You’re not reacting to their call for help, you’re actively sending out information that helps them. In addition to having an active customer success team, here are a few emails you should send:

  • Email Course (an automated course that gives beginner or ongoing tips on how to use your product)
  • Guides (in your email, link to a page on your website with a how-to guide that’s targeted to your customer persona– ideally, you’ll have several guides based on each customer persona you have)
  • Quick tips (no need to link to your website, just add all of the information in the body of your email)
  • How-to videos (linked to a landing page on your site, don’t link directly to Vimeo or YouTube)
  • Webinars (linked to a landing page on your site, don’t link directly to Vimeo or YouTube)

5. Be Charitable

One of the best ways to increase customer loyalty is to focus on a social goal that you can share with your customers. Obviously, the first goal is getting them what they need from your service, but you should also consider setting a bigger and more aspirational goal.

Whether you support the building of wells in Africa, a summer camp that teaches kids how to code, or a volunteer organization that plants trees in the Amazon, you need some big idea that galvanizes your brand, your customers, and your employees around a single vision.

I know you’re probably thinking, Does this really increase customer loyalty?

According to this study, 37% of consumers in the US are more loyal to brands that support charities or causes that they care about.

So, don’t be shy. If you’re involved in giving back to a charity, make sure that your customers know it. And that they feel connected to it. An inclusive way to do this is by sending an email to them, sharing you’ve donated X amount of money in their name to a charity.

By the way, simply showing that you care about the environment can boost your profits. A study conducted by Nielsen shows that 66% of consumers will pay more for products and services provided by brands committed to sustainability.

If you’re putting that money towards helping the environment, your prospects will be able to justify the higher cost.

An example of how you can incorporate this: On your homepage, share that your servers are powered by 100% renewable energy. It may seem like a small detail, but it can sway the odds in your favor between you and your competition, especially if your prospect cares about the environment.

6. Keep Them In the Loop

Sometimes, churn happens because credit cards expire or are cancelled. And, if you don’t have a plan in place to notify your customer, they may not even notice. They’ll just come to use your service, and realize they’re cancelled, but not know why. This often initiates a series of unfortunate events that culminates in your customer churning for good.

But you can avoid all that by staying in close contact with your customers. Notify them well in advance before a card is set to expire. And when cancellations happen (and they happen a lot more often than you think), make sure that you’re communicating with your customers and letting them know what’s going on. Your customer may not know there’s an issue with their card, and the worst way to find out is if they come to use your service but are locked out.

Dunning emails are an integral part of customer retention. By improving communication between you and the customer, you’ll also inspire greater loyalty.

7. Upsell Them

You may think that once you get customers, you should not bother them and just be happy that they signed up.

Wrong.

You need to get them even more invested in your product, and the best way to do that is through upselling.

Upselling should always be a part of your retention strategy.

Upselling strengthens your customer’s level of engagement with your business. When upsold, the customer is no longer just dipping their feet into your services, they get totally immersed. And then something magical happens:

They start to think more highly of your company. The more invested they are, the higher your perceived value in their eyes.

Customers are way more loyal to businesses that they’re invested in. If I pay more for a service or product, I’m definitely going to use it more. And I’m also more likely to think that it’s worth the money.

You shouldn’t just have one upsell opportunity (i.e. the base plan and the premium plan). You should have multiple add-ons that customers can tack onto their service plan.

8. Be the Trusted Choice

Accenture found that a whopping 85% of consumers like and are loyal to brands that protect their privacy.

Do your customers feel protected when using your product? Do they know how you protect their information?

Because privacy (and security) are essential to customer retention, you’ve got to let your customers know that it’s a priority for you. Plus, you’ve got to let them know how you do it.

Some SaaS nod to privacy in their microcopy. For example, some companies reassure customers during sign up with a notice like “we will never share your information with others”.

Be sure to link to your privacy policy, and it won’t hurt to include the details of how you keep your customers’ data safe.

Trust badges are another way to quickly convey that your service is committed to security. Add badges like McAfee, Powered by Stripe, Truste, and Norton Secured to your site to increase security.

Additional Resources

Check out these related posts:

Don’t forget to download this list of 10 tips to improve your customer retention.

How to Hire for Customer Success

Monday, November 28th, 2016

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Are you looking at expanding your team to include dedicated customer success people?

Many SaaS are acknowledging the importance of customer success and are moving to hire teams dedicated to it. As we’ve written about previously, these are not teams who provide a customer support role, there is a big difference:

“The answer lies in the timing of the interaction with the customer; customer support exists in reactive mode where they are taking action because the customer has contacted them with a problem. Their job is to resolve these problems as quickly as possible.

Customer success teams have a more proactive role. Their role is about fostering engagement between themselves and the client, and the client and the product. They want to ensure that the customer derives meaningful value from the product. This means there is more longevity in the relationship between customer success and the customers.”

In any kind of customer-facing role, you don’t want just anyone filling in. For a start, anyone who deals with customers should be of a “built to serve” kind of mentality. Secondly, if we look specifically at customer success, you need people who are suited to the proactive nature of the role.

Here’s how we think SaaS should hire for customer success:

What does “built to serve” mean?

What should you look for in a customer success person? Get our checklist here:

As we mentioned, one of the number one traits for anyone who deals directly with customers should be that they are “built to serve.”

You’ve probably noticed that there are large numbers of people employed in some kind of customer service role who tend to be fairly light on the “service” aspect, and this is exactly what we mean. Your customer success people need to have a heart for serving others, an innate drive to get the best results for their customers.

As Glide Consulting state: “Being built to serve means caring about the customer’s journey. Each customer will have their own journey, but they usually follow a similar path. At any point, the CSM’s role is to anticipate problems, solve them, and make the customer experience the product’s value.”

The fact is, we’re all made up differently and you’ll find that that person on your team who is excellent at bringing in new business will probably struggle with customer success, and vice versa. Glide Consulting also point out that “built to sell” people are on the opposite end of the spectrum with a completely different set of skills. They enjoy conquering numbers and thrive on deal-closing, but would probably struggle if asked to take on the “servant” role.

Here are some other traits of “built to serve” people:

Empathy

Your customer success people need to be genuinely interested in people and getting to the root of any issues they may have. They need to anticipate needs and be good readers of customers’ feelings.

They “give a damn”

Amanda Saunders of Totango points out that good customer success people have a strong desire to win, both for their customers and their company. They probably have a history of excellence and will take on customers with no less enthusiasm than what any founders before them displayed (possibly even better!).

Hire someone who is truly invested in the success of your business, who wants to see your clients, and therefore your business, do well.

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Choose people who DO give a damn – Image source: The Guardian

They are problem-solvers

People who stick firmly by-the-book are not usually the best-suited to a customer success role. Good customer success people need to think creatively and look for ways to work with the customer which don’t necessarily follow a rigid set of rules. They are agile and prepared to quickly change direction if need be.

Communication skills

Good communication lies at the heart of any excellent customer experience. Your customer success team need to be active listeners, ask thoughtful questions and be clear communicators in all they do.

Language also plays an important role here; the best customer success people instinctively know how to use language appropriately which can engage the customer, foster their loyalty or de-escalate any kind of issues.

Well-organized

Your customer success people need to be highly proactive as well as responsive if the need arises. Every customer should feel like they are a high priority and not languishing somewhere far down a to-do list. This means you need people who are very organized.

They love to teach

A core role of customer success team members is to help guide customers through their journey with your company so that they can realise success with your product. This means you need people who enjoy teaching and are able to present things to customers clearly. Lots of patience is also a plus!

Critical and strategic thinkers

Your team members need to have good skills when it comes to thinking things through when interacting with customers. They need to form the bridge between what the customer’s needs are and what the overall company goals are.

Supporting Customer Success

If you’ve found the right people who are “built to serve”, then next it’s your job to make sure you’ve got the right support in place to ensure they can successfully come into the job.

A surefire way to inhibit the success of your customer success team is to be vague about what you need them to deliver or where they fit in your company. Here’s what you need to support customer success:

Know exactly why you need them

As we’ve mentioned, customer success is a role very distinct from customer support. Make sure you have clear deliverables drawn up for each so that there is no blurring of the lines. For most SaaS, customer success is going to have goals revolving around engagement and retention make sure their deliverables are specifically things they have control over.

Make sure you have a clear understanding and description of the role you need. This will not only help your team to succeed, but it will help you to identify the most appropriate people with the traits we outlined above.

Know where they fit

In SaaS startups, you may not have large departments for each function just yet, but once you do, you’ll need customer success people who are capable of communicating and collaborating across all of them and presenting a case in the interests of the customer. Technical aptitude and passion for the product can be useful here too.

Make it clear to customer success team members where they fit, who they need to be communicating with and what they should expect from them.

Support Wellness

Wellness is important for employees in any role, but you do need to be mindful of people in those customer-facing roles, particularly as they may spend a lot of time dealing with issues or assuaging unhappy people. This can be draining work, so it’s important to recognize that and provide a safe space for work/life balance and simply taking breaks.

As Ryan Engley talked about in an interview with HelpScout: “We need to challenge ourselves to help nurture and grow individuals in those roles, or they’ll wear down and look for careers elsewhere.”

young-woman-relaxing-during-massage-therapy

Who should you hire for customer success? Get our checklist here:

Final Thoughts

Hiring for customer success means not hiring just anyone to fill a role, it means identifying those who are “built to serve” and have the kinds of proactive traits required of the job.

Your customer success people should be invested in the success of the customer and the company. They should be top communicators and savvy problem-solvers. They should also have a knack for identifying needs, often even before the customer has identified them themselves.

For SaaS owners, supporting customer success in the company is key. Have clear goals for the customer success roles and know exactly where they fit in your company. Provide them with the space to achieve a healthy balance.

How to Build a Better Knowledge Base

Monday, October 31st, 2016

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How close to 24/7 does your SaaS have team members available to answer queries or support tickets? If you’re like most, the answer is nowhere near 24/7 which means you better have a viable alternative to actual humans for answering important customer questions.

Your customer support can make or break a SaaS as far as encouraging retention of customers so it’s important you’ve put the effort into making their lives as easy as possible. They don’t want to search for how to get help; they want easy options which allow them to find answers quickly themselves.

A good knowledge base can provide a solution that both you and your customers can live with. The key though is that it must actually be useful and it must be easy to use.

Customers who click around forever or who come up with too many irrelevant hits for their typed searches will probably give up in frustration. How can you build a better knowledge base?

Which tools help create a good knowledge base? Check out our quick guide:

Assign an Owner

Let’s face it, some website knowledge bases you come across are a complete mess, rendering them ineffective to users. Some companies have taken a kind of scattered approach where they try to have their knowledge base come together “organically”, meaning no one takes real ownership of getting it together.

You’ll find that assigning one owner, even if the knowledge base is just one aspect of their job, will help to create a better experience. Having that one person as an owner can have advantages because:

  • They are familiar with the knowledge base and can ensure there is a cohesive system without any double-ups.
  • They can uphold standards for the content of the knowledge base.
  • They can monitor for issues and ensure that any new information is added to the knowledge base.
  • They can prioritize and assign content (there’s nothing to say they have to do it all themselves!).

The aim is that you create a resource that is actually useful, rather than a “we did it because we thought we should” kind of approach. That one person can be your gatekeeper.

Include the Right Content

Documenting your processes and best practices can seem like a real drag, but it’s one of those things that if you put the time in upfront, you can save a lot of time later on. Let’s say you have a particular “how to” question which is always coming up as a support ticket or customer service request; how much simpler would it be if you documented a clear, step-by-step answer to that question which you could direct people to in your knowledge base?

You’re busy with a million things running your business, but don’t underestimate the power of good documentation to take a load off your plate in the long run. Good knowledge bases have been shown to reduce support tickets and (as this Zendesk infographic shows), customers actually prefer self-service options over contacting a support agent.

zendesk-self-service

It’s not just customers who will find your knowledge base documentation helpful, it’s employees too. If you’re growing your team, a lot of your time can be taken up with answering questions or training people on your product. Creating good knowledge base information will help new employees to learn on their own.

You might wonder where to start and which content you should be creating. The simple answer is to start with the basics. Go through your software and explain each little piece and how it works. Keep track by having a master list of topics which need content created and assign to others where you can. You should also keep a list of customer support questions that come up — these may be prime candidates for new content or to update what you already have.

Structure Documentation Well

If you want your knowledge base to really be effective for users, you need to uphold standards for how you structure documentation. Everyone has had that experience where they need to follow instructions or learn about something through reading, but find that the formatting of the document or instructions are so bad that it’s a chore to get through. (Instructions for putting together furniture rate highly up there! Some are very illogical and certainly not user-friendly).

Your documentation for each item on your list should be logical and start with the natural starting point for the user. For most software examples, that would involve an instruction such as “from the home screen click on the X tab.” Never assume that someone will know — you need to write as though they are a brand new user and structure in logical steps.

Format and language should also be considered. Large, wordy paragraphs may put people off or lose them. Use formatting such as headers, bullet points and numbered lists to help break content up. With regard to language, be as plain as possible and use a consistent tone across your content.

Multimedia is a great idea to spice up your documentation and acknowledge that there are different learning styles among your users. For example, visual learners will appreciate images, gifs, video walkthroughs and screen shares. Having these different types of media will help reinforce the learning and reduce support questions later on.

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Source: Zendesk

Make the System Simple

The structure of your knowledge base plays a big role in whether your customers will actually use it. There are a number of tools out there to help you build a good knowledge base system, but here are a few pointers as to what that actually means:

  • It should be easy to find and use language a user would expect. For example, via a “help” tab, “support center” or even simply “knowledge base.”
  • It should be well-organized. Users should find it is logical to search for what they need, such as by looking under categories for related topics.
  • Have a “getting started” section (or similar) near the top so that people can clearly see where to start with the basics and won’t be put off by your advanced content.
  • Make common questions prominent. You probably already know what those are, so highlight those with something like a “most popular” list.
  • It should have a good search function. We’ve all seen websites with terrible search functions. No matter what you type, you get two dozen unrelated hits, none of which answer what you were looking for. Test out your search function and make sure it comes up with logical responses, including related keywords where possible.

Promote Your Knowledge Base

Tell your users that your knowledge base is there! As part of onboarding, you should make it very clear to customers how and where they can get help, which should include directing them to your knowledge base.

As a bonus for creating all of that content, why not use some of it in “weekly tip” newsletters or even as quick tip social media posts? It’s a good way to maximize use of your content investment and remind customers about your knowledge base at the same time.

Need a good knowledge base tool? Check out some of our favorites:

Final Thoughts

As SaaS we often have limited time and resources, yet we need to ensure that we’re keeping our customers engaged and providing the support they need.

A big part of the customer experience is how well they feel supported and how easy you make it for them to get that support. Rather than waiting to get in touch with a representative or hear back from a support ticket, customers want self-service options and an effective knowledge base will serve that purpose.

Have a good plan and assign someone to be in charge of looking after your knowledge base. Create good, logical content using different mediums and promote its availability to your users. An effective knowledge base might take work, but it will save you even more in the long run.

7 Mistakes You’re Making in Retaining Your Customers

Monday, October 17th, 2016

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Does your SaaS have a “leakage” problem?

Retention and churn figures go hand in hand and are key metrics for SaaS, yet knowing what they are and doing something about them are quite different things. Many SaaS are failing miserably when it comes to retention and find themselves in a routine pattern of trying to plug up a leaky boat.

Need a quick retention checklist? Get ours here:

If your SaaS is one of those, you may be making one of these critical mistakes which impact your retention:

#1. Your Key Focus Is Acquisition

When you think of the analogy of a sales funnel, where your new acquisitions come in at the top and the width narrows on the way through as fewer people move all the way through with you, retention problems can be akin to having a hole at the bottom of your funnel.

It doesn’t matter how many new acquisitions you keep pulling in at the top if you have that leakage problem at the bottom.

One of the important things to remember is that churn isn’t the problem, it’s the symptom of something else going on in your business. For example, if your focus is largely acquisition, but you’re then leaving customers to fend for themselves once you’ve got them onboard, there’s a good chance you’ll see this result in churn issues.

Of course you need to give focus to acquisition, but that’s not where your plan should end. Customer success journey mapping is a great strategy for laying out a plan which will give you that holistic view of how the customer moves through your organization, not just a view which says “get them onboard at all costs.”

Client Success looked at journey mapping recently and defined some best practices for preparing maps:

  1. Always look at the journey from the customer perspective.
  2. Identify any handoffs between departments in your customer journey.
  3. Define your customer success milestones.
  4. Share your map with trusted clients and have them validate it.
  5. Measure and optimize regularly.

Journey mapping helps to reinforce that you can’t just put all your efforts into acquisition, then sit back, hoping the customer wants to stick around. As you can see from the Client Success example below, there are touch points that go with each stage so you’ve got to put that work in.

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#2. You’re Not Asking for Engagement

No matter how you look at it, a customer who is not using your product is probably not going to keep paying for it. You might think “oh well, it mustn’t have been the right app for them”, but how would they even know that if they haven’t had the opportunity to try?

Look, we’re bombarded with new information, emails, content and the latest, most exciting new technology constantly. There’s a good chance that someone not in the habit of using your app simply forgets to put it to work, especially when it’s not yet part of their daily ritual. Next thing, they see you billing their credit card, think “oh, that’s right, well I’m not even using that” and they cancel.

You may have been able to prevent this simply by asking for engagement from their very first interaction with you. When Totango did some research on SaaS use, they found around 50% of customers weren’t using the service they were paying for. This immediately puts those people at high risk of cancelling.

You’re not going to win them all, you just can’t. However, you can do your best to engage them while you have them and hopefully ensure that more people become active users.

Some ways of asking for engagement include:

  • Push notifications for apps.
  • Emails encouraging customers to try different features.
  • Phone calls from your customer success team.
  • Incentivizing product tours (for example, Dropbox offers free space for taking their product tour).

 

You need to give yourself the best chance of getting in front of the customer and demonstrating the value of your app.

#3. You’re Not Delivering Value

It could be that your app simply doesn’t deliver what users want. It happens, though hopefully you did enough research before producing it that this simply isn’t the case. The other possibility is that the customer simply doesn’t see the value of your app, a possibility which can certainly happen if you haven’t asked for engagement.

How will the customer realize value if they don’t try it and see it?

It comes back to understanding what your customer success milestones are (those key steps which a customer has to take to see value from your app) and driving engagement so that they reach them.

#4. You’re Inaccessible

How easy is it for your customers to get help or to submit a support ticket? Some SaaS are notoriously difficult, with queries not being followed up unless the customer goes back and asks, or with deciphering how to get help being difficult in the first place.

Most people can’t be bothered spending money on something which they’re going to need help with, but even more so if that help is hard to find.

The solution is to make getting help easy and obvious. The customer shouldn’t have to click around looking or wait for lengthy periods of time for a response.

Part of this is accountability too. From time to time there are always bugs or upgrades happening within an app and being upfront and accessible shows that you’re transparent and probably a trustworthy bet for the customer.

#5. You’re Not Personalizing

Tobin Lehman described failing to personalize the experience as “the biggest” SaaS retention mistake. Why? As he points out, this can be explained using Maslow’s Hierarchy of Needs. We’re not buying the software because we want software, we’re buying it to solve a need that we have and for each customer, that need may be different.

“The truth is that your SaaS not only fulfills some tactical or basic needs, it also fills some emotional needs higher up the hierarchy. And in the customer experience many marketers neglect this hidden contract with the consumer that your product is doing more than providing a service. It’s providing an avenue to the experience of this person’s daily life.”

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The suggestion is that your retention process should heavily focus on developing relationships with your customers and being able to offer a personal touch.

Depending on your business model, you may not be able to offer large-scale personal service, but you can make your interactions more personalized by segmenting customers appropriately and keeping your messages to them relevant.

Instead of blanket email blasts, try sending out emails based on behaviors and activities. This helps to convey a message that you “know” your customer better.

#6. You’re Not Proactive

Ideally, you don’t want to be waiting until there is some kind of issue to take action. You need to be monitoring constantly and noticing potential churn issues before they have turned into a full-blown churn event.

For example, are you monitoring for expired or cancelled credit cards? This is a common reason for churn, but by using the right software (such as Retained for any SaaS using Stripe), you can send out early alerts to your customers to remind them to update their credit card details before their next billing cycle.

You should also be monitoring sentiment about your app and general chatter about it (on social media, for example, or through surveying your customers). If there are complaints, comments or requests which come up regularly, you may have an issue that should be addressed early before it turns into a cause for churn.

Another big one is any changes in the pattern of use of the customer. If they were usually a twice weekly user, but have only logged in once over the last month, this reduction in use may indicate they’re not happy anymore and looking to move on. This is where you need to be reaching out and just asking the customer how things are going.

#7. You’re Not Focusing on Features that Matter

It’s almost always the case with SaaS that, over time, you’ll find certain features are much more important to your customers than others. These are your “moneymakers” and are a large part of why the customer decided to sign up with you.

If you’re devoting a whole lot of time to new, extra features, but neglecting any essential fixes or updates to those core features, you’re setting yourself up to annoy customers and trigger churn. Want retention? Devote your main focus to those features which really matter to customers.

Have you nailed customer retention? Grab our free checklist:

Final Thoughts

We all want better customer retention, but remember if you’re experiencing more churn than you’d like, that is not the real problem you have. Churn is a symptom of something else somewhere that you’re not meeting the needs of the customer or not even getting out of the gate there because you haven’t engaged the customer in the first place.

Map out a plan which includes the entire customer journey (not just for acquisition!), and look for ways to better engage or meet their needs. The hope is that your funnel turns into more of a flask, with no significant numbers cancelling.

Product/Market Fit for SaaS

Monday, July 11th, 2016

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Most SaaS spend quite a lot of time agonizing over product/market fit. It’s not surprising really, we all know it’s important, yet everyone has their own opinion on what exactly it is and when it has or hasn’t been reached.

Are you a premature self-declarer of product/market fit? There are some commentators (and yes, they have some evidence of this) who claim that this is a rife condition among SaaS. We all know what happens when you’re prematureyou don’t reach the goals you’re really meaning to hit when it comes to growth.

Marc Andreessen is the guy largely credited with posing the term “product/market fit.” His definition: “Product/market fit means being in a good market with a product that can satisfy that market.”

The three main components which fall into the equation for any SaaS are their team, their product and their market. If you agree with Andreessen, market will always win. For example, a terrible team can still do well in a buoyant market, an excellent team with a top product which has no demand in the marketplace will fail, while good teams with an amazing product who have nailed a market demand will do extraordinarily well.

Everyone has an opinion, so let’s look at a few prominent ideas on product/market fit.

Ben Horowitz – Myths of Product Market Fit

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Ben Horowitz – Source: Salon.com

Ben Horowitz is of course a partner and co-founder of the Andreessen Horowitz venture capital firm, along with Marc Andreessen. Together they also founded the hugely successful Loudcloud and Opsware, both of which were sold for large sums of money. So, you know, Ben brings solid experience to any discussion about SaaS and product/market fit.

The “myths” we’re talking about here were actually from an excellent article he wrote back in 2010 to debunk some of the popular notions of product/market fit. Largely, what he’s saying is that a popular view of “find product/market fit then raise a stack of cash to build a big company” is often not that simple, even if it would be nice!

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Here’s why:

Product/market fit is often not one big event

There is such a thing as getting only a partial fit and perhaps getting to a more complete fit in stages:

“By the time it got acquired, Opware had achieved product market fit for a category of software called data center automation.But it wasn’t at all obvious that was going to be our destination while we were getting there. We actually achieved product market fit in a number of smaller

Sub-markets…”

We’ve known dozens of other SaaS with similar stories, where they’ve had to “tweak” to find an overall fit as they went along.

Briefly, here are Horowitz’s other three product/market fit myths:

  • “It’s obvious when you have product market fit.” What measure do you use? How do you know? It’s not obvious for most.
  • “Once you achieve product/market fit, you can’t lose it.” Not true and Horowitz experienced this with changes in the cloud services market.
  • “Once you have product/market fit, you don’t have to sweat the competition.” Hey, some of the best markets to be in are the hottest for competition. You’re always going to have to be on your toes.

Product/market fit might happen in a nice tidy line for some SaaS, but for many it is not linear at all. Sometimes it happens in a more circular fashion as SaaS discover that true market fit as they go along.

At the same time, you’re always going to have to be monitoring the market and your competitors. Things can change in the world of technology in a heartbeat, so a good fit today doesn’t mean that won’t change next month!

What If You Don’t Get It Right the First Time?

Many SaaS don’t get product/market fit right straight out of the gate. Joel York suggests adopting “try, try again” as a motto in this instance, though of course you may need to rustle up another funding round.

You don’t want to be in this situation as outlined by Marc Andreessen:

“…you see a surprising number of really well-run startups that have all aspects of operations completely buttoned down, HR policies in place, great sales model, thoroughly thought-through marketing plan, great interview processes, outstanding catered food, 30″ monitors for all the programmers, top tier VCs on the board — heading straight off a cliff due to not ever finding product/market fit.”

There’s often a lot on the line for a SaaS, so if you haven’t quite got product/market fit right, systematically try things based on better customer alignment is a good way to get closer to your fit. As Joel York says:

“In other words, you need to create a continuous loop of SaaS customer feedback and SaaS product development that increases product-market fit on each iteration: listen, build, deliver…listen, build, deliver…try, try, try, again.”

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How Do You Know You Have It?

Brad Feld posed some interesting points in his article “The Illusion of Product/Market Fit For SaaS Companies” last year. In his experience, many SaaS are prematurely declaring that they have product/market fit without really having a clear science around the concept.

It’s definitely a buzzword term which gets tossed around Silicon Valley boardrooms a lot, though Feld argues that what many perceive to be product/market fit is merely the illusion of it.

He proposes a hypothesis of product/market fit based upon MRR (monthly recurring revenue), which builds upon the myths identified by Horowitz. See what you thinkwould you agree with these parameters?

$0 MRR: You have no product/market fit. Can’t argue with that!

$1 to $10k MRR: You have the illusion of product/market fit. Someone is paying you for your product but Feld proposes that this level is a long way from true product/market fit. This is where you should keep going with you customer feedback loop and systematically testing.

$10k – $100k MRR: This is the point where raising a series A isn’t so difficult. Feld does warn that if you’re not growing at 10% per month compounded, you haven’t quite got it right just yet.

$100k – $500k MRR: Sweet! However, don’t think you’ve nailed it just yet. According to Feld this is where you can be in danger of thinking you can’t lose product/market fit (myth #3), whereas you could just be one bad sales hire away from doing damage.

$500k – $1 million MRR: Eureka! You have product/market fit, though you are never out of the woods as far as maintaining it. Keep an eye on your growth rates, changes in the market and what your competitors are doing. If you are at this level, there will always be someone else gunning for you.

Feld describes the search for product/market fit as a never-ending quest. Every time you put work into developing a new feature, you are searching to remain relevant, to build that incremental product/market fit.

In other words, like any other business, SaaS cannot afford to rest comfortably, secure in the knowledge that their product/market fit is stable. Remember what happened to American railroad companies in the early 20th century?

It was the classic case of believing that they were in the “railroad business”, therefore automobiles were not a threat. The thing was, really they were in the “transportation business” and developments such as trucks for moving freight and cars that were not stuck to set tracks sent many of them bankrupt. Always be monitoring and innovating!

What simple tools can you use to test SaaS concepts? Grab our free guide here!

Final Thoughts

Ok, there’s a lot to consider when it comes to product/market fit. Those who don’t recognize that perhaps they’ve declared product/market fit too early or only have the illusion of it, can be in danger of a severe wake-up call.

Product/market fit is almost never a linear process; SaaS need to have strong customer feedback loops and be able to systematically test features to reach that fit.

Even if you’ve reached the heights of $500k+ MRR, that’s not a sign to sit back. Keep monitoring the market and your competitors so you don’t go the way of the railroad companies!