Customer Lifetime Value is one of the essential management metrics for any SaaS/Cloud application vendor. CLV is what remains after the CAC, Customer Acquisition Cost, and the CRC, Customer Retention Costs, are subtracted from the revenues of the relationship. The actual duration of that relationship, therefore, is of paramount importance — far too vital to be left unattended. What are the milestones of the customer lifecycle? Where are the vulnerable points of potential churn? How should customer portfolios be segmented into up-sell, cross-sell and renewal workflows? Who should authentically “own” the profitability management of the ongoing relationships? Throughout the SaaS/Cloud ISV sector of the industry, firms continue to struggle with these issues and questions. Why?
Who “Owns” What?
The short answer is a basic lack of ownership, of dedicated management attention. When I first began researching what SaaS firms were doing about customer retention and maximizing per-customer profitability, I found the most common answer to the question of who authentically “owns” the customer relationship was: no one. Just as in the traditional market, once the contract has been signed, Sales is off hunting new customers. After the implementation team has done its work, the trainers have delivered their courses, if any issues are reported, Support will work to close them as quickly as possible. In all of this, there is a built-in and terribly false assumption that the sale has been made. But in the SaaS/Cloud model, no sale is ever final. There is always another renewal to be earned. Who will do the earning in your company? How?
When no one is authentically accountable for customer retention or the management of upsells, cross-sells, or the attainment of optimum per-customer spend with your company, the stage is set for unfortunate scenes. As the initial contract expires, customers may note that the only time they hear from the vendor is at renewal time, and the message given then may not be what that vendor wants to hear.
What’s Not Measured Cannot Be Managed
One of my consistent themes for the fast-emerging role of Customer Success Management is the crucial need for the profession and its members to be fluent in the language of dollars and sense — and no, that’s not a typo. When looking at Customer Lifetime Value –CLV– the focus needs to be on both the company *and* the customer. We know, for example, that it can take many months before the CAC, Customer Acquisition Cost, is recouped, and until that happens, the CLV is negative. But what about the value to the Customer? How long does it take before the customer perceives tangible return from their investment? TCV – Time to Customer Value – needs to be taken as seriously as CLV. But before either CLV or TCV can be managed, it first must be accurately tracked and evaluated by a responsible, authentically accountable and properly equipped team.
If your SaaS/Cloud firm is in the process of fielding a CSM team and looking for ideas and guidance on best practices, give me a call. Join us in The Customer Success Management Forum on LinkedIn.