Big breath, and hit submit. Campaigns go live, the company card is pre-billed for the week’s budget, and almost immediately, we’re paying $6 per click. Giddy about the flood of orders we’re about to take for Metrix, I jump into Slack to tell my startup mastermind group “Hey guys, I’ve just setup a PPC campaign paying $6 CPC for Metrix!”
Cue 11 founders telling me I’m fucking crazy.
Winning in SaaS or any recurring business, requires one simple rule to remain true:
CAC < LTV
Customer Acquisition Cost is less than Customer Lifetime Value.
Spend less acquiring a customer than they’ll pay you (eventually) and you’ll generate a profit and grow. Simple.
You see, I’d already done the math, and while I’m still taking a chance (i.e. predicting future behaviour based on past behaviour is never guaranteed!), I’m confident that our CAC will remain below our LTV.
Because I already have plenty of experience of winning, and failing, at achieving a high LTV. In my previous Web development agency. In my coworking space. In our last SaaS startup. And in our first product version at Trakio.
Here are the 10 tactics that have worked for us in the past, and what we’ll be implementing for our new app, Metrix, to ensure a high enough LTV to make that $6 CPC ad spend pay off!
All 10 Tactics
- Detailed Behavioural Customer Segmentation
- Personalised Customer Experience
- Customer Service
- Conduct NPS Surveys
- Re-engage Inactive Accounts
- Cross-sell Extra Products
- License Expansion
- Stop Blindly Discounting
- Leverage Brand Evangelists
- Double-down On Your Most Successful Customer Persona’s
1. Detailed Behavioural Customer Segmentation
Treating all customers the same is a rookie move. Your marketing team probably already use segmentation on your customer acquisition efforts to segment your email list into multiple segments (i.e. based on which eBook they downloaded). But segmentation should not stop after acquisition.
Segmenting your customers throughout the full customer lifecycle is the most powerful way to use data to impact your customer lifetime value. Which features do they explore most often? Do they regularly engage with your brand on social media? How many colleagues did they invite? How does their usage compare to other users within their account, and how does the account compare to your other accounts?
Once you have your existing customers segmented, you can personalise their entire experience. And with multiple tools available on the market with behavioural segmentation capabilities (including Trakio), it’s easier than ever to get started.
2. Personalised Customer Experience
Directly building upon advanced segmentation, you can begin to personalise the customer experience. Personalization can start s soon as you have enough data – ever notice how quickly Amazon starts to update the recommended products as you browse the site?
Personalization pre-signup can ensure the customer signs up for the right reasons and avoids churn due to buyer remorse.
Personalisation post-signup includes things such as delivering a tailored onboarding experience, product interface or marketing automation.
When the user, down to the individual level, receives a tailored and personalised experience, it’s easier for them to engage with your brand. And particularly with a SaaS product with multiple seats (and therefore personas) it’s important to ensure that each stakeholder receives the value that matters to them.
3. Customer Service
Most companies today know that customer service needs to deliver a ‘Wow!’ experience, and the ROI of customer service spend is well researched. However, it’s important to ensure your service team uses more than their great charisma or rapport with each customer. They need to be data-driven.
Using data as part of your customer service is a great way to increase the customer experience and also make your support reps much happier – they’ll waste less time on each ticket just unearthing information about the customer. Knowing which features the particular customer engages with regularly, which plan they’re on and how long they’ve been a customer, or how engaged the user is with the training and tutorial portal, are all key pieces of data that your service reps can use right from the beginning of a support ticket to deliver an exceptional and proactive support experience.
As well as using data on the individual level, you can also leverage the hidden insights in your customer data to change processes and policies in support. For example, investigating your customer data might reveal that on average, customers who have 4 support desk touch points in their first 3 months have a 30% higher LTV than customers who only had 1 support desk touchpoint. So, you could adapt your onboarding (automated emails, in-app popups, more prominent buttons) to encourage customers to engage with the support team more often in their first 3 months.
4. Conduct NPS Surveys
Personally I don’t give much weight to the final “NPS Score” of a company (and yes, I’m fully aware that everyone, including myself, incorrectly says Net Promoter Score Score!). It’s a trailing metric that describes the past and offers no clear path of action based on the result. NPS in its typical form is the definition of a vanity metric.
However, conducting the NPS surveys themselves is an extremely valuable way to increase LTV.
Why? Because the question is so darn simple, the response rates are typically much higher than any other voice-of-customer surveys!
As a recap, NPS involves asking all of your customers one simple question:
“On a scale of 1-10, how likely are you to recommend us to a friend/colleague?”
And then after the user gives a rating, smart companies provide the option for additional feedback.
These simple scores, and their accompanying comment, are an amazing resource to make quick wins. Some of the things you can get from individual NPS responses:
- Identify accounts close to leaving because of a really painfully absent feature
- Accounts who are ready to act as evangelists for the company, if given the resources
- Accounts who are having a bad support experience but have up until now, remained silent
So, forget the final NPS score calculation, and instead focus on the individual follow-up on each response, whether they rated a 1, 5 or 10!
5. Re-Engage Inactive Accounts
It costs 7 x as much to acquire a new customer as it does to retain an existing one. And the first place you should be looking to retain customers is those who are the highest risk of leaving.
Inactive customers are probably only 1-2 months away from cancelling their subscription – so time is of the essence!
Using your data, you want to build a behavioural segment that takes into account product usage, marketing engagement (opening emails, reading blog posts etc.) and target these users as the highest risk to leave.
When you talk to these customers, it may be impossible to recover some. Their inactivity may be because their product has been cancelled, or their budget totally cut. But many factors, you will be able to do something about!
Did they stop using it because the “Girl who knew how to use it has left the company”? No problem. Implement a free training webinar for their remaining team!
6. Cross Sell Extra Products
Salesforce isn’t the largest SaaS company in the world by accident. They quickly realised that a great way to maximise the LTV of each existing customer was to offer complimentary products. After a few clever acquisitions, Salesforce is now able to cross-sell marketing automation (plus lots more) to their CRM customers.
Having a small audience of customers who love your brand is so much more powerful than a large audience of customers who just “like” your brand. When people love you, they stay with you for a long time. They offer great feedback. They recommend colleagues and friends.
However, it limits your revenue, particularly if you only have a $100 /mo product! Cross-selling additional products to this loyal customer base allows you to build an impressive LTV and build a big company from a small audience.
7. License Expansion
Along with cross-selling additional products, another way to increase the LTV of your existing customer base is to focus on license expansion.
Many SaaS or subscription products are too keen to offer “Flat” pricing, or use overly simplistic pricing tiers. While simple pricing helps with purchase decisions, overly simplistic pricing tiers can seriously harm your revenue potential in the long-term and put your ACV seriously out of line with the value your customer receive.
If you don’t already, you should adjust your pricing so that it can keep scaling upwards as your customers value increases.
Run the data and try to look for the “levers” and “triggers” that seem to increase for your more successful accounts. Do you notice that as accounts add more colleagues, they start collecting more leads with your tool? (Or, do you have plenty of accounts steadily increasing their lead counts without adding any new colleagues?)
If the value of your product increase as the number of people using it increases (like Slack or Yammer?) then a “per seat” pricing might make sense.
Or if the value increase as the mailing list size increases (like Mailchimp or Aweber) then pricing as the “contacts” list increases makes more sense.
Many thought leaders and influencers in the pricing space attack “per user” pricing. But this is naive. What’s important is that your pricing can scale with the value of your product.
Per seat might not be the answer (sometimes it can penalise the customer without necessarily increasing the value). Avoid “capping” any pricing and avoid any “unlimited” promises until you’re absolutely confident of all of the triggers and levers in your product’s value.
8. Stop Blindly Discounting
One of the most worrying things to see in a SaaS company is constant discounting. There are a few culprits that come to mind where the pricing on their website is nothing more than an anchor, and you can quickly and easily find 75% discount coupons on multiple guest posts, podcast interviews or conference presentations.
Discounting can be a very effective way to mobilise a customer base against initial friction (i.e. trying a new product category). But do you really know if the customers would have purchased at full price without the discount?
When using discounts, or if you’re curious to experiment with them, it’s imperative that you use your data. Analyse cohorts of customers who use discounts – was the LTV still higher than CAC?
While the signup rate of customers who did not have a discount coupon might be a bit lower, does the increased revenue and LTV make up for the increased CAC?
Discounting is OK in some situations (although I’m not personally convinced it has a place in B2B SaaS) but don’t walk into discounting blindly. you risk permanently devaluing your product to the market and unnecessarily lowering your LTV without receiving a much lower CAC.
9. Leverage Brand Evangelists
Creating customer case studies is usually something done off of the back of relationships your account reps or sales reps have with the customer.
But what about those customers who don’t necessary have personal relationships with your team, but are achieving huge success with your product?
By analysing your data and segmenting customers who are extremely engaged with particular features, marketing or even your API can uncover new brand evangelists. While a traditional approach would be to make personal contact and produce a case study or get a testimonial, you can also use this data to start a targetted referral program.
Rather than simply offering a $10 credit to every customer for a making a referral, why not run a more targeted campaign to your most loyal and engaged customers. You could experiment with making the customer a more integral part of the product and incentivise them with something much more powerful than credit or Amazon vouchers.
10. Double-down On Your Most Successful Customer Persona’s
While you will have an ideal customer persona as part of your marketing, are you actually backing that up with the data from your current customer base?
By analysing your customer data, you can look at the segment of customers with the highest LTV – which may not necessarily be the customers on the highest pricing plan!
Once you identify who these high LTV customers are, you can look for patterns and then try to target more of these customers in your marketing. Test ebooks, landing pages, blog posts, paid ads etc. that target this specific niche. While the audience might not be as broad, as we’ve discussed before, we’re trying to maximise the delta between CAC and LTV.
Running this kind of analysis does mean being able to combine multiple data sources around customer profiles – i.e. having the monthly billing information connected to product usage data and pre-sale data (i.e. demographic info).
Maximising LTV should not be the only focus for a SaaS company – focussing too hard on this single metric can have negative effects on the overall company vision!
However, one guaranteed way to unlock new revenue, which in turn can fund rapid growth – is to maximise your LTV and ensure you’ve corrected things such as pricing model and marketing strategy so that you can hit the gas pedal when it’s time to scale.
Customer data lies at the heart of implementing all of the strategies above. While some success in each area may be possible without data, these tend to rely too much on individuals and lack the repeatable and scaleable potential of a solid data-driven approach.
Of course, I’d be a bad CEO if I didn’t mention that our product, Metrix, makes these kind of data-driven decisions possible!
Image credit Universal Studios, “Lucy” starring Scarlett Johansson. The shot is from the scene where Lucy starts to “see” data as radio waves move through the air.