5 Ways to Increase SaaS Customer Lifetime Value

5 Ways to Increase SaaS Customer Lifetime Value

By John McTigueMar 24 /2014

saas customer ltvA few weeks ago, I made some suggestions for SaaS/Cloud marketers trying to reduce customer acquisition costs (CAC). The other metric of primary importance to SaaS (or any other online product or service) is customer lifetime value (LTV). Since LTV is inversely proportional to churn, successful online software companies need to hang onto their subscribers as long as possible in order to maximize monthly recurring revenues and LTV.

LTV is what drives company valuation, financing and ultimate success. How can marketers help with that? Here are some tried and true ways.

#1 - Help the Product Team Develop Something Special

How many successful SaaS companies started with a truly original idea or niche? Well, it's safe to say one company per niche, right? Now look at any niche you care to name, from purchasing shoes to file storage or business management, and you're likely to find half a dozen or more competitors. If there is only one player in the field, that's not likely to last long. Faced with competition, you need a unique value proposition that sets you apart and helps you sell. Marketers are good at canvassing the user community, asking customers and prospects what they want and need and helping the Dev Team mold those desires into something useful and valuable. The more unique and valuable a SaaS application is, the more likely your customers will stick with it for the long haul. A few questions to ask yourself about your SaaS product or service include:

  • Is your solution really in high demand?
  • Is it truly innovative or disruptive?
  • Does it really solve the problem?
  • How easy is it to use?
  • Is it stable and bug-free?
  • Is the free version valuable on its own?
  • Are the upgrade versions significantly better?
  • Is your online support easy to find and helpful?
  • How do your features and pricing compare to your competition?
  • Is there a mobile app for that?

#2 - Focus on the Customer, Not the Technology

Not too long ago, SaaS applications were a novelty, a disruptive novelty at that. Businesses of all sizes were concerned with letting go of their business systems, security and support. The idea of moving them to the Cloud was controversial at best. Now, they're a way of life. There are few business functions that don't have at least one well respected SaaS solution now. Brand names are popping up on a daily basis, and the entire software industry is being driven forward by SaaS entrepreneurs and their startups. In other words, both the bloom and the thorns are off the rose. As Peter Cohen puts it:

"As the SaaS market has matured, buyers have become more knowledgeable. In some markets, they are now on the second or third generation of solutions. These companies are often replacing existing systems, not adopting automation for the first time."

Instead of trying to convince buyers your SaaS application is safe and secure, try selling them on solving their problems. Your Marketing Team should be able to tell you what those problems are and what buyers desire in terms of features and benefits. They do that by developing detailed buyer personas through customer interviews, online surveys and feedback from the Sales Team.

#3 - Don't Assume Anything

Just because you don't hear anything from your customers and "free trialers," that doesn't mean they're happy. If there's no engagement, it's probably because they are frustrated and have moved on. The best SaaS companies engage with their customers on a regular basis through email, social media, website FAQs, online support forums and user support groups. Don't assume just one of these channels is sufficient either. Each of your subscribers will have a different way to seek support, but they all have several things in common:

  • The user experience needs to be intuitive and simple.
  • User support needs to be obvious and well organized into common tasks and issues.
  • You have to be able to anticipate their questions and have ready answers.
  • Your experts need to be available to answer questions. Users don't want to hear from other novices.
  • Help your users solve their problems; don't just show them how to use your app.
  • Encourage your users to seek help from each other and benefit from power users' experiences.

#4 - Grow, Don't Growth Hack

It's tempting for an entrepreneur to feel so passionate about that top-secret new SaaS app that will become the next VC darling they forget the basics of Sales and Marketing: Get that app to the iTunes Store, and it will sell itself. Get your developer community talking about the cool new code you're using, and it will spread like wildfire. We can do this on a bootstrap budget and move out of the garage in weeks, not months or years! Sorry Charlie, that only happens in the movies.

The real success stories are about young guns (and a few old ones) who do their homework, hire experienced sales and marketing talent and fund them in stages to light the afterburners. And yes, a significant portion of that budget needs to go into Marketing and Customer Support to keep subscribers loyal and increase LTV. Oh, and by the way, venture capitalists want to see that detailed Business and Marketing Plan before they will fork over a dime these days.

#5 - Tell Your Story

Everybody knows the Facebook story. It's a lot like the Klondike Gold Rush days. We can all do this with a little luck and a lot of hard work. Well, maybe. But the interesting thing is the story itself. Don't get me wrong, Facebook is a cool app, but it wasn't that cool at the beginning. Yes, it was different and definitely disruptive, but it wasn't even Mark Zuckerberg's idea. What drove the success of Facebook was the story of Zuckerberg and his team of whacky, brilliant kids telling the establishment at Harvard and American Business to shove it and watch us build a multi-billion dollar business with no tangible product or apparent value. Now that's interesting.

People want to hear your story. It helps them decide whether or not your app is worth a second look.

Photo credit: Heisenberg Media

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The Author

John McTigue

With over 30 years of business and marketing experience, John loves to blog about ideas and trends that challenge inbound marketers and sales and marketing executives. John has a unique way of blending truth with sarcasm and passion with wit. You can connect with John via LinkedIn and Twitter.