Rule #1 for growing a SaaS business? Keep your product's perceived value moving up and to the right.
The scenario is all too common: Customers get through implementation, dive into the platform, and everybody’s happy. But by the time renewal comes around, the excitement has faded, and your customers are asking some variation of this question: “What have you done for me lately?”
To have a great answer to this question, create recurring value. It’s up to you to weave what I call “moments of impact” into your post-sales processes. In this article, I break down:
- Why it’s so hard to grow a SaaS business in 2023
- Why so many SaaS businesses are shooting themselves in the foot by using the wrong playbook
- Why you should be using a stair-stepped approach to value delivery
- How to identify, measure and communicate moments of impact that keep your customers coming back for more, year after year
Why is growth so hard right now?
Let’s be real for a minute. It’s hard to close net-new business right now. For starters:
- The economy sucks.
OK, the picture isn’t as bleak as originally feared, but it’s not pretty. Inflation is up, the labor market is tight, and the mood is downbeat.
- Investors have changed their minds about what they want.
The tone in investment meetings has shifted suddenly from “growth at all costs” to “responsible growth and profitability.”
- Customers are cautious.
B2B buyers are in extreme cost control mode. Nearly half of all B2B businesses are seeing longer sales cycles this year.
In short, if you’re struggling in the SaaS space, you’re not alone.
If you’re in SaaS, you’re in the recurring revenue game
What van der Kooij realized is that SaaS businesses are unique. The typical rules of the sales funnel do not apply. With a perpetual license business, you receive the bulk of your revenue upfront. With SaaS, you might not get any revenue until weeks or months after the deal closes. The success of the SaaS model is totally dependent on happy customers and churn prevention. And that means delivering recurring impact.
The only rule that really matters for SaaS businesses
The only way to build a successful SaaS business is to secure recurring revenue. And the only way to secure recurring revenue is to deliver recurring impact. According to Jonah Midanik, a serial entrepreneur and Partner at Forum Ventures, value can be boiled down to one acronym: TIM — time, image, and money. The best business leaders think about how to give their customers one (or more) of these three things.
Recurring impact = recurring revenue = business growth
This should be obvious. Customers will continue to pay for your software if they see that they are continuing to get value from your software. But there’s a problem.
For many SaaS business leaders, growth means “closing new accounts.” Retention is an afterthought. Customer support is just there to keep customers content.
That’s a major oversight, because...
Your post-sales teams are the ones delivering recurring value
If you want to grow a SaaS business, you have to deliver recurring value to your existing customers. Your sales and marketing teams make the promises, and it’s up to your post-sales team to keep them.
Here’s a simplified version of the recurring revenue operating model:
Up until last year, SaaS businesses focused their growth efforts heavily on the left side of the bow tie; they prioritized acquisition-based growth, like finding new clients and closing new accounts. Sadly, they’ve inadvertently neglected the onboarding, adoption, and expansion of those new accounts.
And it worked fine when everyone was buying. With a high enough rate of acquisition, brands overcame poor retention and low customer expansion rates.
Unfortunately, it doesn’t work in today’s more conservative buying environment. To grow in 2023, SaaS businesses will need to takes closer look at the right side of the bow tie:
- Deliver recurring value to their existing customers
- Build moments of impact that unfold over months
- Provide a compelling answer to the question, “What have you done for me lately?”
Here’s how to make that happen.
How to overcome the value plateau
The typical value delivery for a SaaS business looks like this:
When you’re onboarding new users, they’re not getting much value. They’re just trying to get their feet under them and learn your product
Then, you’re in the adoption phase. More users are getting set up. They’re suddenly seeing a ton of value in your product. They’re very excited. Everyone’s happy.
But that happiness eventually flatlines because your new and shiny software becomes a day-to-day expectation for users. You’ve become “just one more tool.”
So, by the time the renewal conversation comes around, your product is less sparkly than it once was. You don’t get any credit for that initial value and excitement. Instead, your customers will struggle to remember why they even pay for your product. That’s why “stairs” are essential.
Build “value stairs” with moments of impact
To stop a value plateau before it starts, build “stairs”. Don’t deliver all of your value upfront. Instead, break up the value delivery into small, frequent “moments of impact.”
A moment of impact is a time when a customer experiences value from your product. These moments are your opportunity to remind your customer why your product is so great. A handful of moments like these are the recipe to secure ongoing revenue through renewals and expansions.
Here’s what I mean:
The green line in the diagram shows the typical value plateau. The company has front-loaded value delivery, so the customer’s perception of the value of the product starts high, but then plateaus, and ultimately decreases.
The dashed line shows the “stairs” approach. The company spreads out the value of their product over time. The customer’s perception of the value of the product increases every time they experience a moment of impact.
But here’s one important caveat: I don’t think it’s right to hold back value that you know would benefit a customer just in the name of adding “stairs”. Rather, listen proactively during the ongoing conversations you have with each customer and suggest either new features or additional features they may not know about to help them hit their goals. Said another way, don’t show all of your cards during customer onboarding.
Why do stairs work so well?
This stair approach works incredibly well for SaaS businesses because it draws on two key psychological concepts:
- Recency bias
- Variable ratio reward schedules
Recency bias is a cognitive distortion that favors recent events over historical ones. It matters here because you don’t want your customers to have to look too far back to remember the value that you gave them. You never want those feelings of satisfaction and excitement to be too far back in the rearview mirror.
The term “variable ratio reward schedule” comes from behavioral science. We’re all motivated by rewards— and we’re way more likely to take a particular action if it comes with a reward or even the chance of one. Research suggests that the most effective rewards are those that are slightly inconsistent or unexpected. It’s why people get hooked on slot machines.
Stairs work like a variable reward. Every so often, you create a moment of impact for your customers, and they get a little rush of excitement or satisfaction: “Wow, this tool just made my life so much easier.” It’s not 100% consistent—sometimes your product is there, chugging away in the background. But every so often, you’ll give them an unexpected microdose of delight in your product.
How to identify and measure moments of impact
This all might sound a bit theoretical, so let’s make it practical. Here are four steps to using moments of impact to drive recurring revenue:
Step 1. Figure out your product’s moments of impact
SaaS products should be built around the jobs that our customers want to do. The moments of impact are the times when our customers use our solution, it helps them do a job they were trying to do, and they feel satisfaction.
Let’s use Catalyst as an example here. We’re a customer success platform, so one of the jobs that our customers need to do is to proactively identify accounts that are at risk of churning. That way, their Customer Success team can reach out to those accounts and prevent the churn.
So, the solution we offer is to surface accounts that might be about to churn on a single dashboard, so our customers can spot them easily. And, if they want, they can set it up so an automatic email goes out to those at-risk accounts, to re-engage them.
So, for this feature, two possible moments of impact would be:
- Our customer gets an indicator that their client was at risk of churning, but then they see that an automatic email already went out to the executive sponsor for that account. So they get that nice feeling of, “Wow, that was a possible issue, and Catalyst already took care of it.”
- Our customer uses our layout feature to show their executive team all the necessary information about their at-risk accounts. Again, they get that feeling of satisfaction: “I kept the team up to date, I made my manager happy, and I didn’t even have to build a slide deck —I had all the info ready to go.”
We’ve pulled out about 27 moments of impact, within five or six core solutions, that tie into two or three main jobs to be done.
To figure out what those key moments of impact were, I sat down with our Customer Success and Implementation teams, and asked them, “What are the ‘aha!’ moments that our customers experience with our platform? What gets them going, ‘Wow, that’s awesome!’? We created a great long list. Then we worked with the Product Development team to group them all by solution.
Step 2: Build a user experience based on moments of impact
Once you’ve identified your moments of impact, you need to create a user journey that guides customers through each moment. Don’t fall into the trap of trying to wow customers with maximum value upfront. The problem is that customers often feel overwhelmed during onboarding. You may think you’re giving them massive value—but you may be giving them too much, too soon.
But you know how you eat an elephant, right? One bite at a time. Instead of trying to shove your whole product at them during onboarding, give them small doses of value over time. They will actually get more out of your product that way, and you’ll have recent wins to point out during renewal conversations. For this to work though, your customer has to know there's more in store and have a general idea of what might be available, so they know what to ask for and think about throughout your partnership.
This is a tall order -- another psychological reason people default to front-loading that we need to show how to overcome in this piece
Step 3. Find ways to quantify moments of impact
The most effective way to measure and communicate moments of impact to your customers is to use telemetry within your software. That way, you can:
- Monitor how your customers are using your product
- Identify when they are using it in a way that will lead to a moment of impact
- Measure the impact of your product
- Communicate that moment of impact to your customers
UserGems is a pipeline generation SaaS company that uses telemetry to measure moments of impact and then flag those moments up for their customers. I’m a UserGems customer myself, so every month, I get an email from UserGems that tells me:
- How many sales opportunities they helped me find
- The value of those opportunities in new pipeline
- How many of those opportunities closed, and how much revenue that generated for me
- How well my automated set-up is working, and how it compares to their benchmarks
So at least every month, I’m experiencing a moment of impact as a user of UserGems.
If automatic data collection and sharing isn’t an option for your platform, you may need to get a little creative. Work with Product Marketing to articulate how your customers think about value, what value they’re getting from your product, and how you can measure, monitor, and communicate that value on a regular basis.
Step 4: Swap QBRs for impact meetings
Sales teams don’t have obligatory “check-ins” with their prospects, and customer success teams shouldn’t have them with their customers. Instead of tying your customer meetings to some arbitrary date, tie them to moments of impact.
This completely changes the nature of the conversation. Instead of a pointless meeting, you’ve reached out to showcase how your product has helped them. The conversation goes something like this: “You asked us to do X, and we got it done. So here’s what we’re planning to do next, based on your main business priorities. Is your number one priority still Y?”
This is a major improvement because:
- You’re no longer that vendor that insists on long, boring meetings every quarter. You’re a business partner delivering on your promises and empowering them to meet their business objectives.
- The expansion or renewal conversation becomes a natural extension of your usual conversation. “You’ve already been getting all these great results from our products. Here’s how you could be getting even more out of our solution…”
- You have a reason to meet and something to talk about. That way, even if your main point of contact leaves, the whole relationship doesn’t just disappear with them. You’ll still have a meaningful reason to stay in touch with your customers.
Your product is an elephant, best eaten one bite at a time
Customers receive value in chunks. Don’t try to make them eat the whole elephant right from the start. Instead, shift your value delivery to a stair-stepped model. The value from your product won’t be perceived or realized all at once, but in sequential steps when the customer is ready for more.
Want to listen to me explain this more in-depth? I did a webinar last month where I talked about all of this, and you can watch it on demand here.
It’ll give you a clear roadmap for showing recurring value—from implementation all the way to renewal. Catalyst can help. Our software turns customers into your top growth engine by surfacing actionable insights on churn risks and expansion opportunities. Curious? Schedule a demo with our team.