In the last research alert, we talked about the “90/10 Rule of Adoption.” That was an observation based on our own real-world data which shows that after 90 days, a non-loyal user has only a ten percent chance of becoming a loyal user. Like the time-honored 80/20 rule, our 90/10 rule is meant as a guide for setting priorities—and the key takeaway is that adoption is critical to the customer journey. The 90/10 rule of adoption encourages companies to better understand the dynamics of customer adoption, because adoption is often highly correlated with customer retention and renewal revenue. This correlation between adoption and retention makes intuitive sense: Customers only want to pay for what they actually use, so if adoption [...]
The 90/10 Rule of Adoption and Customer Success
Consider the first ninety days of a customer’s subscription. How much customer success can you predict based on that period? How much renewal risk gets created? More than you might think, as it turns out. In the subscription economy, renewal revenues are driven by customer usage. For example, if a customer overestimated their needs initially and purchased too many users (or some other measure of use), they’ll want to course correct at renewal time and get in line with their actual historic use. So why are the first ninety days so critical to customer success and renewal revenues? The answer is simple: user adoption equates to higher renewal revenues, and most loyal users are created in the first ninety days. [...]
Five Trends and Tipping Points in the Subscription Economy for 2014
With over 120 customers and more than $3.3 billion under analysis, we get to have a big-picture perspective here at Scout Analytics. We collaborate with our customers continuously on new strategies for accelerating recurring revenue growth, and that’s helped us identify certain trends emerging across industries—common themes that show the potential for tipping-point dynamics. Below are the top 5 trends which we predict will hit a tipping point and start to take hold more broadly in 2014: #1: Pay-per-use will drive market growth When Salesforce.com launched its per-user per-month subscription model, the pricing wasn’t aimed at big enterprises already implementing Siebel or other on-premises software packages. The new model was aimed at the unserved SMB customer segment—and this created huge [...]
In the subscription economy, 100% of profits come from existing customers
For the vast majority of recurring revenue businesses, existing customers don’t just fuel growth—they represent all of the businesses’ profits. Take the average customer relationship in the SaaS market: it takes 3.14 years to reach profitability, which for a $12,000/year subscription would mean $37,680 to hit breakeven. That means a full 68 percent of the revenue needed to achieve profitability is collected after the initial contract. This means profitability stems first from ensuring customer success and then growing the relationship. That percentage gets higher the further you can extend the lifetime of a customer and as the relationship becomes more profitable. In our research, we’ve found that the most profitable, best-performing companies realize 90 percent or more of a customer’s [...]
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