Archive | Retention

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. […]

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 […]

How Usage Data Drives Revenue Growth in the Subscription Economy

The “Use It or Lose It” dynamic in the Subscription Economy means that if your customers don’t use your service, you’ll lose the customer, the renewal and the revenue. The relationship between subscriptions and usage illustrates this dynamic well. If a customer’s usage meets specific thresholds, the subscription revenues are retained at renewal. If usage climbs enough, subscription revenue growth can be generated by a new subscription tier or more seats. Similarly, customers with the most usage tend to expand their subscriptions to more complementary products. On the other hand, if a customer’s usage drops below certain thresholds, the first thing that occurs is tier or seat churn, which reduces subscription revenue. Ultimately, continued drops in usage lead to product churn […]

Why You Need to Know the Lifetime Value of Customer Relationships

How do you manage profitability in a subscription business? The answer: Knowing and managing the breakeven point of your customer relationships. In the Subscription Economy, the longer the customer relationship, the more profitable the business model is. In fact, in the Subscription Economy, accelerating time to the breakeven point of a customer relationship is a critical imperative because of the high cost of customer acquisition, the deferral of revenues over time, and the risk of churn. Let’s dig deeper into software-as-a-service (SaaS) for an example. Using benchmark information from Bessemer Venture Partners, Opexengine, River Cities, and others, the breakeven point in a customer relationship is on average 3.1 years in SaaS. Does that seem like a long time? More than […]