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McKinsey & Company’s research into SaaS companies serving large and mid-enterprise customers shows that companies with annual churn rates of 20% or more see slower growth in annual recurring revenue than others that manage to hold onto their customers. Shawn Lankton and Brian Stafford from McKinsey & Company joined Gainsight CEO Nick Mehta as they double clicked into the findings of their latest SaaSRadar research. How a great product experience can drive customer stickiness. Why cross-sell directly impacts churn reduction. How Customer Success teams are implementing proactive strategies to fight churn. The most successful Enterprise SaaS companies know that growing revenue only through new customer acquisition is the less efficient way to scale. Rather, they understand that growing revenue within your existing customer base - through up-sells, cross-sells, and expanded use - is the most profitable way to scale. In fact, Enterprise SaaS companies that grow revenue - and company valuation - by expanding revenue within their existing customer base also know the key to making this work is to focus on - and operationalize - Customer Success.
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McKinsey & Company |
Courting and Cross-selling:
The secrets of low-churn SaaS companies
August
2014
#customersuccess
2014 Gainsight, Inc. All rights reserved.
• Q&A panel on your right • Recording for colleagues who couldn’t make it• All attendees will receive slides• Twitter hashtag #customersuccess
Housekeeping
2014 Gainsight, Inc. All rights reserved.
Today’s Panelists
Nick MehtaCEO
@nrmehta
Brian StaffordPartner
Shawn LanktonAssociate Partner
Courting and cross-selling: the secrets of low-churn SaaS companies
August 13, 2014
Gainsight Webinar
CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited
McKinsey & Company | 5
Lower churn leads to faster growth
SOURCE: SaaSRadar, McKinsey’s proprietary database of B2B SaaS metrics (SaaSRadar.com)
Annual ARR growth
Low churn (<10%)
High churn (>20%)
90%
53%
McKinsey & Company | 6
Who we studied
SOURCE: SaaSRadar, McKinsey’s proprietary database of B2B SaaS metrics
Later-stage startups: Revenue from $25M to 75M
With enterprise customers: ACV from $65k to 350k
Smaller companies and companies with smaller ACVs may be the topic of a future Webinar
McKinsey & Company | 7
Top tactics of low churners
SOURCE: SaaSRadar, McKinsey’s proprietary database of B2B SaaS metrics (SaaSRadar.com)
▪ Killer products
▪ Lots of cross-sell
▪ Careful courting
▪ Investing in users
1
2
3
4
McKinsey & Company | 8
A great product is a good start
SOURCE: SaaSRadar, McKinsey’s proprietary database of B2B SaaS metrics (SaaSRadar.com)
R&D spend / sales
Low churn (<10%)
High churn (>20%)
30%
10%
1
It’s a no brainer, and the numbers don’t lie…
McKinsey & Company | 9
Cross selling keeps customers
SOURCE: SaaSRadar, McKinsey’s proprietary database of B2B SaaS metrics (SaaSRadar.com)
Customers buying >1 product
Low churn (<10%)
High churn (>20%)
33%
0%
2
Broader product suites and more customer touchpoints
McKinsey & Company | 10
Loyal customers cost more to get. . .
SOURCE: SaaSRadar, McKinsey’s proprietary database of B2B SaaS metrics (SaaSRadar.com)
M&S spend / Rev.
Low churn(<10%)
High churn(>20%)
53%
30%
3
Sales cycle length
5 months
3 months
McKinsey & Company | 11
. . . and not everyone can sell
SOURCE: SaaSRadar, McKinsey’s proprietary database of B2B SaaS metrics (SaaSRadar.com)
Portion of FTEs on quota
Low churn (<10%)
High churn (>20%)
41%
71%
3
More lead qualification and sales engineering FTEs
McKinsey & Company | 12
Keep taking care of customers post-sale
SOURCE: SaaSRadar, McKinsey’s proprietary database of B2B SaaS metrics (SaaSRadar.com)
Churn prevention FTEs / $1M ARR
0.3
0.1
Low churn (<10%)
High churn (>20%)
4
Proactively ensure customer success
McKinsey & Company | 13
Consider participating in SaaSRadar
SOURCE: SaaSRadar, McKinsey’s proprietary database of B2B SaaS metrics (SaaSRadar.com)
100+
B2B SaaS participants
40 critical metrics
10+
hand-picked peers per cohort
$10M+ million ARR range
~2 hours to complete
McKinsey & Company | 14
Brian Stafford
▪ Leads McKinsey’s SaaS practice
▪ Founded and ran a $100M software company pre-McKinsey
Shawn Lankton
▪ Leads our SaaSRadar benchmark
▪ Experience with sales and pricing for large and small software firms
Who we are
2014 Gainsight, Inc. All rights reserved.
The performance waterfall
Opportunity Churn Downsell Retained Up-Sell X-Sell Total Bookings
$54,047,502.5
$8,012,106.2
$4,086,344.1
$41,949,052.2
$4,161,855.8
$8,576,439.0
$54,687,347.0
X-Sell = 16%
Churn = 15%
$M
Retention Rate = 78%
Bookings Rate = 101%
2014 Gainsight, Inc. All rights reserved.
Cross-sell is a key lever for customer retention
Q3'13 Q4'13 Q1'14 Q2'14 Total0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
10%
15%
18% 18%
16%
Cross-sell Performance By Quarter
Q3'13 - Churn
Q4'13 - Churn
Q1'14 - Churn
Q2'14 - Churn
Total - Churn
0%
1%
2%
3%
4%
5%
4%
4%
2%
1%
3%
Historical Cross-sell Performance for churned
business by quarter
Historical Cross-sell performance calculated by identifying any Cross-sell activity that occurred 4 quarters back from the quarter the customer churned (ex: the Cross-sell window for Q3’13 churned customers is Q3’12 – Q2’13).
Cro
ss-s
ell
Rate
His
tori
cal C
ross
-sell
Rate
Quarter of Cross-sell Quarter of Churn
2014 Gainsight, Inc. All rights reserved.
Cross-selling also limits churn exposure
Churn Reason Value
Competitor - Software $1.87
Lost Champion $0.84
No Traction $0.68
No Use Case $0.32
Product limitation $0.26
Total $4.16
1
2
Differentiate from competitor
Identify champions across multiple orgs
3
4 Solve multiple business problems
Drive user count across multiple orgs
2014 Gainsight, Inc. All rights reserved.
www.gainsight.com/pulsecheck
2014 Gainsight, Inc. All rights reserved.
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