Customer lifecycle marketing

How To Maximise The LTV OF Your B2B SaaS Customers

If you work in a SaaS company, then it’s going to be the focal point of all your time, energy, and efforts — the growth rate plays a crucial role in pretty much everything. 

But too often, we mistake associating growth with new customers.

In 2018, Gartner's research estimated that more than 80% of software vendors would change their business model from a traditional license to subscription by 2020. 

But they couldn’t have predicted a pandemic that accelerated the shift towards SaaS. As a result, SaaS will continue to maintain dominance well into 2022.  

That means more SaaS companies.

And that also means your growth won’t come from a one-off payment you receive from a new customer. Now your growth will come from your ability to successfully retain and monetize your customers once you’ve acquired them. 

It’s all about growing your Monthly Recurring Revenue (MRR).

Easier said than done. So how do you do it?

Well, one way is with what we call customer lifecycle marketing.

Customer lifecycle marketing (CLM) is a framework that helps us understand how we should market to each stage of the lifecycle to maximize revenue from new and existing customers.

Lifecycle Marketing is a marketing philosophy and strategy that guides marketers to drive revenue from both prospects and an existing customer base.

Marketo

CLM is not just about collecting customer data, but rather using it to deliver better marketing and a world-class customer experience that drives growth. Sounds good, right?

The purpose of customer lifecycle marketing is to drive customer lifetime value (LTV) by truly understanding and catering to your customers' needs at each lifecycle stage.

To understand CLM, you need to be familiar with customer lifecycle management. Customer lifecycle management is a way to describe the different stages that your customers progress along. For simplicity's sake, you can look at your customer journey using the pirate funnel (A-A-A-R-R-R):

• Awareness: Getting the audience to your website.
• Acquisition: They are aware of your solution and are in the consideration stage. They are also willing to give their information to you in exchange for more value.
• Activation: People are using your product and are experiencing the value you promised. They are still in the consideration stage but are closer to making a decision.
• Retention: Users are now returning and using it several times. It’s decision time!
• Revenue: Users subscribed to your tool. They are now your paying customers.
• Referral: They love it enough to start sharing it with their peers.

More customers doesn't mean the right customers

If you take a closer look at how the best-in-class SaaS companies perform, one thing they all have in common is that they are not only effective at acquiring new customers but also super good at going after the right customers. 

That’s, by the way, why we at Advance B2B like to go on and on about customer research and ideal customer profiles. 

By investing time and energy to focus on customers who would gain the most from their service and use it over the long term, the top SaaS companies are building a loyal customer base who will promote, evangelize and essentially sell their service to others.

And there is one golden virtue the best performing SaaS companies achieve; negative churn.

Negative churn is when the additional revenue generated from your existing customer base is greater than the revenue loss caused by customers downgrading or churning.

In short, even though you are losing customers, you’re still growing your business. This means that the secret sauce to achieving negative churn is your ability to retain and grow your customers — this is what makes all the difference, and more importantly, this is what customer lifecycle marketing helps you do!

CLM is so crucial for SaaS success because the Monthly Recurring Revenue (MRR) is the lifeline of a SaaS business, and the growth rate of the business has a huge impact on the company’s valuation. 

The success or failure of a SaaS company boils down to the three aspects. They are how well a company can:

• Acquire new customers quickly and cost-effectively
  
  Customers don’t grow on trees. It takes time and effort to acquire them before you can say for certain that you have a product/market fit. All that translates into customer acquisition cost (CAC). 
  
  
• Retain existing customers
  
  Acquiring new customers is costlier than retaining existing ones. This is mainly because it takes time before you start seeing your CAC payback and a customer becomes profitable.
  
  Typically, the CAC payback time for most SaaS companies is between aproximately nine to 12 months. If more customers are churning before you start seeing any sort of CAC payback, you’re running a higher risk of burning cash faster than you can generate it — unless customers pay upfront for an annual subscription. 
  
  
• Grow and monetize customers through up-sell and cross-sell opportunities
  
  The industry benchmark for a healthy LTV to CAC is 3:1. If your customers are generating three times the amount it cost for you to acquire them, you’re golden. And the best way to achieve that is through up-selling and cross-selling instead of acquiring more new customers.

Let’s illustrate this point using the following example and graphics below:

If we are spending 6,000 € to acquire a new customer (CAC = 6k €) and the monthly billing fee is 500 €, then you will recover your CAC during month 13, since it takes 12 months for the customer to pay back their 6k € acquisition cost. But if your customer churns after eight months then you only recover two-thirds of your CAC (4k €), which results in a 2k € loss, plus the potential profit you would have gained from month 13 onwards.

Single Customer Cash Flow

Single Customer - Cumulative Cash Flow

This example was modified from the following post by David Skok.

Churn will kill your growth

While selling more is good, it’s crucial to keep your customers happy so they stick with you.

Otherwise, it doesn’t matter how much more you’re able to sell each month if you’re simultaneously losing customers at a higher rate — growth is simply not possible at this rate.

Let's take another example to bring this issue to life:

If your monthly recurring revenue (MRR) is 1 000 000 € and your monthly churn rate is 3%, this means that you need to sell at least 30k € new MRR in order to maintain at the same level. So, in order to reach 15% MOM (month over month) growth, you should close 180k € worth of new MRR. While it might be possible at the 1M € MRR level, try to do the same when your monthly recurring revenue is 3M € (3% churn of 3M € = 90k€). So to maintain at that level you would need to close 90k€ worth of new MRR. This means that in order to grow 15% MOM you should close 240k €.

All of a sudden, the gap simply becomes near impossible to reach.

1. Awareness: Getting the audience to your website. 
   
   
2. Acquisition: They are aware of your solution and are in the consideration stage. They are also willing to give their information to you in exchange for more value. 
   
   
3. Activation: People are using your product and are experiencing the value you promised. They are still in the consideration stage but are closer to making a decision.
   
   
4. Retention: Users are now returning and using it several times. It’s decision time!
   
   
5. Revenue: Users subscribed to your tool. They are now your paying customers. 
   
   
6. Referral: They love it enough to start sharing it with their peers.

This allows you to talk to your customers in a way they will value based on their exact position in your funnel.

For example, you probably want to talk to a prospect in a completely different way than you would to your biggest and brightest evangelists.

So in order to make this happen, you need to know — for each and every contact — which lifecycle stage they are in.

In the SaaS world, when we refer to talking to a prospect or customer, we mean your website (your best — or worst — sales rep), your sales executives, and your customer success team members.

As mentioned earlier, in order for you to communicate with your customers effectively (whether prospective, existing, or churned) you must understand which lifecycle stage they are currently in.

To help you with this, most marketing automation systems have a single field that tells you this information, and it’s usually called ‘lifecycle stage’.

Most platforms have their default customer lifecycle stages but don’t necessarily support the needs of a SaaS company.  

With this in mind, we recommend that SaaS companies build their own lifecycle stages based on their actual business needs.

To help you get started, we have created a base model which you can utilize and modify when planning the lifecycle stages of your SaaS business, taking into consideration your business and sales model.

SaaS Customer Lifecycle Stages

Subscriber

A website visitor who has opted in to hear from you periodically, such as signing up for blog updates or a newsletter.

Lead

A contact who has converted through an offer on your website (participated in a webinar, downloaded an eBook, or watched on-demand product demo) and has typically filled in a form with more than just their email address. Leads show a stronger interest in your offering than Subscribers.

Free User

For companies with a freemium business model, this would be a user that has opened a free account but hasn’t upgraded to a paid plan and become a customer.

MQL

Marketing Qualified Leads (MQLs) have identified themselves as more deeply engaged with your company and your offering. They are more sales-ready than your usual Leads, but they’ve not yet become fully-fledged Opportunities. These are typically contacts who have converted with Bottom of the Funnel content such as demo requests, buying guides, and other sales-ready calls to action, or they would be a Free User who has demonstrated behavior that they are ready to upgrade and buy.

SQL

If you have a high-touch sales process, Sales Qualified Leads (SQLs) are those MQLs that your sales team has accepted as worthy of a direct sales follow-up.

Opportunity

If you have a high-touch sales process, Opportunities are the contacts your sales team has identified as sales opportunities to pursue and they are tracked in your CRM.

Customer

An actual, real, paying Customer.

Churned

A customer who has now churned. They are no longer paying for your service.

Evangelist

These are your super, happy Customers that actively promote your product, mention your company, and are true advocates for your company and service. Leveraging their networks often bring in new customers and help you reach leads you may not have been able to otherwise.

Other

The wildcard; basically anyone that doesn’t fall into any of the categories mentioned above.'

Additionally, you might want to consider having a different set of stages for Customers. For example:

• Newbie: Customer has started in the last 30 days
• Churn threat: Customer is likely to churn based on behavior; e.g. inactivity or other KPIs
• Power user: The customer is heavily using your service on a daily basis
• Passive user: Customer is not showing signs of churning but isn’t too active or is not getting the most of out of your service

This will enable even more improved and timely communication, and in the next section, we’ll look at what practical steps you can take to grow the LTV of your customers with relevant marketing tactics for each stage of the lifecycle.

The Customer lifecycle marketing model

In order to help you maximize your LTV, we have created the customer lifecycle marketing model, which is built around the three cornerstones of acquisition, retention, and growth.

Part 1: Acquire

Acquiring new customers is how most SaaS companies try to grow their businesses. And while keeping newly acquired customers is a must, your company won’t see the desired growth levels without being able to acquire new customers in a scalable fashion.

For B2B SaaS companies to be successful - and even just survive - they must be able to build a scalable sales and marketing model.

But, hang on. How do we define scalable? 

It means being able to move the right leads through the funnel and retain the right customers for as long as you can. Preferably forever. 

The thing is, your customers have different needs when they are in different stages of their buying journey. It also means you can’t use the same “language” across the funnel. 

Think of it as a friend who needs to vent about something that frustrated them. Are they seeking for advices from you? Or are they seeking for an ear to listen and validation? 

Now, let’s take a look at the funnel again: 

1. Awareness: Getting the audience to your website. 
   
   
2. Acquisition: They are aware of your solution and are in the consideration stage. They are also willing to give their information to you in exchange for more value. 
   
   
3. Activation: People are using your product and are experiencing the value you promised. They are still in the consideration stage but are closer to making a decision.
   
   
4. Retention: Users are now returning and using it several times. It’s decision time!
   
   
5. Revenue: Users subscribed to your tool. They are now your paying customers. 
   
   
6. Referral: They love it enough to start sharing it with their peers.

A lead in the awareness stage is experiencing a pain point and is seeking information for potential solution. Would they be seeking for advice or validation? 

The answer is, validation. They’re seeking for just enough information before deciding to take a step further. Providing them with a detailed technical document at this stage is more likely to overwhelm leads than to take them further down the funnel. 

A customer in the revenue stage is already paying to use your product. Would they be seeking for advice or validation? 

The answer is, advice. They are paying for your product because it helps them solve their challenges. Talking about the benefits of your product is preaching to the converted. You’re likelier to increase your MRR by up-selling and cross-selling so that your product solves more challenges.

Part 2: Retain

As you’ve come to realize, growing your SaaS company is highly dependent on your ability to retain your customers. Retaining customers is crucial to a profitable SaaS business. 

In too many cases, and especially with services that use a freemium model, the biggest challenge is to make sure your users actually start using your product and are able to gain the value you promised.

This, what product people call stickiness, is crucial to retain the customers you worked so hard to get.Product stickiness is not something that just happens by itself but through a combination of factors. You can increase the stickiness of your service by:

• Having a product that actually stores the value.
• Changing the way we do work, for the better, and over time it creates and facilitates the adoption of a new habit.
• Giving you a reason to log in, for example, to follow analytics/metrics, check your progress, or as a tool for something you do on a regular basis.
• Creating a loveable brand and product.
  
  

Part 3: Grow

Like we discussed earlier, the best performing SaaS companies achieve negative churn (up-sales and cross-sales to existing customers exceed churned revenue). 

But still, way too many SaaS companies struggle with their pricing model in that they don’t enable effective up-selling mechanics. This is something that holds your growth back and prohibits it from being what it could be.

So if you have your add-ons and additional products in place, then you should have certain workflows in place that you trigger when a customer completes a certain action, for example visiting your add-on product page three or more times over a two day period. 

This typically tells you that a customer has a specific interest in that add-on and that it’s certainly worth follow-up, either by automation (such as an email or in-app message) or via a human touch (if you have a high-touch sales process using reps). 

Advanced tools, such as Hubspot Marketing, enable you to receive real-time alerts when customers complete these actions, such as visiting your add-on product pages.

In addition, you might also want to consider utilizing the customer support data that you receive via chat, emails, and phone calls; customer questions usually contain a lot more insight than companies realize.

You may well hear some sound bites that a customer has a specific problem with their existing toolset, which your add-on could solve.

Key takeaways:

• Get to know the lifecycle of your customers’ and buyers’ journeys. Understanding and meeting their needs at each stage goes a long way in enabling successful long-term customer relationships. 
• Your growth will come from your ability to successfully retain and monetize your customers once you’ve acquired them
• Customer lifecycle management is a way to describe the different stages that your customers progress along
• Customer lifecycle marketing (CLM) is a framework that helps us understand how we should market to each stage of the lifecycle in order to maximize revenue from new and existing customers
• The purpose of CLM is to drive customer lifetime value (LTV) by truly understanding the needs of your customers at each lifecycle stage
• There is one golden virtue the best performing SaaS companies achieve;

  negative churn

• Negative churn is when the additional revenue generated from your existing customer base is greater than the lost revenue from your existing customers either downgrading or churning
• The success or failure of a SaaS company boils down to the three aspects. They are how well a company can:
  • Acquire new customers quickly and cost-effectively
  • Retain existing customers
  • Grow and monetize customers through up-sell and cross-sell opportunities
• It doesn’t matter how much more you’re able to sell each month if you’re simultaneously losing customers at a higher rate; churn will kill your growth
• The SaaS customer lifecycle stages include:
  • Subscriber
  • Lead
  • Free User
  • MQL
  • SQL
  • Opportunity
  • Customer
  • Churned
  • Evangelist
  • Other
• In addition, you might want to consider having a different set of stages for Customers, for example:
  • Newbie: Customer has started in the last 30 day
  • Churn threat: Customer is likely to churn based on behavior; e.g. inactivity or other KPIs
  • Power user: Customer is heavily using your service on a daily basis
  • Passive user: Customer is not showing signs of churning but isn’t too active or getting the most of out of your service
• In order to help you maximize your LTV we have created the customer lifecycle marketing model, which is built around the three cornerstones of acquisition, retention, and growth