Over the last year, we have seen a shift for a lot of SaaS companies due to global economic uncertainties.
Some signs of this shift have:
An increase in the length of sales cycles.
An increase in customer churn.
A decrease in generated revenue.
An increase in Company layoffs.
Entering the new Financial Year, it is an ideal time to re-evaluate your business strategy and ensure your business remains agile and responsive to market changes.
Before reviewing your Strategy, it is key of course that you understand your Business Health Metrics. In a tough economic climate, it is more important than ever to keep your business lean and understand where you have issues – so you can then resolve these issues quickly.
Some ideas of metrics to review (comparing YoY on performance where possible), would be:
What is the Lifetime Value (LTV) of a Customer?
- This should be at least 3 x Customer Acquisition Cost (CAC).
- Note: The best SaaS businesses have a LTV to CAC ratio higher than 3 (and sometimes as high as 7-8).
How long does it take to become profitable?
- How many months does it take to recover CAC?
- The aim should be less than 12 months – many of the best SaaS companies recover their CAC within 5-12 months.
How much is your Annual Recurring Revenue changing?
- New ARR - what happened with new customers added that year / month?
- Churned ARR - what happened in the installed base of customers – i.e., how many customers cancelled their subscription?
- Expansion ARR - from existing customers that expanded their subscription.
- Based on the above, what is your Net New ARR / MRR?
Once you have a clear understanding of your performance, you can now move into reviewing your Strategy for the coming year.
Your strategy should be viewed from a customer centric perspective – in a tough climate, being “Customer Obsessed” is key.
Some key areas to look at:
1) Are you solving your customers’ problems?
An obvious one, but an important one to always keep at the forefront of our minds.
Just as your strategy will be changing, so might your customers – are you confident you know exactly the pain points your customers are experiencing currently? Or are you using data and feedback from a year ago?
Take the opportunity for your business leaders to speak to your customers directly.
Ensure you have a clear channel to obtain feedback from your BDRs, AEs and Customer Success Managers based on their calls with customers.
Are you still effectively solving the customer’s main pain point and delivering the business benefit required to justify their spend?
Some questions to consider:
Are you speaking to your customers enough to understand their business strategy and how your product will support that?
- Has a customer’s pain point changed? Is the problem you are currently solving still their most urgent pain point?
- Can you help them deliver more revenue? Save their business more money?
Are you delivering the business benefit promised at point of sale?
- Is a customer reluctant to give up your product?
- What new product features are needed to solve customer problems more effectively?
- Are you delivering a sufficient level of ROI?
2) Is your Product Roadmap customer aligned?
It is likely you might be reviewing your internal spend in all areas, including R&D and Product - using the above information, are you ensuring that the right developments are prioritised in your product roadmap?
Key here is, as per a Lean Six Sigma model, to ensure you have understood the ‘Voice of the Customer’ to ensure any changes made to your product, are for the benefit of the customer, not just simply because they fall within the ‘Art of the Possible’.
Some questions to consider:
How are Sales and Customer Success feeding their intelligence back to the Product team effectively – is everyone aligned?
Do all proposed actions on the product roadmap link back to your knowledge of your existing and potential customer base in terms of delivering value?
Have you reviewed your MoSCoW prioritisation on your roadmap to ensure you deliver improvements in the right order?
How are you effectively communicating product changes and their benefits?
- Do Sales know how to sell the changes? Is your Sales Playbook messaging updated?
- Do Customer Success know how to support the change? Is there opportunity to increase your Expansion ARR because of these changes?
3) Are you retaining your Customers?
Using your Business Health Metrics, you will have a full understanding of your Customer Churn and whether this has changed positively, or negatively YoY. Is this figure positively or negatively contributing to your Net New ARR?
Some questions to consider:
How are the Customer Success team currently performing to targets in areas such as:
- Customer Retention
And where is there room to increase performance in these areas once the changes in the earlier steps have been made?
Do you have the correct training programme in place for your Customer Success team?
Are they working closely with both the Sales and Product teams? Could these teams be better aligned to increase communication and therefore success?
Ultimately your 2023 Strategy needs to be ‘Customer Obsessed’ and ensure that all teams within the company see the part that they play in this. Whilst this might feel natural to some of your teams, for some of your non-sales teams, this might seem like a change – and this is where communication will be key to your achieving your Strategy.
If you want any more advice for your 2023 Strategy, or to discuss market conditions in general, please reach out to our Founder, Adam Richardson.