Courting and Cross-selling: The Secrets of Low-churn SaaS Firms

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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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Courting and Cross-selling: The Secrets of Low-churn SaaS Firms

  1. 1. McKinsey & Company | Courting and Cross-selling: The secrets of low-churn SaaS companies August 2014 #customer success
  2. 2. 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
  3. 3. 2014 Gainsight, Inc. All rights reserved. Today’s Panelists Nick Mehta CEO @nrmehta Brian Stafford Partner brian_stafford@mckinsey.com Shawn Lankton Associate Partner shawn_lankton@mckinsey.com
  4. 4. Courting and cross-selling: the secrets of low-churn SaaS companies August 13, 2014 Gainsight Webinar CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited
  5. 5. McKinsey & Company | 4 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%
  6. 6. McKinsey & Company | 5 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
  7. 7. McKinsey & Company | 6 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
  8. 8. McKinsey & Company | 7 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…
  9. 9. McKinsey & Company | 8 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
  10. 10. McKinsey & Company | 9 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
  11. 11. McKinsey & Company | 10 . . . 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
  12. 12. McKinsey & Company | 11 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
  13. 13. McKinsey & Company | 12 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
  14. 14. McKinsey & Company | 13 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 brian_stafford@mckinsey.com shawn_lankton@mckinsey.com
  15. 15. 2014 Gainsight, Inc. All rights reserved. The performance waterfall $54.0 $8.0 $4.1 $41.9 $4.2 $8.6 $54.7 Opportunity Churn Downsell Retained Up-Sell X-Sell Total Bookings X-Sell = 16%Churn = 15% $M Retention Rate = 78% Bookings Rate = 101%
  16. 16. 2014 Gainsight, Inc. All rights reserved. Cross-sell is a key lever for customer retention 10% 15% 18% 18% 16% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Q3'13 Q4'13 Q1'14 Q2'14 Total Cross-sell Performance By Quarter 4% 4% 2% 1% 3% 0% 1% 2% 3% 4% 5% Q3'13 - Churn Q4'13 - Churn Q1'14 - Churn Q2'14 - Churn Total - Churn 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). Cross-sellRate HistoricalCross-sellRate Quarter of Cross-sell Quarter of Churn
  17. 17. 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
  18. 18. 2014 Gainsight, Inc. All rights reserved. www.gainsight.com/pulsecheck
  19. 19. 2014 Gainsight, Inc. All rights reserved. QUESTIONS SALES@GAINSIGHT.COM
  20. 20. 2014 Gainsight, Inc. All rights reserved. Thanks for joining!

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