Uncovering Critical Revenue Drivers: A Custom SaaS Business Analysis

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1 Uncovering Critical Revenue Drivers: A Custom SaaS Business Analysis

2 Table of Contents Introduction...3 Glean Pricing Insights with Cohort Analyses...3 Optimize Payment Retry Schedule to Reduce Churn...4 Reduce Buy Page Friction...4 Configure Industry Standard Tools like Account Updater...5 Conclusion...6 2

3 Introduction The growth of a SaaS business depends upon improving two metrics: customer acquisition and customer retention. At Vindicia, our experience in handling more than 120 million customer accounts and 80 million credits cards enables us to provide unique insights into how well your company performs relative to industry standards. These insights, in turn, help improve your digital business and can lead to millions in incremental revenue, through increased acquisition and retention numbers. In a recurring SaaS business, the ultimate goal is to create longterm customer lives. Our work with clients enables us to package these insights into specific areas that span customers, transactions and operations. This white paper will highlight some key analyses that we typically conduct for our clients, along with actual results generated on their behalf. Glean Pricing Insights With Cohort Analyses In a recurring SaaS business, the ultimate goal is to create long-term customer lives. Vindicia leverages our billing and marketing solution when working with SaaS clients to perform cohort analyses across different product groups. We also help them understand what their average lifetime value is by product, and whether there is additional pricing elasticity in their model. We typically define the lifetime of a cohort as that period at which more than 80% of the cohort has opted out of the service. In the example shown above of a quarterly plan, that number is about 5.5 quarters (22 months). Important information can be gleaned from this analysis. One of the most useful observations is whether there are any outliers that might indicate either positive or negative issues with its go-to-market strategy. Any cohort that deviates positively from the mean might indicate replicable marketing tactics that can impact future cohorts. 3

4 The second observation from this analysis is the comparison of lifetime values across different plans to see if the pricing strategy is aligned with customer usage. For example, with one of our larger clients, we recently discovered through cohort analysis across their monthly and yearly billing plans that they had underpriced the latter by nearly 20%. With these findings in mind, they implemented a price change to their annual plan and immediately saw an incremental revenue uplift from that change, with marginal customer churn. With its proprietary algorithms, the CashBox platform significantly reduces this churn and typically adds anywhere from 10-20% to our clients revenue each year. Optimize Payment Retry Schedule to Reduce Churn Churn is a result of both active and passive opt-outs. Passive opt-outs are the more insidious because those customers want to remain with your service, but cannot, typically because of payment failures. With its proprietary algorithms, the CashBox platform significantly reduces this churn and typically adds anywhere from 10-20% to our clients revenue each year. One of the unique ways in which this algorithm works is to specifically focus on the day(s) of the week that have even greater success in overcoming churn. In the preceding chart, this particular client shows a higher percentage of retry success on weekends, so Vindicia adjusted this algorithm for our client to optimize the retry logic specifically for Saturday and Sunday. This extra quarter to a half percentage point in increased transaction success translates, for this client, into nearly $300K per year. Reduce Buy Page Friction Many companies unwittingly reduce the opportunity to create long-term customer lives at the very outset of the acquisition phase. Minimizing off-ramps is a critical part of the sign-up process; yet, many companies make critical mistakes during this phase. 4

5 Account Updater done right can add between % to your retention rate each month. For example, one of our clients offers both monthly and yearly subscription plans. The signup page for their monthly subscription is clear, concise and provides explicit wording that the monthly charge is recurring and customers can opt out at any time. The sign-up page for their yearly subscription was different, however, with unfortunate consequences. Below the payment information field was a radio button that customers could click to opt out of future billings. All of a sudden, a subscription plan could become a one-time purchase, even before the customer actually signed up for the service. What was the impact of this off-ramp? Over a six month period, 50% of the customers who signed-up for the yearly subscription had opted-out of the rebilling option, even before they experienced the service. After we had alerted them to this divergence between their sign-up pages, our client updated the yearly sign-up page to reflect that billing was automatic every year, and that the client could opt-out at any stage after they signed up. Configure Industry Standard Tools Like Account Updater The Account Updater functionality provided through card associations is a critical asset to any digital business that accepts credit cards and relies on a recurring business model. Quite simply, Account Updater enables businesses to update incorrect card numbers without requiring a direct reach out to the customer. Incorrect card numbers arise when the customer has replaced a lost card, when the issuing bank has been acquired, and a host of other reasons. While it is intuitive to take advantage of this service, how digital businesses implement it can have a material impact on customer retention. As part of the business analysis we provided a client, we noticed that the number of Account Updater requests was rather low given their overall volume. We asked the client whether they had opted for the different Account Updater request options through their payment processor. The client hadn t even realized that there were different options to request updated card files. Account Updater done right can add between % to your retention rate each month. 5

6 Conclusion Vindicia believes SaaS businesses can add millions to yearly revenue by following the appropriate practices to maximize customer acquisition and retention. We have realized through our interactions with clients and prospects that the biggest challenge to achieving these revenue goals is simply lack of knowledge. We hope this brief description of four such practices sheds light on the revenue opportunities that exist within the daily operations of your own SaaS business. Our marketing and billing solution Vindicia CashBox provides our clients with insights that go far beyond the four practices described here. For more information please visit us at US Headquarters Vindicia, Inc. 19 Davis Drive Belmont, CA P F /contact Canadian Headquarters 1235 Bay Street Suite 400 Bay and Bloor Toronto, ON M5R 3K4 P x2135 /contact UK / European Headquarters Hammersmith Grove London W6 7BA P +44 (0) F +44 (0) /contact About Vindicia Vindicia is the leader in marketing and selling automation for the Digital Economy, managing 120 million customer accounts on behalf of its clients. Vindicia has processed $4 billion in global revenues for clients through its CashBox solution. Its integrated marketing capabilities generated nearly $75 million in annual incremental revenue. Clients include Activision Blizzard, Bloomberg, Encyclopedia Britannica, Groundspeak, Intuit, Mind Candy, Next Issue Media, Pearson and Vimeo. To learn more, please visit www. or connect with us on Twitter (@vindicia), Facebook or blog.. Copyright 2012 Vindicia, Inc. All rights reserved. Vindicia, the Vindicia logo, Vindicia CashBox and the designated trademarks herein are trademarks of Vindicia, Inc. in the U.S. and/or other countries. All other brands or product names are the trademarks or registered trademarks of their respective holders. 0812