#b2bsaas

How has Customer Success evolved over the past ten years? 

What better place to start than discussing the latest Customer Success Benchmarking Index with Kellie Capote, Chief Customer Officer at Gainsight.

Kellie has invested the last five years developing her perspectives on Customer Success at Gainsight in a broad array of Customer Success leadership roles, including becoming the Chief Customer Officer in 2021.

What were some of the top findings from the 2022 CS Benchmarking Index? Kellie first highlighted that 41% of companies recently invested in forming a Customer Success Operations function and is currently present in 61% of companies. This highlights the operational rigor and excellence being developed in Customer Success.

63% of Customer Success organizations are tracking Net Revenue Retention (NRR), proving that CS is being viewed as a revenue growth engine, not just a churn reduction department. 45% of CS organizations have subscription renewal responsibilities and will continue to grow as CS departments mature.

One interesting topic discussed was that only 20% of CS organizations have primary responsibilities for up-sells and cross-sells. Thus how does a CS organization assume responsibility for NRR? Kellie highlighted that even though CS may not own the opportunity management process, 49% of the time, they are responsible for identifying potential up-sell and cross-sell opportunities while also ensuring customer satisfaction and product engagement which will organically impact existing customer expansion ARR. 

Kellie also highlighted the Customer Success Qualified Lead (SQL) as a sign that CS is actively focused and engaged on existing customer revenue expansion.

What tools are the leading CS organizations using to drive customer success? Customer Success plans are used by 63% of companies to facilitate the definition and attainment of customer-specific success. One area of opportunity is to use "customer value measurements," which are a key part of CS plans. The best companies use a "business value framework" during the sales process and then continue to inform how the CS organization engages with customers to continue measuring and reporting the customer value promised and delivered!

Whether you are a customer success professional or a SaaS executive investing in Customer Success to drive customer satisfaction, customer value, and increase Net Revenue Retention Rates, this conversion with Kellie is highly informative and instructive.

Jamie Shanks helped to shape Social Selling through his company, Sales for Life.  After certifying 250,000+  sales professionals on the strategies and techniques that led to Digital Selling competencies across hundreds of companies, Jamie has identified some common trends in what led to the most successful pipeline development.

In 2020, B2B Sales quickly transformed into Digital Selling. Social Selling has evolved to "selling" and become a part of the digital selling motion. Social Selling efficacy can be measured by pipeline growth, close rates, and sales cycle time for sales, self-directed pipeline. 

The skills and competencies to be an effective B2B Sales professional have become muddled over the last 10 years, as a new generation has invested more time into learning how to use the tools to become "digital sellers" and have not received the traditional sales training to prospect, discover and qualify high probability prospects who will become paying customers.

Even with all of the data and signals being provided to modern B2B Sellers, often they do not understand when and how to "use the information" to increase their prospecting efficiency. 

 An example is the level of investment in "intent data", without providing sellers the ability to interpret and understand the context of what the information is telling the seller.  

What pipeline signals should be added into the "account intelligence" to better understand "how" and "why" the target company will buy?  Human capital (people) migration is a  leading indicator as to where a company will allocate investment dollars. 

Being able to have insights into the members of a buying team, their relationships with competitors, and especially the members' previous relationships with people in your company are critical factors in increasing "prospect intelligence".

Seller utilization of pipeline signals information, such as "intent data" is the key to the success of the business impact of digital signals.   Sellers who figure out how to use "pipeline signal information" is limited to a small percentage of the seller population.  The organizations that do the best job of educating, training, and facilitating the effective adoption of digital pipeline signals will be the winners in 2022 and beyond.

Jamie Shanks is not only a pioneer in using digital techniques to increase B2B sales efficacy, he is a true visionary who identifies trends and opportunities to increase the return on investment of B2B Sales professionals before the crowd!

Imagine having access to the metrics and benchmarks over an entire decade for 200+ B2B Cloud and SaaS private companies as they scaled from $0 to $100M ARR.

That is precisely the data Mary D'Onofrio, Partner at Bessemer Venture Partners (BVP) has access to as the Growth Stage investing partner since 2018.  Mary published her findings in the Scaling to $100M ARR report and joined us to share the insights from her research.

Mary also maintains the BVP Emerging  Cloud 100 Index,  is the author of the "10 Laws of Cloud".   Mary was often approached by BVP portfolio companies and by other partners within BVP, asking for stage-appropriate benchmarks for metrics such as growth rate, retention rates, and gross margins, to name just a few. So,  Mary thought, why not analyze the data over the last decade across the entire BVP B2B Cloud portfolio.

The first finding was that Committed Annual Recurring Revenue (CARR) growth is the main metric to determine the enterprise value of a private B2B Cloud/SaaS company at every stage of growth.  ARR growth captures variables that GAAP revenue alone does not capture.

CARR growth is a multivariate metric, as it includes not only ARR growth from new customers but also ARR growth from existing customers. Simply stated,  CARR includes New Customer Acquisition ARR + Existing Customer Retention ARR + Existing Customer Expansion ARR.

Net Dollar Retention, the amount of ARR from customers that is available to renew versus the same cohort of customers 12 months prior to the current accounting period. This metric was included as part of the "CARR Growth" benchmark.

When looking at the decade long data,  Mary shared the following average enterprise value to revenue multiples (EV:REV)at each stage of growth under the "Know Your Worth" lesson #3

< $10M ARR = 31X EV:REV multiple
$10M - $50M ARR = 17X EV:REV multiple
> $50M ARR = 13-14X EV:REV multiple

The B2B Cloud market and the associated enterprise valuations continue to increase, with the latest data in 2021 showing the following multiples:

 2021* = 34x enterprise value to revenue multiple (up from 9x in 2016)

*2021 Cloud 100 Benchmarks Report (Top 100 Private Cloud Companies)

Across the BVP portfolio, the EV:REV multiple is closer to 20x

Growth Endurance is a metric that BVP has recently introduced. Growth Endurance is defined as the sustained growth year over year and is fairly consistent across all B2B Cloud companies.  Growth rate decay is typically 30% annually for private Cloud companies and 20% for public companies.  Public company's growth endurance is stronger primarily due to the leverage they gain, including pricing power, new products to drive revenue, and enhanced access to talent. Growth Endurace is a heuristic and not a deterministic metric. 

The second lesson Mary shared in the Scaling to $100M ARR report was "Win by wide Margins".  The effective point is to optimize gross margin to the average of 65% - 70% regardless of ARR. The middle 50% distribution increases in range to  60% - 80%.

Next we pivoted to where Customer Success costs should be allocated - COGS or Operating Expenses.  The simple answer is that whatever the percentage of CS time is invested in revenue-centric activities should go to OPEX and the percentage of CS time on support goes to COGS.

Another area of "Win by Wide Margins" includes CAC Payback Period.  CAC Payback Period is the measure of time it takes to repay the costs of acquiring a new customer after factoring in Gross Margin.

BVP.com/scale is a great resource to learn more about Scaling to $100M ARR and download templates to see how your Cloud company measures up to the benchmarks.

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Chris Walker, Founder and CEO of Refine Labs, Host of Demand Gen Live, and a Top LinkedIn Influencer is a B2B Marketing contrarian - that is a primary reason I have been a fan of Chris's for a long time.

Chris was a B2B marketing practitioner for 8 years, and his experience told him B2B marketing organizations were executing marketing programs the wrong way!  The market had changed, the buyers had changed and the buying process had changed...yet marketing programs were the same, using the same vanity metrics and fake measurements systems.

Chris decided he had been provided a gift, and it allowed him to build a marketing agency that was built for demand generation in 2020 and aligned with his vision for the modern B2B marketer.  His foundational belief is that B2B buyers are looking to buy things in places that cannot be tracked by current marketing attribution. 

Those locations included LinkedIn, YouTube,  Instagram, Twitter, communities,  groups on social networks, podcasts, direct word of mouth, and referrals by peers.  These are the locations that people in 2021 and beyond are sharing ideas, looking for experiences, and starting the buying journey.

Traditional media such as SEO, SEM,  display ads, and content syndication are great to show "vanity metrics" and "attribution" but are not delivering the ultimate outcomes - pipeline and revenue.  In fact, often the tracking stops at "attribution by channel" but do not track the ultimate ROI down to revenue, CAC Ratio and CAC Payback Period.

Brand Awareness - this is not the major issue for many companies, but "RELEVANCE" to the target buyer is an issue for many - such as Salesforce is toomarketing.  Logo awareness does not directly impact the way a target buyer feels about a company's value to them as a potential buyer.

Chris's goal is to be in the places where buyers "establish" consideration for a product category or content, and not wait until first-party intent at the bottom of the funnel when 70% of the buying process has already been completed. Content that is value-based, customer-focused, and made available as non-gated assets are key to help to shape the buying discussion at the start of the buyer journey versus reacting to the buyer demands.

Chris's first key metric is to measure the close rate of inbound leads, that may not be attributed to a specific marketing program, versus the close rate of outbound generated leads.  Chris's perspective is that less than 10% of companies measure the close rate and sales cycle time of inbound leads versus outbound generated leads.

Chris optimizes for "peak intent conversions" which reflects the serious intent of buyers who put up their hand to speak with a salesperson (1st party intent data) versus buying 3rd party intent signals from external websites, content syndication vendors, and review sites.

Next,  I asked Chris what specific metrics that a modern B2B marketer should measure and manage.   His response: "Blended Marketing CAC and/or Blended Advertising CAC".  This metric measures the total marketing expenses divided by the total amount of revenue closed from inbound marketing leads or inbound leads from paid advertising.  

Chris sees the cost per dollar of revenue closed from "outbound leads" vs the cost per dollar of revenue closed from "inbound leads"  being very different.  Chris sees an average of 50% lower CAC for inbound leads that close as compared to outbound generated leads that close (for the mid-market). When you factor in the higher close rate for inbound leads, the CAC Ratio can be 50% - 67% lower than traditional outbound lead generation programs.

Revenue, Pipeline, and Customer Acquisition Cost are the TOP THREE metrics that every modern B2B marketer should use as their NORTH STAR!!!

Usage-Based Pricing is all the rage across multiple B2B SaaS news outlets. 

Subscription-based pricing has been the standard pricing model for over 20 years, which has provided B2B SaaS companies more predictable revenue growth over time versus the famous end of quarter "hockey stick" of perpetual licensing software companies.

However, companies such as Twilio, Snowflake and DataDog have been using "Usage-Based" pricing to achieve Net Dollar Retention Rates of 130% - 150% and associated Enterprise:Revenue multiples of 20x - 25x.

On this episode of Metrics that Measure Up, we speak with Adam Howatson, long-time subscription software executive, and currently CEO of LogiSense, a leading Usage-Based Billing platform company to better understand the trend and what is required to deploy a successful Usage-Based pricing strategy.

The first topic we covered was the transition from a perpetual license model to subscription pricing, which was really a cost-plus model that included value for the hosting and intellectual property.  Adam believes we are in a similar pivot from subscription-based pricing to Usage-Based Pricing.

One main component of the trend to Usage-Based Pricing is the customer requirement to have more transparency on what they are being charged for and to ensure those variables are directly linked to the value they are receiving. Adam believes the trend to Usage-Based Pricing will be long-lived, and the next material transformation for the B2B SaaS and Cloud industry.

Usage-Based Pricing is a very strategic decision, as it impacts the entire monetization strategy of your business.  A key starting point is to ensure you put yourself in the shoes of your customer, and then confirm with your customer/buyers that the element you are using for Usage-Based pricing is validated as a key-value contributor to the buyers.

Using a "hybrid model" may be the most prudent way to deploy a pricing model that uses a fixed subscription pricing to cover the vendor's cost, and then adds on a usage-based subscription billing element that becomes the primary profit driver for the B2B SaaS company.

Another key element to model out prior to any Usage-Based Pricing strategy is to understand what the minimum baseline of pricing is required is to cover fixed costs of providing the service.  This evolved into the importance of having the right resources, especially data analysts and monetization experts who provide a balanced approach to the impact on both the vendor and the customer using multiple scenarios on the usage, that include the usage of variables such as seasonality, macro, and micro-economic trends and internal expense trends.

Product analytics is another trending topic across the B2B SaaS due to the increasing use of Product Led Growth as a primary customer acquisition motion.  A solid product analytics foundation will be critical to understanding customer usage patterns and trends.  This analysis will provide insights for pricing and monetization resources to facilitate which usage variables are best positioned to serve as the foundation for a Usage-Based pricing strategy.

The conversation kept coming back to the central theme of "ensure the Usage-Based Pricing variable used" is validated as directly aligned to the VALUE the customer receives.  Most importantly, ensure this value is tested with the actual customers and potential buyers, and not based upon INTERNAL assumptions within the vendor.

If you are considering Usage-Based pricing,  it will be important to understand the increasing requirement for transparency, value for money, easy access to usage data and even stakeholder value will contribute to the emergence of the "USAGE ECONOMY".

Adam is a true expert on all things Usage-Based Pricing and Billing, and is a great source of information for any company evaluating how to operate within a Usage Ec

Gerhard Gschwandtner, the founder of Selling Power Magazine and creator of the Sales 3.0 Conference has been teaching and training sales professionals for 30+ years.

On this episode, Gerhard shares his insights based upon his experiences interviewing hundreds of extremely successful business people including Mark Cuban, Bill McDermott (SAP + ServiceNow),  Keith Krach (DocuSign + Ariba) and training thousands of B2B Sales professionals.

The B2B Sales profession has been changed dramatically by technology, including the customer/salesperson relationship.  Another change is how data impacts the profession, but an even bigger topic impacting sales success may be the "Mindset". 

Gerhard shared there are three key components of B2B sales success: 1) Skill Set; 2) Tool Kit; 3) Mindset.  The mindset is about how well one is functioning cognitively and emotionally.  A key question every B2B Sales professional should ask themselves, "are you Mind Full or mindful?".  Developing a positive mindset is an area that individual sales professionals and companies are not investing enough time, energy, or resources.

Another topic we discussed is an emerging and disturbing trend in B2B SaaS/Cloud sales performance.  The latest research indicates that less than 60% of B2B Sales professionals achieved quota in 2020.  Gerhard highlighted the issue rests primarily on the shoulders of the SaaS company leaders who are not investing enough in on-boarding, training, and coaching of sales professionals. 

Gerhard shared an example highlighting the power of having a no-limit, positive mindset.  A sales professional attended a positive mindset training session, decided to apply the envisioning, no-limit thinking to his golf game, and in his very next round, hit his first hole in one!

If you are a B2B sales professional or led and/or depend on B2B Sales professionals to drive your company performance, this is a great listen!

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