BESSEMER CLOUD COMPUTING LAW #7:

The most important part of Software-as-a-Service isn’t “Software” it’s “Service”! Support, support, support!



The only acceptable reason to lose a customer is death (bankruptcy) or marriage (acquisition). Every Cloud company is in the service business, and therefore your customer service can be the difference between failure (churn) and huge success via high retention and up sells.

One of a Cloud business’s most valuable and least appreciated assets is the detailed usage statistics of its customers. For years, product marketing and product management groups in license software businesses have attempted to guess at the behavior of their customers. Despite heroic efforts, it was very hard to truly know how customers used the product on a detailed level and to incorporate this feedback in the major annual releases. Cloud businesses should instead learn from their consumer internet peers, by taking advantage of their web application architecture to analyze detailed customer usage data, use a/b test variations, iterate on small details of a page or a feature, and evolve the product each and every day.

Basic proactive monitoring for likely churn or up-sell opportunities is too simple not to do, and all Cloud businesses should do it well. You already know who logs into your product, how often, what they do inside the product, and what results they achieved. So now you need to track the key usage metrics and measures, and create internal dashboards to know which customers are getting the most value (potential up-sell candidates!) and which are likely to churn (time to intervene proactively!). Work with your marketing team to automate “low usage” reports internally, and send low usage escalation emails to your customers requesting an explanation of the behavioral changes. As you get more insight into the issues, you may want to consider techniques like expanded online training or even unlimited subscription-based training (as many leading SaaS companies are now doing) to drive adoption and awareness.

It is likely that your Cloud business will experience system outages over time. As long as you are keenly focused on backup and disaster recovery and thus avoid a data loss, these will not be fatal. How you handle these outages, however, can either further endear you to your customers or send them running into the arms of your competitors. Transparency is key. Salesforce.com took a lot of flak early for their outages, but they took a weakness and made it a strength by implementing their trust page (www.trust.salesforce.com). Different methods will be most appropriate at different stages, but a good rule of thumb is that you should be open, proactive, and honest with your customers in communicating these outages and their causes.

In addition to many of the “traditional” metrics that still apply for account management (customers managed per rep, churn metrics discussed earlier, and so forth), some companies are starting to construct efficiency ratios for account management. Our favorite thus far is the value of all of the margin renewed in the quarter, divided by the costs of those renewals. The equation to calculate this is [MRR dollars renewed/grown in the quarter x GM x 12 (to annualize revenue), divided by all account management costs incurred in the quarter for these renewals] However, it is premature to consider metrics like this as “best practices” in the market, so we’ve resisted the temptation to promote one to a top level executive dashboard. This is a quarterly number, but you will obviously want to look over a longer period (such as a trailing year) for businesses with high seasonality.

Given the growth of Employee Software and the fact that many customer orders are starting very small and growing very large over time, you may find that up sells from account management become more critical to your long term business model than the initial sale itself.