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Customer Types Case Study
In your SaaS, there’s a very high chance that different customer types have different needs. For example, let’s take a look at our project scoping tool, BrainLeaf. This is a tool that enables users to find example templates of website information architectures (filling the knowledge gap), write out new website project information architectures quickly, and get digital signatures quickly and easily (filling the efficiency gap).
But let’s say that the buyer isn’t an agency, it’s a freelancer. What are they interested in? The reporting or the thoroughness of the document? The answer is, probably neither. They want speed and templates and a price on the system they can afford so they can do their job faster and make more money.
The owner of the digital agency is more interested in financial reporting on the profitability of the company as a whole, so reporting to them is a lot more important than the minutia of each project.
The COO of a mid-sized agency is more interested in financial reporting on the profitability of the company as a whole, so reporting to them is a lot more important than the minutia of each project.
A project manager in a large digital agency using our system is a lot more interested in ensuring that their scope document is written correctly, their clients have given approval at every step, and that the people doing the work in a project understand what they are supposed to do. One slip-up could easily cost the company thousands of dollars, so the value of the system is high to this user.
This buyer needs to better understand the cost of solving issues and needs better reporting and process management.
As you can see, value is different for different groups, and so is the value they get from the system.
PROTIP: Knowing your target markets = knowing how you deliver value.
The more you know about each of these groups, insofar as what they want from your system, how much they are willing to pay, and what their buying style is, the faster you can test your hypothesis and implement more profitable pricing and optimize value for your customers.
Before we can figure out who is the most valuable and how we’re going to sell to them, we need a few more pieces of data for each type of customer. Per customer type, if we have ARPU, MRR, Churn Rate, CAC, and LTV, we can figure out who we should really be selling to. Let’s take a look:
Now that we have the numbers and a little analysis, things look different.
Please keep in mind that a ton of analysis could be done on this data along with other aspects of this data that are not shown here. The goal here is to give you a taste of what you could find, not go deep into this area.
This group has by far the most questions and the most problems, they require the most handholding, and call us the most. Because we deal with them the most, we thought that these were our biggest customer group. Turns out, we are wasting our time and money dealing with them!
They have a LTV:CAC of 1 to 1, so if we were to have focused on that group, which had certainly come up in discussions, we would have been in a really bad spot and the business would have failed.
By increasing the price, we will increase our LTV. We would fit a smaller group of this segment, but they are losing us money anyway.
Finding ways to cut support time for this group would cut our time working with them and thus our ongoing spend with a group that is not helping us grow.
First off, we could modify our PPC to come off of this group all together so we can lower our CAC. But then also cut our calls to users in this group. We were following up with phone calls to this group, which was a relatively large cost. But with this new data, it looks like a good idea to cut this expense.
This group provides our highest MRR, but we can see now that the churn on this group is higher than we would like. So our immediate issue is to figure out how to lower that churn. This group falls partially into the value proposition of the previous group in that they are looking for templates as well as their main value which is more on the sales and management systems. So what do we do?
We are at a 5 to 1 LTV to CAC, but it could be so much better if we could lower the churn rate. By creating a new onboarding process for this group we could probably decrease churn right away. This group and the freelancers were getting basically the same onboarding process starting from a phone call, but if we were to improve users’ education as to how the system helps them at the beginning of the process and then follow it up with more specific onboarding emails, we could potentially decrease churn.
Let’s look at what the impact would be for this:
- Right now, we have a LTV of $937 for this group. That is ARPU / Churn, so $75/.08 = $937.
- For this group as a whole that means a group LTV of:
- 56% (this is the percentage of customers) of 500 = 280 users in this group
- Times the LTV for this group of $937 equals $262,369
But what if we could take the churn down to 6%? That would be a new LTV of $1,250. So by doing this, our outcome could look something like this:
- Old group LTV: $262,369
- New group LTV: $350,000 (with LTV of $1,250)
That is a difference of $87,631 or roughly an increase in group revenue by A THIRD!
These sales are brought in by a professional salesperson that approaches these companies and pitches them on the system, thus the substantially higher CAC. We are at a 5 to 1 ratio for this group, and after an analysis, and especially compared to the next group, it looks like a lot could be done to improve here.
The churn rate here isn’t bad compared to other churn rates for this company, but what would happen if we brought it down by one point? Well, since it is a 3% churn, a decrease of 1% would thus bring our LTV from $8,333 up to $12,500!
This group also values the data analysis and operations streamlining, which is a powerful aspect of the system, but like all powerful tools incurs a learning curve and substantial change costs from existing systems. So we have to find companies that are at the right spot for this system to be implemented. We could also improve some aspects of this portion of the system to better compete with enterprise systems that do similar things. This is probably the one of the top items that could be improved to garner more sales in this area.
Given the CAC and the overall LTV on these customers, the consideration is to add a new role to cater to this group and improve overall customer success. This role will focus on this group’s success by:
- Forming an advisory board and private Facebook Group of top users in this segment.
- Gathering specific user needs.
- Pitching new features to this group
- Providing personal tutorials for this group on how best to use the system.
Additionally, the idea was pitched to do a “Done For You” option for select users in this group; we provide an analysis of their data for them in order to help their businesses while simultaneously providing ourselves a deeper understanding of their needs.
Turns out, this is our best customer! Before we did our analysis, we had no idea!
This one is, once again, a sales issue. Due to circumstances, this group is being catered to very well, and their pricing is looking pretty good. All we feel we need here is more customers.
All these customers were acquired at the same time at one event. We did a really great talk at a project management conference that was heavily attended by larger companies. We had one user who had been a believer in the system from the very beginning who is well known in the industry and came up on stage after our talk and personally endorsed us. That day, we took a huge step forward with this group and focused on them heavily.
But, moving forward, we had a lot of irons in the fire and started getting a lot of freelance and marketing customers. Also, the conference moved to the other side of the country the following year, so we didn’t go back. Dumb, right? The second year, we were super busy and thought that we were doing so well that it didn’t matter. Well, after this analysis, we can see it really did matter.
As you would expect, the answer to this one is ‘smack-you-in-the-face simple’: just go back to the conference and give more talks. We’ve already bought our tickets and are applying to speak again. In addition, we are looking for more conferences that would fit into this strategy.
As you can probably tell from the numbers, we only have one client like this. This client is a friend, someone we’ve known for a long time who saw the value in what we’re doing. We worked a lot with his company to make sure they were happy, and put a lot of energy into keeping him happy. We have some attrition counted on this account because we have had different departments come off of the system and others come on, but the company as a whole is the only enterprise company we’ve got.
PROTIP: Enterprise sales, from my experience, is very, very different from small business sales. Being effective at enterprise sales means that you have someone who knows the people in the industry and can just make a phone call to get in touch with them. When you’re selling enterprise products, if you are selling at the right price, it is worth every penny to get someone who knows everyone, despite their high price.
Because we don’t have much experience in enterprise sales, and because our sales were growing in other areas, we didn’t dig into this area at all. However, now that we see the LTV’s of every group, we see that this group has an LTV greater than the next highest group by a factor of more than 5! That is a huge jump!
Given what goes into getting these kinds of customers, this is a sales problem. We just have to figure out if we have enough revenue to bring on an enterprise sales person and support them through their longer sales cycles. At this point, we are a bit nervous to redirect energy in that direction, but given the LTV on this kind of customer it looks like it may be a good choice.
This was the question we initially sought answer, but as you can see there is no one most valuable group. They all impact our bottom lines in different ways and all contribute in one way or another to the end goal of providing the best value.
This analysis also highlights the importance of continuous testing and shows how the system is never ‘done’. As soon as we make the changes noted above, we’re going to have to redo the analysis again and make more changes based on that.
You can see now how this kind of system is never going to be a truly ‘passive’ income system as some people would have you believe, if you want to optimize your earnings. It’s a journey and every step is always followed by another step.