Why must the customer’s lifecycle be managed?
The answer comes down to a few variables:
- Customer Acquisition Costs
- Customer Lifetime Value
- Customer Retention
- Negative Churn
First, the customer is the lifeline of any enterprise. You can build a great product, staff a great team, but if you have no customers, your business will surely fail. Thus, every relationship with your customers should be treated with the utmost care and attention it deserves.
Second, a successful SaaS business model depends on nurturing and retaining customer relationships over time. Traditionally, subscription prices are low and profitability is achieved by growing your base of recurring revenue; while keeping operating costs (COGS) low. Given that the Cost of Acquiring Customers (CAC) in the B2B space is usually high, profitability is strongly correlated to how well you manage the Customer’s Lifetime Value (CLTV).
Finally, a longer customer lifetime increases the potential for up-sell and cross-sell opportunities; where you sell new products and services to your existing customer base. This allows you to unlock the power of negative churn, yielding increasing returns from your existing customer accounts. Instead of spending all your resources on acquiring new customers; you can dedicate less but more focused attention on growing your existing customer accounts.
In a nutshell, the attractiveness of a SaaS business model with enterprise B2B customers comes from the efficiencies in delivering your product at scale while retaining your customer base. Maximizing profitability is achieved by minimizing customer churn, and distributing your customer acquisition costs throughout an extensive customer lifetime. Throughout the relationship, you can sell additional products and services to your customers, increasing the profitability of your recurring business.
|The moral of the story:
“In a SaaS B2B business model, your customer relationship is the most important asset you have.”