A roundtable discussion with Rob Reid, CEO of Intacct; Rob Hull, CFO, Adaptive Planning; Brian Gentile, CFO of Jaspersoft; and Kenneth Goldman, CFO of Black Duck Software
M. R. Rangaswami, Sand Hill Group: In today’s world of cloud and SaaS, almost real-time metrics are critical, if not mandatory, on an almost daily basis. In our recent survey of software CEOs and CFOs (see “Software Industry Facing Growing Pains”), we asked respondents to identify the most important metrics they use to track their business. The survey found that, as the industry transitions from on-premise to the SaaS and cloud models, revenue still tends to be the top indicator.
Rob Hull, Adaptive Planning: I’m surprised that your surveyed executives didn’t rank churn higher as the most important measurement. It’s certainly critical for any SaaS or subscription-based business.
M. R. Rangaswami: I’m curious, too, as to why churn has not become a more important metric. Only 25 percent of our surveyed executives ranked it as important. But as we get smaller deals in the new models, we get customers that can leave us in a month, or a day or a minute.
Rob Hull, Adaptive Planning: Making sure that customers are not leaving is job number one. And in a SaaS business, it becomes very focusing for the organization. Everything that we do, from product development to services to our sales process and even to our finance and accounting interaction is all about customer satisfaction. Churn and customer satisfaction is quite important to us.
Brian Gentile, Jaspersoft: We measure churn from so many angles it’s almost bewildering. It leaves us with one of the most important metrics that I refer to every week, every month, called net new recurring revenue (NNRR). Talk about a metric that will leave you naked in the middle of the town square, that is the metric. It essentially describes how much you’re growing a recurring revenue base over a period and retaining customers. And making sure you’re retaining customers is a really critical part of NNRR.
M. R. Rangaswami: What systems do your companies use to monitor churn and customer satisfaction? Is churn implied in the measurement of customer satisfaction?
Rob Hull, Adaptive Planning: You can say it’s implied by churn. But my view is that it’s too vague at that point. Churn is a rear-view metric; you’re looking backwards at clients that have already left. While I think it’s really critical to measure churn, I think it’s also really critical to try to look at early-warning signals regarding customer satisfaction – signs that the customer may be leaving – and look at those signals often enough to allow time to actually do something about them.
Rob Reid, Intacct: We look at customer satisfaction at all sorts of times, per quarter, per project, per year, to make sure that things are going well and customers are getting value. We even compensate our employees on customer satisfaction. That is paramount in making sure we’ve got a success story in our business.
Kenneth Goldman, Black Duck Software: Our business is a subscription-based model, so we know when people are using our solutions or not. We look at the server logs to see customer activity. And when we see a customer hasn’t been using the solution for some period of time, we call them. We reach out to them proactively and say, is there anything we can do to help you be more effective in using our solution?
If somebody buys a product and they’re not using it, when you get to renewal time, you’ll get a big surprise when they don’t renew. But if you’re looking at it earlier and see that for the last six months they haven’t been using it, but for the six months before, they had been using it, then you’ve got a leading indicator.
We also review the customer support logs. We want to know if we have a customer who’s potentially unhappy or one where we just haven’t been able solve their problem for them.
Rob Hull, Adaptive Planning: When we assess customer satisfaction, we look at a variety of activity levels and see what’s actually happening with our customer base and how they they use or interact with their application. We’ve created a number of metrics to look at activity levels and create indices that give us those signals. We also do a lot with project surveys and ongoing client surveys to get a sense for how they are feeling and what’s going on with them in terms of satisfaction with the product or project, services, and our company.
We also look at follow-on business. Are our customers buying more from us? If not, maybe there’s something there that we’re missing. So there are a lot of things that we do to predict churn and try to get ahead of it, as opposed to just relying on churn because by then it’s a little too late.
M. R. Rangaswami: Are you experiencing other reasons for customer churn that are not tied to customer satisfaction?
Kenneth Goldman, Black Duck Software: We lose some customers to one of three things: either they get bought through a merger or acquisition, they lose funding as a result of budget cuts, or the internal champion for our product moved on.
Brian Gentile, Jaspersoft We’re a subscription-based model. Almost half of our churn can be attributed to customers’ actions that we have no control over, like being acquired or going out of business. But some of the actions within our control are different than what has been described so far. Think of Jaspersoft as an open-source company with commercial offerings. In some cases, we lose customers from our commercial offering as a paid subscriber because they move to our free open-source version, eliminating any fees. So month over month, it’s our job to make them incredibly delighted with the commercial experience so that they find the fees they’re paying to us are easily justified.
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This roundtable discussion began in a Sand Hill Webinar sponsored by Intacct and Adaptive Planning, discussing some of the findings in Sand Hill’s 2011 Software CEO Outlook 2001 survey. Click here to hear a replay of the Webinar.
Click here to access the “Software CEO Outlook 2011: The Gains and Pains of Growth” report on survey findings.