This post illustrates how incremental improvements along the Customer Lifecycle of a SaaS Business Model can result in massive changes of outcome for revenues as well as profitability. In Customer Lifecycle models revenues are not the sum of deals, but the product of conversion and expansion rates, creating "multiplicative" instead of "additive" impact. We describe which time, conversion, volume and financial metrics are required to capture all assumption for the business model. Learn how you can more than double your revenues by improving key metrics only between 10% and 15%.
Jacco Van Der Kooij (CEO of WinningbyDesign) and Fernando Pizarro recently published the book The SaaS Sales Method: Sales As a Science. The SaaS Sales Method nicely exposes the math which underpins each stage of the customer relation lifecycle from getting a customer to keeping and growing a customer. It provides a framework to understand and improve the entire sales process, organization and training, shifting from what the authors call a superstar culture to a science culture.
Obviously, I like this approach a lot as it introduces a realistic framework to model the logic of the customers lifecycle. This is very much in line with the process we use at Lean-Case to create robust and defendable business modelsbased on Unit Economics. They focus to answer if Customer Lifetime Value (CLTV) is significantly larger than Cost of Customer Acquisiition (CAC).
Simple spreadsheet models are adding up numbers and model a world where doubling sales would require twice as many leads, or doubling the number of salespeople. These types of assumptions are rarely realistic as they typically ignore time dimensions and require twice as much money to be spent. In models applying Customer Lifecycle Logic, revenues are not the sum of deals, but the product of conversion and expansion rates, creating "multiplicative" instead of "additive" impact. Massive changes in outcomes are therefore possible by making marginal improvements on the performance of single steps. For example, if you look at a 5-step sales process and improve the performance of each step by 15%, your results can double as 1.15 to the power of 5 equals 2.
To create an example model which illustrates the power of customer lifecycle models, let's take a look at the SaaS Business Model Framework and related Performance Metrics introduced by WinningByDesign. It breaks down the Get-Keep-Grow Customer Lifecycle in 2 major phases