time to usher in a new era
Is ARR really the best metric for you to follow?
November 27, 2024
Hey, it's the Wednesday before a holiday here in the States, so some of you are pretending to work while eyeing the clock (caught ya).
Thanksgiving week isn’t exactly when anyone wants to read a newsletter, but hey—here you are, proving everyone wrong.
This week, I’m serving up a quick plate of insights—something light. So grab a fork (or your phone), settle into your holiday haze, and let’s dive in.
Before we dive in this week, I need your help with something…
The SaaS customer success landscape is changing. Fast.
And no one has it all figured out. We’re creating a benchmark to determine where customer success is headed in 2025 and beyond.
Would you take 7 minutes to answer a few questions? In return, you'll get early access to insights and real data to help you confidently lead in 2025.
THE BEST THING I READ THIS WEEK
Is ARR still king?
For years, Annual Recurring Revenue (ARR) has been the undisputed MVP of software metrics.
It shaped valuations, financial benchmarks, and even sales incentives. But as the software industry evolves, its reign might be coming to an end.
In a thought-provoking piece from OnlyCFO, they argue that ARR is losing relevance — particularly as AI reshapes business models. Why? Because gross margins, once consistent and predictable, are becoming far more variable across products and industries.
Enter Annualized Gross Profit (AGP) as the new north star metric. Unlike ARR, AGP accounts for these shifts by focusing on profitability, not just revenue. It gives leaders a more nuanced view of financial health and helps them make better strategic decisions in an increasingly complex era.
The companies with faster declining gross margins are more likely to hold on to ARR because it will make them look better…
My main point with this post is for companies to question the metrics that they have been using (that are widely popular) and ask if they are the best metrics to guide your business. Time to use your brain and not rely on what everyone else is doing!
What do you think — will ARR always have a place, or is AGP the future?
At this point, I use ChatGPT and Claude multiple times a day - they have become a thought partner and sounding board.
So here’s how I might have them evaluate my 2025 retention strategy.
Act as a Customer Retention Expert for a B2B SaaS company with $[Insert ARR] ARR and a mid-market segment contributing $[Insert Revenue % or Amount] annually. I’m planning our 2025 strategy to present to our executive leadership team and want your help to dial it in.
Our biggest retention challenges include [Insert Specific Issues, e.g., low product adoption, limited executive buy-in, etc.].
Our team structure include [Insert Specific Roles, Teams, etc.].
Develop a detailed 6-month retention strategy that includes the following:
Key metrics to track: Provide a prioritized list of metrics tied to retention improvement (e.g., Net Retention Rate, Time-to-Value, Feature Adoption Rates).
Proactive engagement campaigns: Suggest campaigns tailored to [Insert Industry/Customer Profile] customers, focusing on driving [Insert Key Outcomes, e.g., feature adoption, renewal conversations].
Risk signals to monitor: Identify the top [Insert Number] leading indicators of churn based on product usage data, support interactions, and account growth trends.
Cross-functional alignment plan: Propose ways to align Customer Success, Product, and Sales teams around retention efforts, including specific initiatives for collaboration and accountability.
Focus on creating initiatives that drive a measurable [Insert Target % Increase] in mid-market retention over six months.
Please ask me questions to refine your response and make sure that your answer can be thoughtful and thorough.
Too often, segmentation is too static.
Let’s simplify it with a two-part framework:
Segmentation should help you to:
Let's break down our Primary Segmentation by two vectors:
🎯 Size / Market Alignment - working with our partners in Sales + Marketing, we can align our customers based on their size or place in the market (I.e., Strategic, Enterprise, Commercial, SMB)
🎯 Growth Potential - now let's work with our partners in GTM to identify which accounts have 'whitespace' opportunity and begin to bifurcate by Protect vs. Grow
These two areas comprise the Primary segmentation and should help us drive towards an Account Coverage Model.
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Now that we've given our teams their 'Book of Business', we'll need to help define how we Prioritize and drive Engagement...aka Secondary Segmentation
This is where tools such as Account Health, Maturity Models, Adoption and Use Cases come in.
Account Health - simple matrix to help us tell recency/frequency of engagement
Maturity Model - scaled 1-5 to help us determine how embedded we are
Adoption - product-specific metrics to tell us if we’re doing our job
Use Case - allows us to know the next pieces of content to recommend
These tools might intermingle, but each can serve a purpose when building a customer relationship.
Primary segmentation drives our Account Coverage.
Secondary segmentation drives Account Engagement.
Got a framework to share? We’ll be highlighting frameworks from key leaders across the community…
Press reply and drop me a line - would love to feature you
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