McKinsey & Company’s research into SaaS companies serving large and mid-enterprise customers shows that companies with annual churn rates of 20% or more see slower growth in annual recurring revenue than others that manage to hold onto their customers. Shawn Lankton and Brian Stafford from McKinsey & Company joined Gainsight CEO Nick Mehta as they double clicked into the findings of their latest SaaSRadar research. How a great product experience can drive customer stickiness. Why cross-sell directly impacts churn reduction. How Customer Success teams are implementing proactive strategies to fight churn. The most successful Enterprise SaaS companies know that growing revenue only through new customer acquisition is the less efficient way to scale. Rather, they understand that growing revenue within your existing customer base - through up-sells, cross-sells, and expanded use - is the most profitable way to scale. In fact, Enterprise SaaS companies that grow revenue - and company valuation - by expanding revenue within their existing customer base also know the key to making this work is to focus on - and operationalize - Customer Success.

1. McKinsey & Company |
Courting and
Cross-selling:
The secrets of low-churn
SaaS companies
August
2014
#customer
success

2. 2014 Gainsight, Inc. All rights reserved.
• Q&A panel on your right
• Recording for colleagues who couldn’t make it
• All attendees will receive slides
• Twitter hashtag #customersuccess
Housekeeping

3. 2014 Gainsight, Inc. All rights reserved.
Today’s Panelists
Nick Mehta
CEO
@nrmehta
Brian Stafford
Partner
brian_stafford@mckinsey.com
Shawn Lankton
Associate Partner
shawn_lankton@mckinsey.com

4. Courting and cross-selling:
the secrets of low-churn
SaaS companies
August 13, 2014
Gainsight Webinar
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited

5. McKinsey & Company | 4
Lower churn leads to faster growth
SOURCE: SaaSRadar, McKinsey’s proprietary database of B2B SaaS metrics (SaaSRadar.com)
Annual ARR growth
Low churn
(<10%)
High churn
(>20%)
90%
53%

6. McKinsey & Company | 5
Who we studied
SOURCE: SaaSRadar, McKinsey’s proprietary database of B2B SaaS metrics
Later-stage startups: Revenue from $25M to 75M
With enterprise customers: ACV from $65k to 350k
Smaller companies and companies with smaller
ACVs may be the topic of a future Webinar

7. McKinsey & Company | 6
Top tactics of low churners
SOURCE: SaaSRadar, McKinsey’s proprietary database of B2B SaaS metrics (SaaSRadar.com)
▪ Killer products
▪ Lots of cross-sell
▪ Careful courting
▪ Investing in users
1
2
3
4

8. McKinsey & Company | 7
A great product is a good start
SOURCE: SaaSRadar, McKinsey’s proprietary database of B2B SaaS metrics (SaaSRadar.com)
R&D spend / sales
Low churn
(<10%)
High churn
(>20%)
30%
10%
1
It’s a no brainer, and the numbers don’t lie…

9. McKinsey & Company | 8
Cross selling keeps customers
SOURCE: SaaSRadar, McKinsey’s proprietary database of B2B SaaS metrics (SaaSRadar.com)
Customers buying >1 product
Low churn
(<10%)
High churn
(>20%)
33%
0%
2
Broader product suites and more customer touchpoints

10. McKinsey & Company | 9
Loyal customers cost more to get. . .
SOURCE: SaaSRadar, McKinsey’s proprietary database of B2B SaaS metrics (SaaSRadar.com)
M&S spend / Rev.
Low churn
(<10%)
High churn
(>20%)
53%
30%
3
Sales cycle length
5 months
3 months

11. McKinsey & Company | 10
. . . and not everyone can sell
SOURCE: SaaSRadar, McKinsey’s proprietary database of B2B SaaS metrics (SaaSRadar.com)
Portion of FTEs on quota
Low churn
(<10%)
High churn
(>20%)
41%
71%
3
More lead qualification and sales engineering FTEs

12. McKinsey & Company | 11
Keep taking care of customers post-sale
SOURCE: SaaSRadar, McKinsey’s proprietary database of B2B SaaS metrics (SaaSRadar.com)
Churn prevention FTEs / $1M ARR
0.3
0.1
Low churn
(<10%)
High churn
(>20%)
4
Proactively ensure customer success

13. McKinsey & Company | 12
Consider participating in SaaSRadar
SOURCE: SaaSRadar, McKinsey’s proprietary database of B2B SaaS metrics (SaaSRadar.com)
100+ B2B SaaS participants
40 critical metrics
10+ hand-picked peers per cohort
$10M+ million ARR range
~2 hours to complete

14. McKinsey & Company | 13
Brian Stafford
▪ Leads McKinsey’s SaaS practice
▪ Founded and ran a $100M
software company pre-McKinsey
Shawn Lankton
▪ Leads our SaaSRadar benchmark
▪ Experience with sales and pricing
for large and small software firms
Who we are
brian_stafford@mckinsey.com
shawn_lankton@mckinsey.com

15. 2014 Gainsight, Inc. All rights reserved.
The performance waterfall
$54.0
$8.0
$4.1
$41.9
$4.2
$8.6
$54.7
Opportunity Churn Downsell Retained Up-Sell X-Sell Total Bookings
X-Sell = 16%Churn = 15%
$M
Retention Rate = 78%
Bookings Rate = 101%

16. 2014 Gainsight, Inc. All rights reserved.
Cross-sell is a key lever for customer retention
10%
15%
18% 18%
16%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Q3'13 Q4'13 Q1'14 Q2'14 Total
Cross-sell Performance By Quarter
4%
4%
2%
1%
3%
0%
1%
2%
3%
4%
5%
Q3'13 -
Churn
Q4'13 -
Churn
Q1'14 -
Churn
Q2'14 -
Churn
Total -
Churn
Historical Cross-sell Performance for
churned business by quarter
Historical Cross-sell performance calculated by identifying any Cross-sell activity that
occurred 4 quarters back from the quarter the customer churned (ex: the Cross-sell
window for Q3’13 churned customers is Q3’12 – Q2’13).
Cross-sellRate
HistoricalCross-sellRate
Quarter of Cross-sell Quarter of Churn

17. 2014 Gainsight, Inc. All rights reserved.
Cross-selling also limits churn exposure
Churn Reason Value
Competitor - Software $1.87
Lost Champion $0.84
No Traction $0.68
No Use Case $0.32
Product limitation $0.26
Total $4.16
1
2
Differentiate from competitor
Identify champions across multiple
orgs
3
4 Solve multiple business problems
Drive user count across multiple
orgs

18. 2014 Gainsight, Inc. All rights reserved.
www.gainsight.com/pulsecheck

19. 2014 Gainsight, Inc. All rights reserved.
QUESTIONS
SALES@GAINSIGHT.COM

20. 2014 Gainsight, Inc. All rights reserved.
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