As we mentioned in our previous article on product management for SaaS, one of the top challenges is having a product management process that isn’t so much about product management strategy, but about tactics. Research suggests that about 50% of product managers don’t have a clear strategic picture to guide them. Instead, they’re frequently focusing on what to do today, right now, to triage the problem for this one essential customer. To hotfix that one crucial bug. If you work in SaaS product management, you can probably relate.
As you know, product management for SaaS is a multifaceted discipline that requires carefully juggling essential duties like these, and which will appear, in some form, on pretty much every product manager’s roadmap at one point or another:
Technical development and roadmap planning: Product managers are the guardians of the product roadmap - the overall plan for a SaaS company’s product strategy, vision, and specific goals. Partnering with development teams to bring new products and features to market is the meat-and-potatoes of the product management process for SaaS. Product managers must act as schedulers, prioritizers, chroniclers, and messengers as they work closely with their engineering teams to manage the product development process. They must also ensure that new development work solves stated requirements while incorporating key customer feedback, and that in-process dev work hits required milestones. And of course, they also actively participate in prioritization of projects on the product roadmap.
Customer advocacy: One of the fundamental goals of product management is acting as the voice of the customer (VoC). SaaS development often ends up prioritizing competitive pressures to close crucial sales deals or triaging a specific ask for one high-value customer over a carefully-prioritized, customer-centric product roadmap. Of course, it's essential to be good partners to ensure customers don't churn, and that valuable sales deals have a clear path to closed-won. However, product managers must also act as internal advocates for customers in terms of product functionality, features, expectations, and overall user experience (UX). VoC isn’t just a matter of principle, either: 73% of companies with above-average customer experience generate more revenue.
Product and feature launches: In SaaS, one of the most exciting (and stressful) parts of the overall product management process is the launch. Launches are essential in SaaS for many reasons. A well-timed enhancement launch can help you grab the attention of current customers whose interest may be flagging. A large-scale new product launch, in partnership with marketing and PR, can grab the attention of the media, analyst firms, and, ideally, a larger share of the market. While the majority of product managers are deeply involved in launches, more than 65% feel their company manages launches “somewhat well,” while less than 10% feel their company’s launches are “exceptionally good.”
Market research: Another vital aspect of the product management process for SaaS is understanding the lay of the land in your space. At an immediate, day-to-day level, what are customers and prospects asking for? What are competitors doing, and how are they winning deals? And at a macro level, where is the market in your space headed? Are there issues that affect the usage patterns of products such as your company’s software today, or larger trends that analysts and major customers are observing that will fundamentally change your business tomorrow?
Less than 10% of product managers feel their organization is “exceptionally good” at launches. Image courtesy Roadmap.com
Every one of the above activities is crucial to your product management process. So which should be at the top of your quarterly or annual roadmap? Which should be at the top of your daily to-do-list?
For planning purposes, it can be a good idea to align your product management process to the broader strategic goals your company is pursuing. There are a great many strategic goals your SaaS company can pursue, including product uniqueness/reliability/value, product innovation, and customer service and satisfaction. However, product leaders also need to be aware of their SaaS firm’s bottom line, particularly during challenging economic times. You can keep the big picture in view by aligning the product roadmap to the key financial goals your SaaS firm is pursuing, which will include:
Grow revenue: The most obvious and common goal of all SaaS companies is to increase their revenue from one or more key areas within the organization. Many SaaS firms commonly focus on net-new revenue from brand-new sales deals, though there are multiple ways to improve revenue from the sales process, such as increasing the number of net-new deals, increasing the velocity of sales cycles to close more deals per quarter, or increasing average deal size by moving up-market to court larger customers. There are also other key areas that product managers can target for revenue growth, such as retention, upsell, and expansion (“land and expand”) for existing customers.
Grow market share: An important competitive goal for SaaS companies is increasing your company’s market share - your company’s control of its total addressable market (TAM) - by acquiring net-new logos. Growing market share in the short term might require your product management process to focus on your sales team’s win rate, and may require you to support active sales deals to beat out competitors. Long-term, growing market share may require rethinking your SaaS company’s competitive position and how your current product offerings stack up. To better position your company to capture more market share, it may be necessary to eventually expand product lines or acquire new technical capabilities through acquisitions or partnerships, while potentially partnering with marketing to raise awareness of your company’s brand.
Increase retention (prevent churn): Acquiring new customers is a common goal, but tends to be extremely costly. The cost of acquiring new customers (CAC) for SaaS covers many pricey activities. CAC includes all inbound marketing (via campaigns, advertising, SEO, content, social, and other channels), any outbound sales motions, such as via your sales development representative (SDR) team’s tireless outreach, and the countless hours your account executive team spends on discovery, demo, and follow-up meetings. Once a customer churns, your company must replace that former customer’s ARR by acquiring more new customers. However, research suggests CAC is approximately 7x more expensive than the cost of renewing existing customers, while increasing retention by as little as 5% can increase a company’s profits anywhere from 25%-95%.
Account expansion via upsell/cross-sell: Acquiring new customers is a common goal, but tends to be extremely costly. As we mentioned earlier, there are other ways to grow revenue for your SaaS company beyond acquiring new logos, such as retaining and expanding existing accounts. Research suggests that upselling to existing customers is 2x more cost-effective as acquiring new users. The significantly lower cost of upsell/cross-sell becomes more important in a contracting economy, when your SaaS company may be tightening budgets and may have difficulty raising new rounds of funding, but still needs to grow revenue.
Upsells are 2x more cost-effective than acquiring new customers. Renewals are 7x more cost-effective. Image courtesy Forentrepreneurs.
While keeping your company’s key strategic goals in mind makes sense, and executing the to-dos on the product roadmap makes sense, aligning the two may seem easier said than done. It’s unfortunately common for the product management process to veer off into the weeds, over-indexing on putting out short-term fires while under-indexing on higher-level strategy.
At the risk of stating the obvious, one of the most objective methods of helping product managers prioritize and align their day-to-day activities with higher strategy is referring to data-driven metrics, rather than gut feelings or office politics, to drive their decisions. Tying projects to specific, business-focused data can orient a product management process by providing clearer justification on what to prioritize first. Some specific examples of key business metrics include:
Annual recurring revenue (ARR): Tracking your company’s revenue is table stakes for product leaders. Keeping an eye on current ARR numbers against quarterly and annual goals can not only help orient your product management process, but also help you make a business case for important initiatives that are projected to grow future revenue. Related metrics worth considering include sales win rates, average deal size, and average sales cycle length.
Churn rate: As mentioned, churn is potentially devastating for SaaS firms. For product leaders in SaaS organizations, churn rate is an objective indicator of how well your product is meeting your customers’ needs. Of course, churn rate over time is something to regularly monitor - in a perfect world, your firm would see continuously decreasing churn rate year-over-year. Digging deeper into churn can help you draw clear, objective lines between specific customer pain points and actual business value. Related metrics worth considering include customer satisfaction (CSAT) and/or Net Promoter Score (NPS).
Product usage data: Looking specifically at how customers use your SaaS product, and how frequently, can provide clear, inarguable insights into the directions that product development should go. Granular product usage data can help product leaders determine which features are seeing the most and least use within their company’s SaaS platform from a feature development perspective. Account-level product usage data helps product leaders understand which customer accounts are most highly engaged and which haven’t logged into the platform in days or weeks, indicating potential churn risk.
By using data to bridge the gap between strategy and tactics, product leaders can better align their daily to-do lists to their company’s larger goals.
Example: Consider a SaaS company that is successful, but entering a challenging new economy in which growth has slowed considerably, and customers and prospects alike have uncertain budgets and are potentially looking to cut expenses. In this type of market, our SaaS company will likely prioritize customer retention. It puts out a call for all hands on deck to prevent churn and maintain as much ARR as possible, potentially looking for growth in the form of upsells and cross-sells to engaged customers while retaining as many high-value accounts as possible.
Product leads might approach this situation by prioritizing the following:
For an in-depth discussion on how to map product strategy to tactics with data, watch this in-depth webinar featuring Pendo on “Why retention is the new growth for product leaders.”