SaaSafras

Case Study Question:

Planterbox Inc, a plant care software business, just acquired a regional plant care operator named SaaSafras based in the Southeastern US.

SaaSafras’ business has been stable with some organic growth and some natural churn. Planterbox has identified you as a rising star within the org and you’ve been hand picked to run the newly acquired business after the previous CEO of SaaSafras retired and sold their business. You’re excited for the opportunity and your first project is to figure out how you can grow SaaSafras’ revenue (Planterbox decided they loved the name too much, even though they acquired the company they’ll keep the SaaSafras name).

As part of the acquisition, you’ve inherited 20 great people who can do it all between sales, account management and support. Unfortunately, doing it all has come at a cost and productivity has been lower than if they had specialized in any of the individual roles (and they are begging for specialization as well). Going forward each person will only perform one core role at a time. While each person will only perform one role at a time they can switch to another role at the start of any month - one person could cycle through every job without a loss in productivity.

Your goal is to maximize SaaSafras’ cumulative revenue over the next 24 months. (the sum of all revenue generated over 24 months).Your responsibility is to determine where these 20 people will work each month for the next 24 months to maximize the cumulative revenue generated over the entire period.

The three roles are:

1. New Business Acquisition

a. These people are responsible for selling and getting new customers in the door

2. Account Management

a. These people help existing customers; they drive revenue growth from the customers they work with and improve retention

3. Support

a. These people solve customer problems; they improve retention for any active customer

SaaSafras has some key metrics that won’t change with the acquisition. The business currently has 1,000 customers. SaaSafras acquires 25 customers a month organically through great branding and customer referrals. Some customers turn to other, more specialized solutions and monthly churn is 10%. There has been a standalone support org in addition to your swiss army knife team, and support’s CSAT (Customer Satisfaction) has been steady at 70% for several years. SaaSafras doesn’t offer any discounts and every active customer pays a baseline fee of $100 a month for the core product.

Team specifics are below:

People who work on New Business Acquisition acquire 5 new customers a month.

Account Managers increase revenue by 20% month-over-month for accounts they manage up to a cap of 6 months. To be clear, this revenue increase compounds by 20% each month up to the 6th month, at which point it maxes out and remains flat for the remaining duration of time that the customer has an account manager (for example, if a customer has an account manager in month 1 they’ll pay $120, in month 2 they’ll pay $144, etc). If a customer has an account manager and then loses the account manager their metrics (revenue per month) return to the baseline, but there isn’t a negative consequence. Each Account Manager can carry 25

customers.

Each support agent increases CSAT by 1 percentage point. Each point of CSAT leads to a 15% relative decrease in churn.

SaaSafras needs you to make 3 key decisions:

● How many people will work on acquiring new business, account management, and support each month from month 1 to month 24?

● Why are they working there?

● Bonus: If you had a magic wand, what is the one variable you would try to improve going into year 3? How would you approach moving that variable?

○ By “variable” here, we mean one of your team members core metrics (customer acquisition, CSAT, revenue increase, relative churn decrease etc).

Solution:

Revenue is directly proportional to customer lifetime value. Improving LTV will likely result in increased revenue. My goal is to maximise LTV.

Maintaining Steady Growth rate with churn reduction.

This can be achieved by reducing the churn rate. Currently, we have a monthly churn rate of 10%, while acquiring 25 new customers each month organically. To maintain positive customer growth and minimise churn, I propose allocating more support agents.

The condition for positive customer growth is that the combined number of current customers, new customers, retained customers (through support staff), minus customers lost due to churn rate, must exceed the current customer base.

Maintaining at least 6 support staff members each month has contributed to increased customer retention and reduced churn. I won't prefer allocating more than 6 people for Support as the income generated by an AM is more than the income generated by a support agent.

Average additional revenue generated by AM over 6 months:

25 x (20 + 44 + 72.8 + 107.3 +148.8 + 198.6) = 591.5x25 = $ 14,781

(As Each AM agent can serve 25 customers).

Average revenue by Support over 6 months: Each support agent contributes to 15 percent reduction in churn. This states a single support agent can help in retention of a minimum of 15.375 customers per month. For 6 Months the total revenue is $9222. This can vary but cannot exceed the AM’s revenue.

Inorder to maximise the revenue there needs to be a balance between NBA and AM till we reach a point where AM reaches Max value .

Aggressive Customer Acquisition

I would prioritise maximising new business acquisition as it generates immediate revenue from the first month onward. In the first month, we can allocate 14 people to the NBA. This initial investment in new customer acquisition can drive substantial growth and recurring revenue. For instance, if we assign 14 people to NBA in month 1, and each person brings in 5 new customers, that would result in 70 new customers acquired in the first month alone. Assuming an average customer lifetime value (LTV) of $2400 ($100/month) over two years,

those 70 new customers would generate $168,000 ($2400 x 70 customers) in revenue. With this approach, we would have no resources allocated to account management (AM) in the first month.

Month 1:

● NBA = 14

● AM = 0

● Support = 6

As we grow we need Account Managers to handle the customer accounts and we have 25 members as an organic growth for every month. So from the second month we can allot 1 Account Manager to these members leaving the NBA with 13 people. So for the

Month 2:

● AM= 1

● NBA =13

● Support = 6.

Similarly we can follow the same criteria till we reach a point where we have balanced Customers. This criteria is achieved after 14 Months. From the 15th month we can completely ignore the Acquisition of new customers and utilise the people for AM which can drive in maximum revenue $4.41Million.

This method can result in generating maximum revenue over 24 months.

In the third year, it would be crucial to prioritise expanding the Account Manager (AM) team to address the significant gap in customer service capabilities. At the end of the second year, only 14 AMs were available to serve a maximum of 350 customers. However, the total customer base stands at 1,597, leaving a staggering 1,247 customers without dedicated account management support. Increasing the number of Account Managers could unlock substantial revenue generation opportunities. Allocating resources to expand the AM team should be a strategic priority to ensure comprehensive customer coverage and maximise revenue potential.