The very nature of the SaaS business model has fundamentally changed how we interact with our customers.
In a nutshell, your customer experience depends on directly interacting with your product. Sure, you’ll still jump on zoom calls with customers. However, to a lesser degree.
Further, SaaS companies are continuously releasing new features. Products are constantly changing, along with customer needs and preferences. Also, the cost of switching to another solution is now lower and the level of competition is higher than ever.
All of this boils down to one thing: retention is a constant challenge.
The process of acquiring SaaS customers has also evolved, even in the last 5 years. And the most important thing we’ve learned about acquisition is that it’s no longer enough to sustain the long-term health of a SaaS business. Retention is.
There’s a statistic you may already be familiar with but is worth reinforcing: a 5% increase in retention can have a 25-95% increase in revenue.
This stat, first featured in HBR back in 1990, is not a new concept. It simply costs you more to acquire a new customer than to keep an existing one.
It’s not just that retaining a customer another month is cheaper than getting a new one. Every month with a customer gives you another opportunity to expand the value of their contract.
Just like compound interest, the longer you retain a customer, the more opportunities you have to up-sell and cross-sell, all while generating recurring revenue.
For every $1 of new customer Annual Recurring Revenue (ARR), SaaS companies spend $1.60 in acquisition costs. The cost of expanding an existing customer? 69 cents. - 2020 KBCM Technology Group SaaS Survey
Beyond the impact on customer acquisition cost (CAC) and net recurring revenue (NRR), a customer retention rate is a reflection of the overall health of your company.
High retention demonstrates your ability to continually deliver a high-quality customer experience across touch-points that users value.
That’s why you need to start thinking about your customers through the lens of retention, not acquisition.
When you look at new customers in terms of retention, it forces you to focus on delivering value over time. And to do that you need to understand your customers.
The hard part is that low retention is a lagging indicator that something’s amiss. If you don’t have a relationship with the customer, you’ll have a hard time identifying leading indicators of a poor experience.
Being able to address customer issues, whether it’s around product, pricing, or support, can have a dramatic effect. Data indicates that when an issue is efficiently resolved, 95% of unsatisfied customers will return, with even greater commitment.
But before you can address these issues, you need to be ready to capture and react to customer feedback every step of the way. This is the foundation of a successful retention strategy.
In order to continuously deliver an amazing experience that retains customers, you need to understand:
To guide you through developing effective retention strategies, we’ve outlined 5 important areas you need to investigate and answer.
In an ideal world, you’d know each customer’s satisfaction level or NPS score and you’d have a good handle on understanding their objectives and needs. However, that’s difficult to scale, over time.
As you grow, you need to become strategic about how you touch customers to inform, add value, and ultimately cultivate a strong relationship and a deeper understanding.
To know what strategies make sense for any given customer, you need to understand:
With that information, you can determine the type of relationships you want to build, identify the health of the account, and establish the touch strategies or playbook to run. And, of course measure the effectiveness of your strategies over time.
This all begins with understanding the shape of your existing customers and what constitutes an ideal customer and their value to your business. From there you segment your customers by certain criteria.
If you’re early stage, this may be their Annual Contract Value (ACV). If you are farther along and experiencing growth, you may decide to segment by size, geography, vertical, or further by journey phase.
Regardless of your current stage, your customer segments will continue to evolve as you organically grow and take on new markets.
The ultimate goal here is to balance the personalized touch for each segment, manage costs, without compromise for healthy accounts, and of course, retention.
Next, you need to understand the end-user journey and all your touch-points along the way. Heads-up! - it’s never linear or as smooth as you’d like.
However windy (curvy, not weather) it may be, each segment’s path needs to be documented and charted so everyone on the GTM team can agree.
The goal is to be able to help your customers succeed in their goals throughout their journey.
For example, if your product experience begins with a self-guided trial, delivering on that first touch user experience is critical. You want to help your customers get to their “Aha” moment where they start experiencing value from your product quickly.
Understanding your users and their workflow enables you to guide them to those first and subsequent features, helping them graduate and stick around.
With a good understanding and mapping of end-user steps, you can start to develop, then fine-tune a positive overall experience. Yes, even before acquisition.
As users progress, knowing the right time to communicate is important. The trick is to be helpful without being interruptive.
At the right time in their journey, you can even extend offers that will further increase their value from your product and, in turn, their retention, such as:
Now that you have your segments and their respective journey paths documented, you need to start communicating, automate, and track engagement and outcomes.
The objective is to provide your GTM teams complete visibility of your customers. This enables GTM teams to seamlessly support users through every step.
There are many different ways to execute customer engagement with different tech stack tools. At a minimum you need to:
Capture account and contact details: and also relevant customer data that will depend on the user’s milestones such as activation, onboarding, or up-leveling. Much of this data can be captured from apps including Salesforce.com or data that your own product is capturing.
Track usage data: Important measures such as login frequency and length of time in-app, daily, weekly, and monthly usage rates across the entire team. With a clear picture of product usage by feature, you can start to determine the account health score.
Document inside and outside product communications: GTM teams need to create the right combination of communication, ideally based on user behavior. They will need complete visibility into the communications a customer has received to be able to extend communications seamlessly between teams.
Last, the holy grail metric for all teams focused on retention is Net Recurring Revenue (NRR) and you’ll need to determine the best way to track both gross and net, by customer segment.
With all of the tools in your tech-stack, GTM teams can become overwhelmed when trying to understand the best KPIs that point to a healthy score. You may track a different set of KPIs at different journey stages.
Getting everyone “on the same page” to determine the customer journey path is critical before determining that shortlist of KPIs.
As you develop metrics, involve all relevant teams in the process. Remember retention is everyone’s job.
Bring together Customer Success with Support, who have qualitative and quantitative data about top questions and trends. Marketing mostly cares about conversions and latency concentrating on the early and late phases. Product teams want to know where there’s friction as well as feature adoption rates.
Regardless of a team's top focus, it’s important to share the full picture so processes improve. Ultimately, the customer will let you know when it breaks down.
These KPIs are never static and are often identified incorrectly at the outset. The process is iterative and will evolve as features expand and needs change.
Take every opportunity to learn more when a churn event happens or upsell rates slow down to improve your KPIs.
By analyzing the characteristics of churned accounts, you can draw correlations and develop a more robust understanding of what constitutes “at-risk”.
Once you know the leading indicators, teams become better informed when a customer is at-risk, far ahead of renewal. With time to execute a strong, proactive outreach rather than a single ‘11th hour’ call the week, teams can fine-tune the cadences and customers will come to expect it.
For smaller accounts with a lower ACV, a retention playbook should be adopted with a higher degree of automation and in-app answers.
For high value accounts a different retention playbook is needed. Often personalized, such as a custom video from a dedicated CSM team is required.
Regardless of segment, there are numerous opportunities to learn how to manage those at-risk so you ultimately improve churn, which impacts top-line revenue and brand loyalty.
Finally, successful retention strategies hinge on listening. Collecting feedback from users at the right opportunities gives you the qualitative and quantitative info that helps to improve your strategies. Build feedback into your retention playbooks to increase up-sell and cross-sell success rates by 15-20%.
Retention is the key to sustainable growth and will absolutely become mission-critical, if it isn’t already.
Never “once and done”, retention strategies are iterative as your product changes, business expands and the market gets new entrants. Though business priorities change, proactive retention strategies are always a good investment.
Tune in for the next blog in our Retention Rules series. We will dive deeper into what this means for distinct SaaS teams, that will include Customer Success and Product Management. Meantime, subscribe to receive updates.
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