Retention Management in 2023
Light Bulb Moment
In SaaS the money is in the renewal. Even outside of SaaS the money is often in repeat business. A good example of this, and how one industry reacted, is the light bulb industry.
You are likely already familiar with the traditional incandescent light bulbs lifespan only lasting about 1000 hours – but it didn’t have to be that way.
Case in point:The Livermore Centennial Light Bulb, at Fire Station #6, Livermore, California, USA, has been burning since it was installed in 1901. (source)
So why is it that most incandescent light bulbs only last 1000 hours?
It’s not due to technological limits, rather it is about money, it’s about return business.
Basically, back in the day all the big bulb producers around the world got together and hatched an evil plot to standardize the average lifespan of a bulb so that consumers would keep coming back.
This wouldn’t fly in today’s day and age where the majority of the world is connected to the internet. Today you have to earn renewals.
But while customer expectations are higher than ever, customer teams are often finding themselves bootstrapped – playing second fiddle to sales. What gives?
The Customer is King
Over the last 10+ years, many revenue leaders have built their brands by generating big pipelines and focusing on net-new logo acquisition. We were in a bull market, the longest in the US stock market’s recorded history – it made sense.
This bull run (if you will) kicked off in 2009 and, despite some blips, lasted until 2022. The initial decline was observed in early January. We officially entered a bear market on June 13, 2022.
Customer retention has always been critical to long-term success – in 1990 the Bain and Harvard study found that a 5% increase in retention rates leads to increased profits of 25% to 95%. (source)
Recent economic news has not been great. Belts are tightening and many organizations are looking at spending more seriously than in previous years. What is a revenue leader to do?
Focus on your customer.
Money spent on customer teams is a good investment in any market. In addition to impacting your bottom line, there are several other reasons improving retention and leaning into a customer-first strategy can positively impact your business –
It is cheaper to retain customers than it is to acquire new ones – that is just a fact.
Better customer relationships give deeper insight into what’s working and what isn’t.
Customer endorsements from happy customers provide word-of-mouth marketing.
The reality is SaaS companies must be customer obsessed if they want to succeed – this was true in 2021 and is even more true today. Not being customer-focused is the biggest threat to your business and customer retention is critical.
Build a Foundation of Success
When it comes to customer success there is no one-size fit’s all answer. You need to take a step back and determine what success means for you and your business – this will vary based on your scale, industry, and placement within the market.
Who is my ideal customer?
How long is the ideal customer profile customer lifecycle compared to the average customer lifecycle?
Are customer lifecycles too short?
Are too many customers churning?
Is it taking too long for them to purchase again?
With a better understanding of where the problem lies, which customer profile you want to focus on, and why you’ll have a much better understanding of what success should look like.
My ideal customer looks like X.
They should make up X% of our business.
Their lifecycle should be X.
During this process you should work closely with Sales, if this exercise is siloed within CS you are setting yourself up for heartbreak. If you are able to align on these key areas you should see the following types of results:
X% fewer customers should churn.
We should be able to upsell them X times sooner.
Next we need to talk KPIs – without customer engagement data, you are flying blind. Some of the most common Customer Success KPIs/metrics in are:
Customer Retention Rate
Existing Customer Growth Rate
Net Promoter Score (NPS)
Customer Lifetime Value
Customer Retention 101
Simply put, your retention is the rate at which your company keeps, or retains, its customers. It’s the inverse of your customer churn. Churn is the percentage of customers who are lost, retention looks at the data and asks how many stayed.
Retention can also be leveraged to identify early signs of product challenges, customer engagement misses, and so much more. If we’re not retaining our existing customer base we’re missing out on all of these benefits that drive our business forward.
In SaaS we often set defined contracts with our customers over a set period of time with the hope of becoming ingrained in the customer’s status quo – you want to make it hard to leave.
Customers leave for many reasons. The product could be poorly adopted or not drive the expected return. The customer may have had a bad experience with the customer team or a sudden outage at the wrong time can sour a customer’s view. Another common reason for churn is when another provider ‘rips and replaces’ a solution with their own.
All of these hurt but not all of them are controllable. Let’s focus on what you can control.
Build Towards Retention
Building toward retention is an iterative process, meaning it is important you are routinely reflecting on what has and has not worked in the past. It’s about reflection- it‘s about evaluating your experiences with the customer and reviewing the impact they have had on previous efforts. This is incredibly important in getting you to recognize how to push future efforts.
One of the qualities found in top-performing CSMs is curiosity. They have a desire to learn more about the customer, their business, and their definition of success.
Asking questions and investigating the situation beyond just what a customer initially states is helpful when working with customers for long-term success, as it establishes a partnership mindset. This, in turn, helps to establish trust and builds rapport with the customer.
As you continue on in your role and move up in your career, your book of business will likely expand and your skill set will continue to grow and evolve.
Get Started Today
Our Customer Success course, Managing Retention Deep Dive, is built to provide CSMs with the skills, knowledge, and confidence to manage their clients more effectively to drive higher levels of retention and is relevant for anyone who is involved with the long-term retention of clients.
Delivered over four classes, you will learn how understanding your customers and key stakeholders can promote business success. Our coaches will cover the relation of retention to your role and business metrics, the importance of engagement in managing retention, and the effect of recommendations and SMART goals on driving valuable outcomes for customers.
Define your role in customer retention
Discover the key stakeholders in retention and their goals
Examine how having a firm understanding of your customer can promote better business results
Build effective engagement methods that help push for renewals
Achieve higher levels of retention by making recommendations that support your customer achieving their goals
Not a customer yet? We can help!