Why is Customer Retention so Vital to the Life of Your Business?
There’s no skirting the importance of customer retention for businesses with recurring revenue streams. Consider just a few statistics:
- New customer acquisition is anywhere from 5 to 25% more expensive than the retention of existing customers.(HBR)
- Increased customer retention rates (by as little as 5%) have been correlated with at least a 25% increase in overall profitability. (Bain & Company)
- Loyal customers are 5x as likely to repurchase, 5x as likely to forgive, 4x as likely to refer, and 7x as likely to try a new offering. (Qualtrix)
- Loyal customers can ultimately represent as much as 70+ percent of your annual recurring revenue. (SaaSOptics)
Retained loyal customers are valuable. They are not only less expensive than new customers, but they contribute more to the bottom line. The math is irrefutable – especially with how much value they provide by feeding the top of the funnel through referrals.
Solutions to Customer Retention Challenges
The pervasive challenge isn’t convincing an organization of the value of their existing customers, it’s helping them figure out how to solve the riddles of why their customers are churning and what to do to increase their customer retention rates.
Here are a few suggestions:
Don’t let the windows break to begin with
Consider customer retention along the lines of the broken windows theory. The premise of this theory is that bigger crimes are byproducts of lesser crimes (i.e. assaults and robberies are more common in areas where there are incidents of vandalism). Using this same theory in customer retention analysis, those customers who have mounting small issues that go unaddressed are more likely to sever the relationship completely. In other words, you should take care of the details of your customers’ needs, and churn will be less likely.
To avoid broken windows (small damage to your customer relationship) to begin with, consider these tactics:
- Identify where windows tend to break.
- Remember that the details matter.
- Don’t just check in.
- Set expectations for an agile cadence which includes regular reviews.
- Celebrate victories with your customer.
In a recurring revenue business, think of Customer Success as the offensive team and the Customer Success leader as the team captain or quarterback. When the Customer Success team takes the responsibility for the entire customer experience, they are essentially quarterbacking the relationship by calling the plays. They know exactly why the customer bought, what they need to increase their adoption, and how to ensure that their entire experience results in increased loyalty. This is a truly proactive (offensive) strategy for customer retention.
Offensive lines block and tackle for their quarterback. CSMs do lots of blocking and tackling to increase customer retention. These very important activities run the gamut of the customer lifecycle from Land, to Adopt, Expand and Renew. (If you’re looking for some brass tacks on best practices for some of these skills, check out our library of resources for CSMs.)
Here are a few guides for best practices that have resonated with many CSMs that are in the trenches doing what’s needed to cultivate loyalty and retain more customers:
- Transfer of Knowledge: Handoff
- Customer Kick-off (we have an entire e-book dedicated to conducting great kick-offs)
- Core Enablement
- End User Training
- Conflict Resolution in Customer Success Management
- Quarterly Business Reviews for Customer Success
- Objection Handling
- Metrics and Measurements
Remove the guesswork
Customer retention relies upon delivering proven and consistently excellent experiences every time. When you occasionally fail to deliver this experience, your customers are more likely to churn. You’ve essentially created a guessing game about your customer retention likelihood.
Repeatability is the key to removing the guesswork from your customer retention efforts. Before you can fully operationalize a repeatable process, you’ll need to follow a few key steps to understanding your customer and the data associated with them:
- Understand and document your current state.
- Determine pain points your customers are having.
- Determine risks (root causes) throughout the lifecycle.
- Understand the gaps that need to be addressed.
Then, and only then, can you build a repeatable model for delivery.
Customer lifecycles are the progression of steps a customer goes through when purchasing, using and maintaining loyalty to a product or serve. (TSIA)
In a perfect world, the customer lifecycle is the road map Customer Success professionals use to guide their work in delivering value to customers to ensure they become (and remain) loyal. That said, a customer lifecycle is only as good as the work that CSMs do to create and mature their customer’s engagement. Work is a key component of customer success management, and, therefore, customer retention.
To be able to work seamlessly means that a CSM has no blind spots in understanding their customers’ experiences. They see everything about the customer’s experience and know how to guide them forward. This requires lots of cross-collaboration, and that involves being able to see the customer from every angle. Think of it as Work 360° .
This can only happen with seamless and real-time integrations into the systems that matter for full customer value management.
Customer Value Management
Customer retention cannot happen if your customer does not realize value from their investment. Conversely, you may not mind very much if customers churn that aren’t highly valuable to you. (Red zone or Dead Zone?)
Successful customer retention is, essentially, value management. Your customer and you both derive ultimate value from the relationship, and the retention formula is working.
Consider the concept of Customer Value Management. Because your customer engages with your organization across the enterprise, she has multi-threaded experiences that all contribute to her decision to stick around or not.
The value she receives isn’t dependent upon simply adopting your solution. It depends upon her perceiving value and delight through every interaction.
Customer Value Management begins during the sales process and continues throughout the life of the relationship. Whether it’s your CSM or another function, having a single resource assigned to managing value delivery is a proven way to improve your customer retention rates.
Technology and Customer Retention
Customer Retention requires people, processes and technology. Customer Success software is an investment in operationalizing your best practices for customer retention.
If you have a high-performing Customer Success organization, then you should be willing to invest in your team and give them the tools and resources they need to optimize their effectiveness. The question we get repeatedly is “WHEN” should we invest in CS software.
- Do analyze the costs and savings associated with adopting new software.
- Do use the platform to continuously assess the VALUE your team is able to deliver.
- Don’t calculate the ROI of the technology investment alone.
- Do consider the cross-functional adoption of the technology.
- Do understand the administrative costs of adopting a Customer Success Platform. (Note: Ease of administration and configuration are keys to selecting a Customer Success platform.)
- Don’t underestimate the time and energy involved in selecting and then implementing the software. (Note: Consider the process one of our customers took to make their decision.)
- Don’t be naive about the cost of change management.
- Do develop a sustainable model for funding your technology investments.
Strong Customer Retention Leads to Greater Customer Advocacy
Yes. Customer Retention is essential to recurring revenue streams. However, the real key to increasing ARR and growing your business is Customer Advocacy.
Retaining great customers is the start. Having them advocate on your behalf is where the real benefit of loyal customers comes into play. Consider the funnel pictured here showing exactly how loyal customers contribute to new acquisition and growth.
Not All Customer Retention Models Look the Same
Customer Success Management as an approach to customer retention was born in SaaS. However, the operationalized approach to facilitating adoption and managing customer retention throughout the lifecycle is not unique to SaaS. The job title is fast replacing account management as a catch-all for any job that is focused on customer delight and retention.
The truth is that the role is still evolving and that, while b2b businesses across verticals are chartering customer success teams, they are also still trying to figure out the ideal model, and how to scale it. Indeed, one size (and shape) of Customer Success does NOT fit all.
One non-SaaS vertical that is finding success incorporating a Customer Success model into their account management is Managed Service Providers. TSIA has conducted research into the role that Customer Success plays for MSPs, and determined that those businesses with dedicated CSMs have, on average, 6 percent higher retention rates. Some of the best practices MSPs use for customer retention are certainly applicable in other b2b organizations that are built upon recurring revenue models.