Thoughts from my journey

In my last “Top 10″ series for this week, I chose to review another Jeff Bennet’s article: Top 10 Things We Have Learned about Client Retention.

Client retention is a critical component to any organization, especially for subscription based revenue model organizations.

I agree with Jeff that reducing churn is not only the concern of your Support group – the entire company should focus on client retention and reducing churn as focusing on existing leads is more profitable than acquiring new ones (see: Treat Customers Based on Their Value)

Below are the most critical elements for client retention strategy:

1. Losing an executive champion opens the door for competitive bids at renewal time – In order to leave their mark, new executive champions will be open to more competitive bides before agreeing to renew.
2. Many software companies are surprised when clients renew or leave – technology companies need to adopt a client lifecycle approach that removes the element of surprise.
3. Understanding the true retention rate – many clients will renew in year two more as a reflex then as a choice (Unless you have failed them miserably) making the 3^rd 12 month term less likely for renewal. Therefore, it is important to measure retention rate per subsequent renewal years
4. Having high client retention, frankly, is hard work – clients will renew only if they find value in your product. Ensuring retention requires hard work and the whole organization should be focus on that.
5. A disconnect between the purchaser and the user community spells trouble – Companies rarely renew a solution that is not being properly used.  Wherever necessary, bridge the void between purchaser and user when a divide exists.
6. The bad news – SaaS solutions are easy to deploy – If they are easy to deploy, they are also easy to remove and in many cases, the customers’ risk in replacing a SaaS provider is low. Retention is always a risk, when leaving you is painless – relative to the on-premise model.
7. Client retention is strengthened when your solution is connected into a larger eco-system of solutions – your clients will be more dependent on your solution and less likely to leave if your solution can integrate, communicate or otherwise “hook into” other key tools that your client needs such as financials, CRM, project management tools, etc.
8. Complimentary service offerings positively impact client retention – That too will create dependency for your service – offer complementary services that will help to ensure that your solution is entrenched in your client’s business process and workflow.
9. Sales rarely take an active involvement in client retention – Sales people skill set is very different from Customer Success skill set (read: Hunters and Farmers post) and even though Sales is often responsible for all revenue they cannot and should not spend the amount of time and effort on client retention.  This is another reason why you need a client lifecycle approach that complements the Sales team and gives them the confidence to pursue new business because they know the company is pursuing client retention and revenue protection.
10. Clients will not renew if they think they have chosen a market loser – have your Marketing and PR teams communicating you market wins to counter any perceived “market loser” symptoms.  i.e. RIM, a great company, that has great products, but will lose clients not because their products or solutions, but because they are perceived (wrongly so) as a “market loser” – and no one wants to be associated with a perceived loser.

So take a hard look at your organization through the lens of each of our Top 10 items, and adjust accordingly.

For the full version of the tips, please refer Jeff’s post on ServiceVantage blog

Another tip taken during Sales 2.0 from Darren Suomi, VP Sales at HootSuite – this time regarding self service model and how to adjust it to reduce churn.

You know how it is that you get many leads and you just don’t know who to refer first? This situation is common in many SaaS companies.

With the right metrics and cohort analysis, it’s easy to decide who are the more engaged customers that are ready for sale and it’s usually more likely that if you’ll approach those customers, they’ll signup for your product.

Darren is also claiming that even in a self service model (low-touch model) like HootSuite, once they find out who are their active users in their service, they proactively reaching them and by that they reduce churn.

Tomorrow I will publish a tip by Mark Roberge, VP Sales at HubSpot who will explain the difference between the hunters and the farmers skill sets.

To read the full transcription of the video, click here

Video Transcription:

I’m talking to Darren Suomi, VP of Sales from HootSuite.

Bring me a model which where we play, it is a self-service model. So, we’re really trying to look at it from turning down the churn. I guess I’m looking at what people are trying to play instead of going from just a self-service. We’re actually just playing with the model in terms of a little bit of more of a high touch point. So, we are really taking a look at our customer who are quite active on social media. We are actually proactively reaching out of them and seeing where we might be able to help them versus just letting them fend for themselves.

This week I was attending the Business of Software Workshop talking about Using Customer Analytics to Increase Revenues of SaaS Businesses.

I’ve shared the presentation I’ve used in the workshop in which I discussed:

• Characteristics of the SaaS business
• How CLTV (represents Customer Success) should be higher than CAC (represents Marketing & Sales)
• The Customer Engagement Cycle
• Grow Conversion Rates
• A case-study on the SaaS Low Touch Module which shows how to focus on the converting opportunities and create priorities in order to increase conversion, reduce churn and enetually increase revenues for a SaaS business
• Ensure customer success (CLTV)

Can you implement those important tips in your SaaS business?

Customer Engagement is key for software-as-a-Service business. A recent post by David Skok explains how and why to measure customer engagement. If you are a SaaS executive and haven’t read it yet, read this first.

In this post I’d like to elaborate in what areas customer engagement is critical for SaaS business success.

Balancing Customer Acquisition Costs and Lifetime Value

The baseline metrics that govern SaaS business success are Customer Acquisition Costs (CAC) and Customer Lifetime Value (CLTV).   The larger the margin between CAC and CLTV, the more poised the business is for sustainable growth and profitability.

So lowering CAC while increasing CLTV is key and customer engagement has a dramatic impact on both.

The most effective way to lower CAC is to increase conversion rates from free to paying customers. We’ve learned that when customer engagement is high during evaluation period it has direct link on conversion rates.

Same in CLTV. The key metric here is churn. Higher CLTV means lower churn.
Customer engagement (or lack of) is very good indication for churn.

The dynamics of “Land & Expand”

The SaaS model lends itself to gradual adoption by customers. It could be inherit in the business model (e.g. freemium), or just by nature of subscription model itself:  Most customers start off as short term pilots by one team in an organization. Success results in renewed subscriptions and further adoption within the organization.

This means that SaaS companies have users/clients who actively evaluate the service (paid or free evaluation), and at the end reaches a decision to continue or not as a customer.

As David describes in his post, times have changed with a much higher percentage of business transactions transpiring online with much less interaction.

This new reality places customer engagement at the center. So what does it take to strengthen customer engagement in your service?

Cultivating Customer Engagement

Cultivating customer engagement requires an organizational culture that focuses on customers and their needs.

1. Know your customers

It’s easy to fall into the trap of treating your customers as unknown, faceless people. After all, chances are no-one in your organization ever met them. They probably live far away and may even speak a different language. But you can’t afford to do that.

A company must develop or achieve tools that will help them measure customer behaviour on their service. These tools must be capable of presenting the users behaviour once in your application and answer relevant questions such as:

• Have the users tried the service more than once?
• How much time are users investing in your service?
• Which features have they used?
• Have they been exposed to your core features and do they fully understand the value-propositon of  your offerings?
• Is momentum growing or declining within the organization?
• Are they potential buyers?
• Etc.

Knowing what your users choose to do in your application is crucial for you to be able to interpret their actions correctly and use it as a basis for running a successful SaaS business.

2. Learn how to be proactive

Being attentive to your customers also means knowing when to intervene.
You need tools to wisely call-out users who need help and are at risk of churn or, conversely, those that are reaching the limits of their current plan and are prime for “upsell”.

Being able to identify these users and conditions is critical because:

• Your sales and success teams have finite resources and need to be laser focused on accounts that matter
• Users nowadays prefer self-serve and self-paced work. You need to know it’s a good time to contact them, or run the risk of doing more damage than good.

Contacting users at the right time increases their satisfaction and loyalty. It shows you understand their needs and respect their time. And it will increase conversion, reduce churn and maximize upsell opportunities for your business.

3. Evolve your service

The same tools that help you measure and understanding customer behaviour, should help you draw conclusions of how your service and product needs to improve.

• Do the new features add value or complexity?
• Is the new design helping convert more trials but causing added friction to existing customers?
• Are the new tutorials and guides helping new users or are they still getting lost?
• Are users from the basic plan not engaged enough to “push through” to the premium packages?

Customer engagement can shed a light to some of these tough product and marketing questions. Not only by directly showing you what parts of your product different users engage with, but by surfacing the users you should be talking to directly for primary market research.

Summary

In the long run, Customer Engagement is all about value – customers have needs and they’re seeking for an efficient, ready and easy solution that fulfills those needs. Now.

If you are able to understand your customer’s behavior, interpret their needs and act accordingly, customers will choose to use and reuse your service!

Do you know how to measure your Customer Engagement?
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