By Guy Marion, Brightback
Acquire, grow, acquire some more.
That’s the mantra for most SaaS and subscription companies today. As an industry, we invest millions to acquire and convert customers. Ad spend is at an all time high, and the world of martech tools is becoming increasingly saturated. With the rise of growth hacking and better customer targeting, the top of the funnel is constantly in focus. But that’s changing.
Recently there's been a flurry of high-profile SaaS listings like Dropbox, Zoom and Slack. These businesses have profitability at their core and know they can’t survive on acquisition alone. It’s just not efficient anymore given that it’s now 7X more expensive to acquire a customer than to retain one.
In today’s subscription world, there’s more revenue to be earned after initial purchase, so companies must do everything they can to extend the lifetime value of the customers they fought so hard to acquire.
The truth is: It pays to retain your customers.
Assume that the following companies are identical in their acquisition efforts—they have the same amount of trials and conversions resulting in the same net new monthly recurring revenue (MRR). The only thing that’s different is their percent of monthly churn.
Small percentage points create staggering revenue loss. A company with 4 percent gross monthly churn loses out on $42 million dollars in revenue compared to a company with a 3.5 percent lower churn rate. Ouch!
On the flip side, if you had an extremely successful retention strategy that brought your churn down to .5 percent monthly gross churn, that company grows to $57 million in 5 years time.
It’s easy to see the impact retention has on growth. So, how can you execute an effective retention initiative within your company?
First, Organize Your Teams Around The Customer Relationship
A subscription business model requires proving consistent ROI to your customers. You need to be set up to support customers in an ongoing relationship instead of a transactional moment. This means changing the way we sell products, the customer-facing leaders we hire and aligning to a churn goal.
It’s imperative that an organization place just as much emphasis on retention as they do on acquisition. That means the sales organization must most likely be re-trained to make sure customers buy and are successful for 6 to 18 months. And leadership must be motivated and incentivized to optimize for the entire customer life cycle—not just to close new bookings or upsells and renewals.
The entire company needs to commit to actively showing customers how to understand and love what they’re buying in order to keep coming back.
Second, Learn From Your Customers At The Point Of Cancel (And Save Them, Too)
Despite all of the labels or definitions, cancellations come down to a handful of reasons related to product concerns, inability to execute, changing needs, pricing concerns, poor service and internal/company changes.
It’s a best practice to survey customers about why their leaving, but companies rarely go one step further and attempt to resolve the customer’s issue in the moment. It’s a lost opportunity given that 15 to 30 percent of customers cancel due to resolvable issues, like a poor onboarding experience or not being able to figure out a feature. Even at the point of cancel, it’s not too late to step in and trying to meet the customer’s unmet need through support, discounts, resources and other offers.
And even if your customers can’t be saved, gathering data at the point of cancel enables you to make improvements in order to reduce churn in the future.
And Finally, Make Retention Personal
A successful retention strategy scales but isn’t impersonal. This is a challenge. The customer base isn’t uniform for most high-volume subscription businesses. It’s a collection of people who have unique opinions and can’t be treated with a one-size-fits-all approach (at least, not for much longer).
Personalizing the customer experience relies on accurate information. You must organize data from multiple sources like demographic information, product usage, payment histories and support interactions to develop a full view of your customer.
Next, define the criteria that indicates when your customers are being successful (e.g. they watch x shows per week, use a certain combination of features, or reach a maturity level). Then align your engagement tools and customer teams to engage based on this success value. All the while, spend lots of time talking to customers, hearing their raw input and surveying to capture their voice, so you can get the qualitative context behind trends in the numbers.
Make Retention Your New Growth Strategy
If you’re not retaining your users, it won’t help much to continue pouring more water into a leaky bucket, no matter how robust your channel strategy or great your conversion metrics look. Growth without retention just won’t expand your customer base substantially. Retention may not be as glamorous as acquisition strategy, but it’s not less powerful in driving business-critical growth for subscription and SaaS companies today.
About The Author
Guy Marion brings unique SaaS growth, product, and sales experience, from launch to $100M ARR to IPO. Prior to founding Brightback, Guy was an Entrepreneur In Residence (EIR) at Matrix Partners, Autopilot COO, Zendesk Head of Online Sales, CollabNet VP & GM, and CEO/growth at Codesion (acq. by CollabNet, 2010). He has a Ph.D. in the natural sciences, and enjoys hiking, sailing, and hanging with his wife and two kids.