Fundamentals: Focus on Retaining your Mid-tier Customers

August 20, 2019

Megan Macaluso

Category: Customer Experience, Customer Retention, Customer Success as a Service, Customer Success Marketing, Customer Success Resources, Customer Success Strategy

Here we are in the midst of “the dog days of summer.” That time when productivity ebbs and new customer acquisition slows down. It seems people are more focused on vacations with the family and road trips to the beach than they are on actual business.

Who can blame you for soaking up those last days of summer sun? Nobody. But, this heat-induced lull makes it the perfect time to refocus your Customer Success efforts, especially on those mid-tier clients. A greater effort toward keeping your existing customer base happy will help ease the frustrations and challenges of mid-year new customer acquisition. It’s also a great way to combat the problematic Q4 churn many SaaS companies face as customers assess the cost-to-value benefits of renewing their annual subscriptions.

Why focus retention around mid-tier clients?

Mid-tier clients, by sheer numbers, likely make up the bulk of your customer base, therefore they should be at the core of any solid growth strategy. “But what about the 80/20 rule?” you may be wondering. The belief that 80 percent of your revenue/growth comes from the top 20% of your clients is an outdated notion that has little to no place in modern business models. In the SaaS business world, revenues depend on renewals. This makes the retention of your mid- and bottom-tier clients essential for healthy growth.

A proactive approach to customer retention is a great way to reduce churn, lower customer acquisition costs, and increase your per-customer value. According to a collaborative paper between Frederick Reichheld of Bain & Company and Earl Sasser of the Harvard Business School, increasing customer retention rates by only 5% can boost profits by 25% or more. Their work found that over an 18- to 24-month period, proactively focusing on retention can reduce your customer acquisition costs by 30% or more, grow your total number of customers by 1.5 times, and increase your revenue as much as 80% or more (that’s right, I said 80%!).

In short, keeping more of your customers through multiple subscription periods has a strong, positive impact on your long-term revenue and overall growth.

A focus on retention decreases churn.

A happy customer is one who is deeply engaged with your product. They are well educated on its full capabilities and are utilizing its features to help increase their own bottom line. This same customer doesn’t question whether or not they should continue using your product when their subscription comes up for renewal. They also don’t go shopping your competition, because they have already decided to continue utilizing your product. When it comes to overall growth, the effect of churn simply comes down to numbers. The fewer customers lost to the black hole of churn, the greater impact new customer acquisition will have.

A focus on retention decreases acquisition costs.

The trust you build with loyal customers often translates to them advocating on your behalf with their friends and colleagues. A recent study confirmed that, on average, a satisfied customer will tell nine other people about a positive experience they’ve had with a particular company, product, or brand. Be aware, though, that the reverse is also true — and on a much larger scale. That same study discovered that a dissatisfied customer is likely to tell 16 other people about a negative experience. Building a retention-focused strategy around Customer Satisfaction is a highly effective way to create an army of eager advocates from your existing customer base and protect you from the backlash of any bad experience. Positive word-of-mouth drives referrals, which happen to be the most cost-effective way to acquire new customers.

A focus on retention increases your per customer value

Expanding customer sales beyond your core product offerings is an essential aspect of growth.
It is much easier to upsell and cross-sell a loyal customer than it is to upsell a brand new one. A study by Marketing Metrics found that the probability of converting an existing customer is 60% to 70%, while this number drops down to only 5% to 20% for new customers. The key to successfully increasing revenues per customer with your existing base is developing a strong relationship with each customer. If they trust the products and services you already provide they will be much more likely to try additional offerings. Positive customer experiences directly correlate with strong increases in future revenue.

Being proactive will make customers happy

I think we can all agree that a satisfied, loyal customer is immensely more valuable than one who is not, but how do you build happy customers? Fortunately, one of the most effective tools for doing this is also one of the easiest. With all the upside surrounding a retention-focused Customer Success strategy, a great place to start is a simple check-in with your clients. Our own Marley Richman covers the topic in more depth with her April 2019 article: The Importance of the Customer Check-In.

Wherever a particular client may be in their customer journey, actively reaching out will help strengthen the trust they have in you and your company. When your customer trusts you, they are more likely to keep using your products year after year, and nothing is more important to a healthy strategy for growth than a stable customer base with minimal churn.