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Article

Understanding the Connection Between Customer Success and Renewals

June 29, 2019

Marley Richman

Category: Customer Retention, Customer Success as a Service, Customer Success Strategy, Managed Training Services, Virtual Customer Success Management

According to Harvard Business Review, acquiring a new customer is somewhere between five and 25 times more expensive than keeping a customer you already have, depending on what line of work you’re in.

Think about all the time, energy, and money you spend on attracting new visitors, pursuing new leads, and closing new sales — none of that applies to existing customers. You just have to keep them happy, and while that’s easier said than done, if you can do it successfully, your efforts will pay off.

In fact, Frederick Reichheld of Bain & Company (inventor of the Net Promoter Score) has shown through research that increasing customer retention rates by just five percent can boost profits anywhere from 25 to 95 percent.

Even though customer retention is just as important as customer acquisition — arguably even more so — most companies spend the majority of their focus on customer acquisition. So how do you put your efforts into keeping your existing customers happy? And how can Customer Success strategies help you get there?

Negative Churn Is the Ultimate Goal

Churn is a CSM’s worst nightmare, and it can add up faster than you might think. Losing five percent of your customers to churn every month may seem small, but it means you’re turning over nearly half of your customers every year — customers that you’ll have to earn back at a much greater cost. If your business model is based on high acquisition, five percent churn might be sustainable, but most B2B SaaS businesses simply aren’t built that way.

Most B2B SaaS companies aim to keep churn below ten percent, but the pinnacle of Customer Success is negative churn — when the value generated from renewal upsells (renewed subscriptions worth more than the previous subscription) is greater than the value lost to subscriptions that are not renewed.

Customer Success Is a Constant Process

If your customer buys a product, doesn’t hear from you for a year, and then gets an email a month before it’s time to renew letting them know that their expiration date is coming up, you’re already far too late. Customer Success starts at purchase and keeps going for as long as you keep that customer.

Your relationship with your new customer begins immediately after purchase. As soon as your customer signs up for a subscription, they should receive an email that not only welcomes them to the company and acts as a receipt, but kick starts their interaction with the Customer Success team.

Introduce your new customer to their Customer Success Manager. They’ll need to know who to contact if they have questions, but it also helps to lay the groundwork for the person likely to be contacting them over the course of their subscription. Having a face and a name to put to the emails they get from you will help make it more personal and increase satisfaction.

You’ll also want to begin the onboarding process right away. Depending on your company’s structure and the complexity of your product, your onboarding process will vary — sometimes it’s as simple as an educational landing page on your site, and sometimes it’s as complex as an in-person demonstration to walk everyone through how to use and integrate your software.

Wherever you land on the spectrum, you’ll want to get the ball rolling as soon as possible. You don’t want your customer sending you their credit card info and then thinking, “now what?” Let them know what the onboarding process will look like, where to find additional resources on your website, and who they’ll be in contact with. If your process requires a phone call or a meeting, give them a way to make an appointment. The last thing you want is for new customers to feel lost or forgotten.

Finally, set a schedule to keep an eye on new customers and their usage of the product. We’ve written extensively on how to measure customer adoption, but the truth is that the exact metrics for adoption will be unique for each company.

You know better than anyone what the indicators are for good product adoption when it comes to your product. Is it the number of machines your customer has downloaded your product on? The number of times they log in every month? The number of workflows they set up? Whatever the metric, you should be actively keeping an eye on your customers’ usage and reaching out if their usage seems low or decreases.

Automate What You Can

There’s no overestimating the power of human interaction, but there are only so many Customer Success Managers to go around. Their time is best spent in one-on-one interactions with customers, not combing through reports and spreadsheets to find out which customers to talk to.

To maximize efficiency, you’ll want to employ a tech touch strategy to complement and support the work your CSMs are doing. Set up automated processes to find customers that might need extra attention, then hand them off to CSMs to provide that additional support.

For example, let’s say you’ve run analytics on your past customers to identify the likeliest indicators of churn. You can use automated processes to do the following:

  • Look for customers who signed up between 60 and 90 days ago
  • Narrow them down by those who have completed your onboarding process or perused your educational materials
  • Narrow them down again by those who have installed your software on fewer than five machines and logged in fewer than five times
  • Find the ones who haven’t used a specific key feature, indicating that they may not know how
  • Eliminate those who have already been contacted in the last week

From there, you’ll have a (hopefully) very short list of customers who don’t seem to be engaging with your product and are thus at high risk of churn when their renewal date rolls around.

You can automate this process even further, with triggered emails for all customers that meet those criteria. Include a link to specific educational material tailored to the features they’re not using to guide them towards utilizing that key feature. We recommend including the option to contact a CSM if they get stuck. Think of all the time saved by automating this list configuration and email send, rather than having your CSMs manually sort and send to each customer on their list.

Be Proactive About Renewals

If you’re maintaining contact, the periods “after purchase” and “before renewal” should blend together into one continuous Customer Success experience. But there are still a few things you should pay attention to as your customers’ renewal date draws closer.

First, you should be aware of which features they are and aren’t using, and to what extent. If there are important features they’re not taking advantage of, you’ll want to remind them of those features to help them realize the utility of your product.

On the other hand, if there are features that they’re stretching to the maximum of their ability, they might be ripe for an upsell or cross-sell that will help them get even more out of your available products. A few months out, start planting the seeds of additional products or features in their minds with case studies and use cases that show the benefits of expanding their subscription, rather than just telling them.

If your customer is on track with your customer journey and showing all the signs of good customer health, they should already have a good sense of whether they want to renew and/or buy more — ideally, you shouldn’t have to do much convincing once renewal time rolls around.

Who Should Handle Renewals?

The last question to consider is who in your organization is responsible for making sure that renewals happen smoothly and consistently. There are three broad models you can use for renewals, though obviously you can structure the details within your organization any number of different ways.

Model 1: Sales Handles Everything

In the first model, the sales team that closed the initial purchase continues to work directly with the CSM throughout the customer’s relationship with your company. Though CSMs handle most of the day-to-day relationship, the sales team is responsible for expansion opportunities and renewal.

The sales team has already put in the legwork to negotiate the initial sale, so they can bring that experience and expertise to selling renewals and upsells.

Model 2: Customer Success Handles Renewals

In the second model, the Customer Success team handles not only customer lifecycle management, but expansion and renewal opportunities as well. The sales team still closes initial leads, but the Customer Success team takes over from there.

If your product offerings, pricing, and sales processes are relatively simple, this may be a good model to pursue. Your CSMs don’t need the intricate selling knowledge that your sales team has, and they can use their expertise to smoothly transition from showing customers the value of a product to continuing, or even growing, their relationship.

Model 3: A Dedicated Third Department Handles Renewals

In the third model, sales teams handle initial sales and Customer Success teams drive value and adoption, but a third team is responsible for expanding and renewing the customer base.

The advantage of the third model is that your CSMs can better retain their credibility as “trusted advisors” if they’re not also trying to upsell or drive renewal. A dedicated renewals specialist can also help if you have a very large number of clients and don’t want to split your sales or Customer Success teams’ focus.

The downside of the third model is that you start to see fragmentation of information. Customers don’t like dealing with so many points of contact, it can be difficult for sales and CS teams to pass on all the information that a renewal specialist might need, and the larger team can cause confusion and miscommunication.

Renewal Is the Core of SaaS

The number of SaaS businesses is rapidly expanding — it was estimated at $46 billion in 2017 and is expected to hit $76 billion by 2020. The advantages of the SaaS model are clear — a lower barrier to entry makes B2B SaaS products far more accessible to small and medium businesses than the massive initial costs of traditional enterprise software — but the model also means that renewal is absolutely paramount.

The number one priority of most SaaS businesses has to be customer retention — happy customers become repeat customers, and repeat customers become advocates who draw in new customers. And if happy customers are the goal, Customer Success is how you get there.