Since 20% of your customers produce 80% of your sales, retaining those accounts are crucial. SaaS companies should not think that growing means gaining. There is an even more important factor than acquisition. It is none other than retention. Every successful business team knows that retention is a key factor and goes out of its way to measure and analyze it. If you want to improve your customer retention strategy, you have come to the right place. We have prepared the ultimate guide that will help you prepare the perfect customer retention strategy to take your business to new heights.
Customer retention is a process that focuses on retaining customers over a specified period of time. It covers the entire customer journey. This means that it dives deeper into the customer journey and does not just look at on-boarding or renewals. There are various steps that you need to take to generate repeat customers. Retention requires you to make sure that customers remain engaged with your service and interested in everything your brand has to offer. It helps maximize customer values at all stages.
An effective customer retention strategy will improve your business, revenue levels, and referral rates. As customer retention presents a more cost-effective way to generate revenue, it is important that you consider it. The fact is that attracting new leads and converting them into paying customers requires greater marketing investment in comparison to retaining existing customers. In fact, the marketing cost associated with acquiring new customers is five times more than the cost involved in retaining existing customers. The reason behind this is that current customers are more likely to make a purchase from you.
When customers have made a purchase from you, they know about the value it delivers and are more likely to trust you. Thus, they would have no trouble buying from you again. On the other hand, you need to persuade a new customer and prove that your product or service offers value and that your brand is trustworthy. It means that any step you take for improving customer retention will only provide greater efficiency.
Since customer retention promotes loyalty, you must invest in a customer retention strategy to make the most out of each dollar. Customer retention also does an incredible job when it comes to promoting referrals which make for a cost-effective technique. You can count on your customers to share their experience with others if they are truly satisfied with what you have to offer and it makes a positive impact in their lives. However, this is not the case for other marketing strategies like SEO and advertising as they require greater investment and time commitment. It should encourage you to focus on customer retention as referrals cost less effort and time.
Besides, you can expect a much higher conversion rate through referrals alone. But, if your customers are not satisfied with the brand, they would not refer your business to others. Instead, they might even drive away potential customers through negative word of mouth. This means that if you do not focus on retaining current customers, you end up losing potential customers as well. Therefore, a customer retention strategy is essential.
There are many benefits of a customer retention strategy. You need to understand that customers will leave your company due to a variety of reasons. The main reason why they would switch to a competitor is if they failed to get value or felt that they were not a good fit. When you adopt a customer retention strategy, you not only get to keep customers, but you also get to reap the following benefits.
Before considering your Customer Success department to be one of your main sources of revenue, you must make sure your CS strategy is strong and efficient. To do so, you should adopt a data-driven strategy within your customer success team.
By anticipating your clients action thanks to the right KPIs, you will be able to avoid issues and give them a product that perfectly answers their needs. When implementing a customer retention strategy, you need to track the following key metrics:
A customer retention strategy must be based on the customer retention rate. It is the rate at which your business is able to retain customers over a given period of time.
You need to strive towards achieving a higher retention rate. It is a goal that every SaaS (especially B2B SaaS) sets as existing customers are easier to upsell and cross-sell to.
Customer Retention Rate formula = (1 – (customers churned in period/customers at the start of the period)) = (# customers at the end of the time period - # new customers acquired during the time period) / # customers at start of time period x 100%
The next global metric that you must monitor is the churn rate. It is the rate at which your customers leave your business. It is a metric that is associated with retention as it helps you find out the percentage of customers that leave. You must make sure that your strategy reduces the customer churn rate because convincing customers to purchase from you again after they have been lost is not easy.
Churn rate formula = (Customers churned in a given period/Customers at the start of the period)
There are also 2 important KPIs, namely, NRR and GRR that come into place. NRR stands for Net Revenue Retention, whereas, GRR stands for Gross Revenue Retention. SaaS companies need to be aware of the implications that come with focusing on these metrics. The metrics must be continuously assessed to determine the performance of customer success strategies.
To understand NRR and GRR, you need to understand their differences.
NRR is your ability to retain and expand customers (focus on revenue retention and customer retention) and GRR is your ability to retain customers (focus only on revenue retention). The main difference is that with GRR you won't take into account upselling & cross-selling (which may be a problem if your company grows because expansion revenue needs to be tracked).
As we said, NRR reflects the ability of a business to retain and expand its customers. It calculates total revenue and minuses revenue churn such as downgrades, cancellations, or expiration. It includes expansion.
NRR = total revenue (with expansion)- churn (downgrades, end of contracts, cancellations) NRR Formula = (MRR at the start of the month + Expansion + Upsell - Churn - Contractions)/MRR at the start of the month
To better understand NRR, let’s take an example:
A business have an MRR of $30 000 at the start of December and finish with $34 000 MRR (thanks to upsell on the customers that it already have at the beginning of December)
On the other hand, GRR reflects the ability of a business to retain customers and excludes expansion. It calculates total revenue minus revenue churn such as downgrades, cancellations, and contracts expiration.
Let’s take a look at a similar example:
Both are essential to build your retention strategy because in one case you will focus on keeping all your customers (with a GRR) and in the second case you will focus mostly on keeping your key accounts (with NRR).
Every account will be in the same boat. It doesn't matter if one of your current customers signs key contracts like you will not take into account upselling/ cross selling. With GRR you will focus mostly on how to avoid churn.
As you take into account the expansion revenue, it will be more important for you when a key account renews than when it is a small one. You will focus on the key account and adapt your strategy based on your customer’s segment.
You will also focus more on sales than if you are focusing on GRR because you need to have upsell & cross-sell to improve your NRR. This is of course a good move, but you should not forget to also focus on churn.
These different metrics have their advantages and their limits. That's why you should focus on all these metrics to adopt the best strategy. Now, let's talk about retention strategy.
There are three main customer stages that you need to implement a relevant retention strategy for as mentioned below.
Onboarding is the most volatile moment of the customer journey. This is why you must make sure that everything goes smoothly so that your customers keep coming back. However, if you do it wrong, you would be unable to generate more dollar bills. It is important that you implement a standardized onboarding process since 35% of companies do not have a formal onboarding program.
Mapping out a customer success journey map can help you identify the process and the milestones that come along the way. Make sure to identify KPIs for the onboarding phase such as the time it takes for completing the onboarding, the product used during the onboarding phase, and after the onboarding phase is completed.
Next, you need to define a success plan for your customers by understanding their needs and providing the best that you can offer. It provides playbooks for you to scale the onboarding process since churn does not wait for anyone. Customer success is the secret weapon that your revenue team can use to succeed. The truth is that customer success has come a long way. More and more organizations are realizing the importance of customer success than ever before. Only when you work together with different teams can you expect to improve customer success.
The customer onboarding strategy you create must focus on immediately providing customers with a positive brand experience during the initial stage of the relationship once they have purchased a product or service from you. It is crucial that you try to deliver value to customers as soon as possible once they buy from you.
You should consider the following to achieve your objective:
The above will provide value to your customers the moment they purchase from you. Thus, you would be able to retain customers from the get-go. Besides, about 86% of people are more likely to stay loyal to a business which invests in onboarding content.
The next retention strategy that you will need to prepare will be for adoption. When customers start to see value from your product or service, the adoption stage would begin. During this stage, customers will find an increase in value for your product or service. Increased adoption will allow them to try out different product features and learn more about what you offer. It would be the perfect time to consider upsells and cross-sells. You must make sure that they complement the initial purchase in order to continue to deliver value.
Providing value to your customers is something that you cannot compromise on. Besides, if your customer sees an increase in value during the stage, you can count on them to renew the relationship. However, if customers do not see an increase in value, it would lead to a cancellation of the service. Therefore, you must be both reactive and proactive at the same time. Have an efficient support team to respond to customer queries and anticipate customer needs to better serve your customers.
Since adoption is before the renewal stage, it plays a huge role in whether customers even continue the initial relationship with your business. To avoid expiration, you must put in extra effort during adoption and try to be proactive on your at-risk accounts.
How to do so? Being proactive is one of the main issues for the Customer Success Team. We advise you to implement an early warning system to be able to track the health of your customers. Renewal date should not be your only indicator.
Before digging deeper here, let's remind ourselves what a warning system is: it's a procedure that will send you (depending on how you set it up) about clients that may churn.
The main advantage is the time and productivity saving. Indeed, you won’t have to manually check all your accounts, but instead only focus on the one brought to your attention by your warning system. The main advantage is that you will be able to focus only on the customers that have been flagged.
On average, a B2B SaaS will receive alerts on 12% of its customer portfolio each month. Thanks to this new information, CSMs will be able to spend more time on these accounts and will answer their problem before the client’s request.
However, you must also take additional steps to encourage renewal. First, you should standardize your renewal process. Identify each key step during your renewal process and create detailed and organized procedures for each.
As for the onboarding, you should create a process with a checklist. You can also implement some automated notifications like automated renewal reminders or billing.
During this phase, you have an opportunity to talk with your customers and to understand what your customers think about your value proposition and your product. Do not lose this opportunity, you may gather relevant feedback for all your teams: sales, marketing, product etc.
Once you gather all this information, you should keep them and create a Renewal Success Program with all the information of the customers that renewed and a Churn Program with all the information of the ones that churned.
Spending time to understand and analyze this info may be the key to creating the best renewal plan. It will list all the steps taken by the CSM and the customer leading up to the renewal contract.
Nalia is the first Customer Success solution fully integrated within your CRM.
Our solution helps BtoB companies’ Customer Success teams who want to be proactive on their account by detecting in advance 80% of your risky customers or up-sell opportunities in less than a month. We alert on at-risk customers and opportunities, determining the most relevant action plan. CSMs can prioritize, adapt in advance their strategy and plan targeted actions. This enables Customer Success teams to better understand their customer portfolio.
Thanks to our early warning system you will receive alerts on your new at-risk accounts and your upsell opportunities. You will be able to prioritize your accounts and create your weekly to-do list. If you want to know more, do not hesitate to contact us on our website: nalia.io
After you have finished reading our guide, you will know how to improve your customer retention strategy. It is important that you take advantage of our advice to improve your customer retention strategy. There are plenty of steps that you can bring to retain your customers. Therefore, it makes sense to create a retention strategy that considers the advice mentioned above. It will help your business succeed.
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