Retention

by Jon Russo Jon Russo No Comments

Retention Framework – 4 helpful tips

TLDR; B2B Customer retention is #1 priority. Audit your message cadence and data situation, outline your customer journey, message according to journey, plan for long term. Outsource aspects if needed. Learn more on Friday.

For B2B Sales & Marketers, you’ve heard recession comparisons between today’s global pandemic and that of 1991, 2001, and 2008. In those years, some companies experienced a downdraft in hiring as well as pull backs on discretionary expenditures as a function of decreasing top line revenue. Also in those years, a strong pivot was made to ‘hug your customers’ theme because the cost of acquiring new customers would go through the roof versus holding onto what you have on hand.

Today is no different. Several companies are going through a revenue re-forecasting exercise or suspending their 2020 forecast altogether, and you are likely experiencing this by being asked to make cuts in your digital acquisition sales and marketing programs as well.   

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TrustRadius’ recent survey outlining which SaaS solutions would be impacted the most in this new environment. Marketing and Sales Technology are two of the top four categories expecting a reduction in software expenditures.

There seems to be a strong pivot towards hanging onto existing customers. Sam Jacobs from RevenueCollective recently polled 119 B2B companies across the US and found that in about 57% of the cases, churn has increased significantly from the prior period, heightening this need for marketing to focus on existing clients. It would stand to reason that companies that are selling MarTech or SaleTech would be likely feel these churn rate increases the most right now.

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Marketers for years have been focused on the purchase of new technology to acquire more customers, faster than ever before. Much of a Marketer’s board level reporting is built around “acquisition language” – Marketing Qualified Leads, Marketing Qualified accounts, Demand Generation – all assume new account acquisition to work hand in hand with sales. Sales and Marketing Compensation is often tied to this success which widens the gap further. Marketers are not focused on customer marketing strategies because they haven’t had to be nor have they been rewarded to be.

While many SaaS based organizations have invested in Customer Service as a function, few have perfected their marketing outreach strategy to existing customers through this organization – in large part due to the marketers extreme focus on acquisition. CS has thus been relegated to more tactical regularly scheduled meetings to keep in touch with customer needs, but often times those meetings are conducted at the end user level.

Thus a skills and knowledge gap exists between Marketers conditioned to do acquisition marketing along with customer marketing. Marketers are now learning new skills and have to really think through the messaging around retention. Where does a Marketer start?

Step 1 – Audit.  Keep in mind that their customers are getting hammered by competitors, partners, and analysts on other alternatives to their product during the lifecycle they are a customer – so a Marketer should start with a self assessment to find out how frequently and what kinds of communications have been going out to their customer base in times prior. In addition to messaging frequency, a data audit of the types of contacts in the account should be done – end users vs. decision makers within the database. Remember that a happy end user in this environment may not necessarily translate to a renewed contract.

Step 2 – Journey.   Marketers in parallel need to make sure they are thinking about the account journey their customers are experiencing relative to their renewal. More specifically, like a funnel that is split into 3 sections, a Marketer might want to think about the initial onboarding process, the middle phase, and final phase of renewal.   

Step 3. – Message. Next Marketers will want to revisit their message as a function of where the client is in the account journey. Corporate Visions’ Tim Riesterer wrote an excellent book ‘The Expansion Sale’ provides multiple frameworks on how to communicate with customers AFTER the purchase. He suggests looking into ‘Why Stay’ language vs ‘Why Evolve’ language.

Messaging Journey

In both cases of those phases starts with documenting the results that you’ve had with customers. This almost has to be done at a CS or individual level, unless Marketers can somehow aggregate typical wins that similar clients have gained from using their product.

It is difficult to summarize Tim’s 200 page book in a paragraph, but his firm Corporate Visions has done some extensive research in the areas of messaging and it is well worth reading.

Step 4 – Plan. Marketers could also consider building a community of end users to make their product more sticky. But that type of initiative is not a light lift, it requires planning to operationalize, investment in platforms (like Salesforce.com or HigherLogic) and an executive commitment to successfully pull off.

Somewhat self-serving but if capacity is an issue to pull all this off, of course hiring outside agencies to help accelerate your process to improve your retention will be key. Regardless, this kind of framework could help Marketers plan their retention strategy.

What are you finding that works right now on your retention strategies?

by Jon Russo Jon Russo No Comments

SaaS Churn (aka customer attrition)

Sales and Marketing leaders have lived in the US through an expansion period over the last ten years.  It’s easy to fall into bad habits here when customer growth becomes the exclusive focus.  Reflecting back on recessions in 2001 and 2008, quite a bit of attention was THEN focused on customer retention initiatives.  By the time a recession hits, it’s too late for many organizations to then make that shift to hugging their customers.

More SaaS companies are assigning resources to the existing customer base, because they realize hitting their bottom line numbers are a function of not just retaining clients, but growing their revenue.   With high churn SaaS models, companies are forced to work harder and more ineffectively on the sales side of the equation.

Here are some valuable churn statistics echoing the case for why it is important to allocate sales and marketing resource on both ends of the funnel:

✔️The median annual unit churn for SAAS companies was 10% in 2016. (forentrepreneurs)

✔️More than two thirds of SAAS companies experienced annual churn rates of 5% or higher. (Totango)

✔️If your Net Revenue Churn is high (above 2% per month) it is an indicator that there is something wrong in your business; this will become a major drag on growth. (forentrepreneurs)

✔️Net-revenue churn improves with larger Average Contract Value (ACV), likely due to more structural churn among SMB customers and higher switching costs associated with larger contracts. (Mckinsey)

✔️Between the SMB and Enterprise customer types, the top-quartile performers not only have net-revenue churn that is 14% to 23% percentage less than the average performers but also have net-revenue churn that is negative in an absolute sense. (Mckinsey)

✔️Gross dollar churn among companies with an internet go-to-market strategy saw a meaningful increase, up from 8% in 2015. (forentrepreneurs)

✔️The fastest growing SAAS companies averaged $250k in MRR and were only losing around 3.2% of that revenue each month to churn. (InsightSquared)

✔️As companies scale their growth engines, a slightly-above-average churn rate becomes harder and harder to offset with net new revenue growth, especially when the goal is to outpace it by 4x. (InsightSquared)

✔️The median SAAS business loses about 10% of its revenue to churn each year and that works out to about 0.83% revenue churn a month. (Tomasz Tunguz)

✔️The very best SAAS companies keep monthly revenue churn at around 0.58%, that’s only about 7% revenue churn a year. (sixteenventures)

✔️The very best SAAS business has a negative churn rate and will have a Dollar Retention Rate of greater than 100%. (forentrepreneurs)

✔️Median annual gross dollar churn was 8%, 7%, 6% and 8% in 2016, 2015, 2014 and 2013. (forentrepreneurs)

✔️The best SaaS companies achieve 5-7% annual revenue churn – equivalent to a loss of $1 out of every $200 each month. (sixteenventures)

✔️As with unit churn, companies with longer contracts (2+ years) tend to report lower annual dollar churn. (forentrepreneurs)

✔️ Non-renewal rates are higher than gross dollar churn rates and higher for shorter duration contracts. (forentrepreneurs)

Credit for stat aggregation:  Despina Exadaktylou of Bad Ass Marketers Forum.