While attracting customers is a challenge, keeping them is just as important.
In a world in which churn is a reality, SaaS companies need to be aware about why customers leave so they can develop well-defined strategies and tactics to retain them.
In a renewal-based business model, there are three major challenges:
Year One
User Adoption
Didn’t deliver
In earlier blog posts, we talked about the customer journey and how to properly meet the needs of new customers. Another important consideration is to keep customers happy on a continual basis.
It really starts with the first year because the customer is getting to know you and you are getting to the know them. Customers are still discovering how to get value from your product so you have to show them the benefits they are receiving.
As well, trust is important. While the customer purchased your product, they are still unsure as to whether they made the right decision. Until they are confident about the relationship and see how well the product is working, they remain a high flight risk.
Given the situation, adoption needs to happen and it needs to happen as quickly as possible. The sooner you have a customer in the fold and establish yourself as a strategic partner, the less likely it is they will leave.
During the first year of the relationship, the goal is focusing on quick wins and adoption to establish confidence in the product and demonstrate its value.
The numbers tell the story: Renewal rates can be 10% to 20% higher after customers have been using a product for more than a year. Higher renewal rates mean more dollars flowing to the bottom line.
User adoption also plays a major role in the success of a SaaS business. While adoption during the first year is important, it is necessary to keep driving confidence and trust going forward.
If customers aren’t using your product, they will eventually leave. This means that SaaS businesses need to continually focus on adoption and usage.
You need to know what made a customer decide to use your product. What are their business objectives and what are the expected results? Once you have this insight, you then have to show the results to customers so they see value the product is delivering.
It seems like a straightforward proposition but if the customer doesn’t recognize the value, it is a problem because it boosts the chances of churn. It’s the classic show-and-tell exercise.
Ideally, making your product a business critical application is the best way to ensure usage because customers will use it on a regular basis. That said, it is still important to quantify the product’s value on a regular basis.
The third reason that customers churn is your product failed to deliver on what was promised during the sales cycle. When this happens, customers become frustrated and frequently leave after the first year is finished.
It is important, therefore, to understand why a customer bought your product. What was promised during the sales cycle that prompted the customer to make a commitment? What results did they expect from buying and using your product? Then, you must drive adoption by working with customers to achieve their business objectives with your product.
The key elements of addressing this renewal challenge are ensuring your customer success program and practices are structured to deliver on the sales promise. Your customer success organization also needs to understands what the customer was promised in the sales cycle and the results expected.
As well, it is important that you and your customer are in sync, and have the same understanding about expected results - a process that starts immediately after a purchase happens to establish the customer’s journey for success.
For SaaS businesses, churn is a reality. To effectively deal with churn and drive retention rates, SaaS companies need to recognize the risk factors and understand why a customer purchased their product.
The better you know what customers expect, the better you can drive adoption and highlight the value being delivered. This improves the prospects that a customer will be successful and, as important, stick around for a long time.