Customer retention: Your company needs it as much as new sales. And your customer success team is graded on it.
In the SaaS industry, maximizing the value of each existing account is essential to survival. Without retention, you’ll quickly find that no matter how many accounts you gain, sustainable growth will always feel like it’s just out of reach.
So let’s change that. Together, we’ll explore some of the most successful retention strategies — and exactly how you can implement each to maximize your own customer success.
Building your customer retention program: Where to start
When does retention begin?
If you said on the day sales closes on an account, you’re right … technically.
At UserIQ, we believe that laying the foundation for a successful and long-lasting relationship with your customers starts before they ever become aware of their need — or that your company even exists.
Churn is a lifecycle problem that has to be addressed across the entire customer journey — not just the moment a user becomes at-risk of leaving. If you take a reactive approach to churn, you’ll quickly find it’s impossible to manage it in a way that’s sustainable and scalable. But, by viewing the customer lifecycle in its entirety, you’ll be able to uncover the moments that matter most to your users and how you can use those to expand the relationship.
So, long story short? Maximizing your customer retention rate — and eventually reducing churn — starts with attracting the right users.
When you start attracting users who are sure to find value in your product, you’ll be able to reduce your cost to acquire customers (CAC). And when that happens, you’ll have more time and resources to focus on the accounts that will generate the most revenue for your company.
Plus, it’s just not our team who are starting to embrace this “big picture” view of the customer journey. Check out what success expert Lincoln Murphy has to say when it comes to the root of customer churn:
"Customers rarely wake up one morning and decide to leave you," explained Murphy. "In fact, chances are the seeds of their churn were planted before they were even a customer. You hear this all the time, but you have to know who your ideal customer is so you know how to reach them, what they need or want and how to position your offering for them. But it goes far deeper than just being able to write convincing sales copy."
So, how do you actually go about getting those deeper insights?
It all starts with your customer personas.
Creating your customer personas
At its most basic, a customer persona is a semi-fictional representation of your target buyers. We say semi-fictional because it's based on objective data you've collected from user research, web analytics and customer feedback.
Each persona you create will contain critical information that defines exactly what success means to your customer — and what you need to do to get them there. So, while you may have abandoned the concept of imaginary friends more than a few decades ago, this make-believe customer is about to become one of your most valuable tools.
According to the B2B consultancy agency ITSMA, 82% of leaders using buyer personas have reported an improved value proposition. Additionally, over 50% are generating higher quality leads than ever before. If you’re a fan of customer-driven strategy and stronger lead generation, step right up and start creating your own personas.
Personas can take on many different forms. Typically, you’ll want to shoot for a one-page document that outlines who your persona is and why they use your product. Your target audience and their unique needs will dictate much of what goes into creating your personas, but these are just some of the key facts you’ll want to include:
- Demographics: This can include age, gender, education, annual salary and other details you deem relevant.
- Goals and challenges: What problem is this customer trying to solve? Do you know what their organization's long-term goals are?
- Messaging preferences: Think about the social media platforms this customer uses. Where do they spend most of their time online? What touchpoints will they respond to best?
The good news is that you can use your existing customer data to get pretty far ahead in your persona development. Much of the information stored in your customer relationship management platform and any CS software you use will help to add that all-important quantitative evidence to your profiles.
However, to get the full scoop on the buyer’s journey, you’ll need to get the story straight from the horse's mouth: your customers.
Conducting persona interviews
Leverage your brand advocates (as identified through your NPS surveys) to get a better understanding of why they picked your product over another. Every team’s interview strategy will look a little different, but we recommend using some of these questions a jumping off point for your own discovery process:
- What goals are you trying to achieve using our product?
- Do you remember what moment helped you to decide our company made the most sense for your team?
- What are the features you use most?
- Is there a specific functionality you wish our product had that it’s lacking?
Although the questions you ask in your persona interviews are entirely up to your team and your unique organizational strategy, there is one you can't miss: "Why?”
As Hubspot has explained, the goal of these interviews is to better understand your potential customers' goals, behaviors and motivators. Start with a simple question — for example, "What is your biggest challenge?" Then spend a good amount of time diving deeper into that one question to learn more about that person. You’ll quickly find you learn a lot more by asking your current customer, "why?"
Once you have established an organization-wide understanding of who your customers are, you can begin creating lifecycle maps. This exercise will prove essential when it comes to connecting with users across their entire journey with your company.
Now that you’re armed with the right information about your prospective customers, you’ve achieved one the hardest parts of your client retention strategy. Once you know you’re attracting customers who should get value from your product, it’s time to figure out how you can ensure they actually do.
What is a high customer retention rate?
Even the most experienced customer success manager won’t be able to save every single account. Customers leave. It’s an unavoidable fact of life. But what does a healthy retention rate look like?
Well, the answer is a little complicated.
In a perfect world, your retention rate would fall at or above 100%. That would mean not only are you never losing customers, but you’re also gaining more alongside your existing ones.
So what does a high retention rate translate to in a not-so-perfect world?
Compared to other industries, SaaS teams are killing it. In the world of streaming, leaders like Disney+, Netflix, and Hulu fall around an average retention rate of just above 70, as reported by Bloomberg. Comparatively, SaaS companies selling to small- and medium-sized businesses consider a "good" annual retention rate as one that falls around 90% according to data aggregator Klipfolio.
If you’re not sure where your own rate stands as of today, you can calculate retention using the following formula:
Retention = (Customers you end with - New customers) ÷ Customers you started with
Not thrilled with your final number? It’s more than OK. That’s the whole reason we’re here developing your retention strategy together!
Now that you know where your retention rate falls, it’s time to figure out what makes your existing users stay — and what you can do to recreate their experiences across your customer base.
Performing a retention analysis
Retention analysis is the process of analyzing user metrics to understand how and why customers churn. Once you know what drives users to leave, it won’t be all that difficult to flip the script to uncover what value they’ll need to stay.
Kick off your retention analysis with some basic questions:
- What percentage of our users are leaving? Calculating and monitoring your customer churn rate will help you to benchmark your performance over time. Plus, you’ll need it to make sure that any changes you do make are actually in line with what your customers want.
- How long do customers stay with us? A happy customer is a loyal customer. The longer your customers stay with you, the more likely they are to make repeat purchases over time.
- What does success look like for our customers? While every new customer should walk you through their unique long-term goals during onboarding, it’s important that your team knows what a “good” user outcome actually looks like.
Once you have those answers, you should start to see the retention metrics that matter most. Your organization’s own key performance indicators may vary depending on your user base, but the following three are some of the most important across the board:
- Customer lifetime value: Customer lifetime value (CLTV) is the total worth of a customer to your business over the entire relationship. When you’re able to increase the value of your retained customers, you’re driving growth without incurring a higher customer acquisition cost.
- Product usage: How users interact with your software will look different depending on the type of solution you offer. However, no matter what you define as healthy product usage, behaviors like product frequency, login times and license usage will help tell the whole story.
- Expansion and renewal rate: How many of your existing customers sign on for another contract? Do you need to further develop your product to better align with their long-term needs? Would this help you keep more customers over time?
We could write an entire blog on these performance metrics and exactly what they mean for your organization's long-term health … in fact, now that we mention it, we already did! We’d recommend reading up on the subject for an in-depth understanding of how each will relate to retaining customers.
As you start to measure these metrics along with your annual or monthly retention rate, you’ll start to see points of frustration along the customer journey that could lead your users to churn. The good news is that once you find these pain points, you officially have all the information you’ll need to improve retention.
Developing a more effective customer retention strategy
Now that you’ve collected all of this data, how can you actually use it to improve your retention rate?
The right retention strategy will help your team achieve two primary goals:
- Create a personalized experience tailored to each customer’s unique needs and real-time context.
- Scale your processes across your customer base no matter how large your organization grows.
If those objectives feel a bit at odds with one another, we get it. As a customer success manager, the job only gets more complicated the better you do. It can quickly become difficult to balance a growing team alongside the needs of your customers.
The good news is you don’t have to go it alone.
Customer success software is a category of technology that encompasses a wide range of software. Basically, all of these solutions are made with the intention of making customer success a data-driven science. As you work to improve your retention strategy, you may want to look into the following options:
- Playbooks: Remember all of those retention metrics we found? As customer behavior changes over time, playbooks will help you outline exactly what your team needs to do if a user acts a certain way. You'll know which tactics work and can create repeatable tasks for the entire team.
- Health scores: Sometimes accounts slip through the cracks. We’re only human. However, health scores can prevent this oversight. By creating a scoring system that ranks your accounts by health, it will only take a glance to determine how your overall retention strategy is going and which accounts need some extra attention.
- Engagements: We’d love to be able to send hand-crafted messages to each and every one of our customers. But, as a seasoned customer success expert, you know that’s not always possible. Automated campaigns such as in-app notifications and pop-ups help your team to maintain customer engagement even when you’re not there.
Although these aren’t the only success solutions on the market, they are some of the most important when it comes to optimizing your retention efforts. If you’re not sure where to start when it comes to navigating your software options, we recommend taking a look at our buyer’s guide to help make the search a little easier.
Just remember: The most important thing to look out for when it comes to software is what actually makes sense for your team. It should be intuitive, useful and easy to implement so that your team can spend less time trying to learn new software and more time focusing on your customers.
Aligning with customer expectations
The final key to retention is to ensure that you’re demonstrating value throughout the entire customer relationship.
Customer-perceived value is directly correlated with higher retention and more sales. That's why it’s so important to know:
- Why users need your company
- What customer expectations actually look like
- What you can do to better support your existing customers
- Which features and services your customers are looking for
Although you’ll uncover plenty of information between your team’s retention analysis and the persona interviews you collect, you still need a way to continuously monitor customer feedback to find the answers to these questions.
Good thing you’re about to create a world-class voice of customer program to do just that.
At its most basic, a Voice of the Customer (VoC) program is simply a research method that's used to tap into … the voice of the customer. Shocking, right? Having a VoC program in place will help you capture how customers feel about your brand and your product. Plus, this will all help you to develop a stronger user experience in the long run.
A case study in customer success
To get a better understanding of how to develop a VoC program — and how customer feedback directly plays into maximizing retention — we’ll turn to the financial services industry: Meet Philadelphia Insurance Companies (PHLY).
In 2010, the insurance industry began to rapidly evolve. Market share was no longer guaranteed, and the competitive landscape became more crowded than ever. Leaders at PHLY realized long-term success required a fresh strategy.They needed a difference that truly set them apart.
That differentiator? A passion for the customer experience.
PHLY partnered with consulting group Confirm to design and implement a VOC program that would help them the following three goals:
- Gain a line of sight into every single part of the customer lifecycle.
- Remove cross-functional silos and enhance employee collaboration.
- Drive customer-focused innovation at all levels.
How’d they do it?
Step one was gathering feedback from over 300,000 customers.
Overwhelming, PHLY’s customers all had the same frustrations: long wait times, slow responses from managers and a complete lack of outreach. In an effort to address these problems, the team led several organization-wide initiatives, including:
- Automated prompts: Now, when a customer scores low on PHLY's NPS survey, managers receive an automatic notification to give them a call and address their concerns and opportunities to improve.
- Giving VoC more visibility: Top areas of improvement sourced from customer feedback now have their very own session during annual strategic planning meetings.
- Internal kudos: To foster healthy competition and to help employees stay motivated, PHLY sends out "Kudos Alert" when a customer gives a perfect 10 on a survey.
The long-term result? In addition to hitting a record-high retention rate of 94%, leaders at PHLY reported widespread change that's being driven entirely by their customers' needs.
“As a result of our VoC program, now before we do anything, we think about how it's going to impact our customer,” explained Seth Hall, Senior Vice President of Customer Service at PHLY. “That's a massive shift in the culture of the organization, and it’s a welcome change that's driven tremendous positive results.”
By creating a 360-degree view of the customer lifecycle and implementing their VoC as a top down initiative, PHLY has been able to differentiate its brand in an industry that only continues to grow in competition.
Creating your own VoC program
Ready to implement your own VoC program?
Good news: You won’t need feedback from 300,000 customers to make a positive change.
While your own team's process may vary, we'll take some inspiration from the Six Sigma approach for what you should expect your steps to look like:
- Plan: What are your goals? What systems or software do you need to have in place to successfully launch your VoC initiative?
- Develop: In step two, your team will work to develop in-app engagements that collect customer feedback as they're actually using your product. You'll want to define when the best time to trigger these surveys are and which questions you should ask.
- Collect: Congratulations! It’s officially time to launch your surveys.
- Analyze: As the name implies, this stage is all about working through the customer data you’ve generated to understand where the biggest opportunities for improvement lie.
- Integrate: It’s officially time to make your customer-driven changes. From here on out, you’ll continuously cycle through stages three through five, collecting new feedback to implement as your customers’ needs evolve.
Once you’ve gotten your own VoC program up and running, the most important thing to remember is to implement any changes you make gradually. Completely overhauling your systems overnight will only serve to confuse your users and overwhelm your success team.
Instead, prioritize customer feedback by theme, frequency and user segmentation to figure out which changes will have the most impact. From there, roll out your updates on a monthly or quarterly basis.
Not only will this more gradual approach help your users grow accustomed to any customer-facing changes, but it will give your team an accurate read on whether the updates you made were successful.
Increasing customer retention over time
Retention is a lifecycle-long challenge. The second you close on an account, the battle against churn begins. However, with strong personas, the right data and a user-driven focus, you’ll be able to create a plan to maximize retention and improve the end-to-end customer experience.
When your users win, so do you. Once you have your customer retention program down to a science, you’ll quickly see the benefits for both your users and your bottom line.
Ready to take on retention? Learn how UserIQ can give your team the tools you need to create better customer outcomes.