The pandemic is here to stay for a long time.
This is the new normal.
Customer Retention is key.
These are some of the phrases that you must have heard a lot in the last few weeks as companies try to stage a comeback.
We had Jay Nathan, Founding & Managing Partner, Customer Imperative and Andrew Marks, Founder, President and COO, SuccessHacker speak to Puneet Kataria, Founder & CEO, CustomerSuccessBox about the role of customer success in driving SaaS businesses during a lockdown.
The situation that we all are facing currently is not something we have endured before which makes the task even more difficult. We not only have to survive in this situation but also thrive too.
With this blog, we aim to leave you with ideas, tools, perspectives and ideas so that you can build your own playbook or a process that is repeatable and which can lead to maximum customer retention in SaaS.
Are you retaining logos, MRR, users, champions or admins? What is the fundamental definition of Customer Retention?
According to Andrew, it is crucial to retain logos along with the MRR. In this challenging time, try to retain as much revenue as possible but more focus should be on retaining the customers.
Jay agreed with Andrew but added cash retention as another factor. Customers who can pay for their subscription should be the gold standard in retention as cash is critical now. Try to retain the customers who belong to your ICP (Ideal Customer Profile) till the tough times pass as these customers can lead to exponential growth in the future.
Andrew concluded by saying that those customers who are not in our ICP should be allowed to churn so that you can spend our time on the customers for whom you can make an impact. Non-ICP customers anyway leave after sometime so you should not waste our resources on them right now.
Puneet said that there might be customers who want to use the platform but don’t have cash to pay as of now. But from a business perspective you need to decide what you can afford to lose and what you cannot. As our runway is short, you need to maximise cash retention.
So Puneet suggested that you empathize with the customer and figure out the risk from the customer’s perspective. Plus do Business Scenario Modelling for different segments to figure out the best concessions that can be provided to each customer segment.
Voicing similar opinions, Jay suggested that you should sit with our CFO and finance team and put together a concession playbook. The next time a request comes for flexibility in payment, you can act accordingly and convey how much you can afford to give. As most of the SaaS companies are backed by investors, it’s not possible to give discounts to everyone as you normally have a cash deficit and this can lead to us running out of business.
Segment customers into 3 buckets: thriving, striving, surviving
How do you decide which customers get concessions?
Andrew believes that the key is to do homework on both sides of the fence, i.e. what you can afford (and come up with a standard set of concessions) along with understanding the customer’s situation before coming up with the final decision.
Jay had an interesting idea that you should segment the customers into 3 buckets:
- Thriving Customers
- Striving Customers
- Surviving CustomersThis allows us to decide the concession percentage each segment needs along with the empathy and interaction for the different segments.
Puneet summarised everything into a 3 step process:
- Identify the risk by doing your homework and understanding and empathizing with your customers.
- Divide the customers into different segments as per your requirements
- Come up with an effective playbook keeping each segment of customer in mind.
Does cash retention also mean minimizing expenses around client attention?
Jay believes that the Customer Success team shouldn’t be cut.
Andrew added that if you have good unit economics then a CSM can bring in many times the expenses that are incurred on them.
Puneet suggested that several companies are actually doubling down on customer success and even moving some of their sales team into the success team.
Andrew remarked that though the idea is good but it needs to be carefully implemented as customer success and sales have a completely different mindset.
Jay suggested that while negotiating with a customer there are 4 levers, Price, Length, Scope & Payment Terms based on which negotiations can occur. So, each lever can be used as per the situation and requirement.
It’s better to take a 20% salary cut and keep your job rather than having to quit – Jay Nathan
Would you advise Customer Success Leaders to adjust their retention targets for their team?
As you are facing an untoward situation, Andrew suggested that cash reserves are important but it is even more critical to keep your team as once the situation improves this team will help the company earn much more money.
Jay agreed and said that it is better to take a 20% salary cut and keep your job rather than having to quit because of low cash reserves of the company. Also be less worried about the compensation plan and more worried about working with the customers and providing them value. If you are able to show value now, once this pandemic is over you will achieve exponential growth.
Puneet said that the targets should be realistic and challenging but not so high that it becomes discouraging.
The targets should be based on assumptions and with time should be validated and improved.
What are the different tools that can be used to retain the customers?
According to Puneet following are the common ways to retain customers:
- Free upgrades
- Changing payments plans (annual, quarterly, monthly)
- Extending certain limits like APIs
- Additional seats as per requirements
- Offering professional services (which are usually paid for)
- Role of stakeholders (Executives like CEO, VP, Head of various departments)
- Temporarily pause billing instead of losing the account
According to Jay discounting is not advisable because most startups are in the growth stage and are backed by investors. So if you give discounts you are in some way devaluing the value your solution provides. Also, later it might become harder to increase the price for those customers.
Instead the payments can be adjusted from monthly to quarterly to annually as per the requirements but don’t customize it for everyone as then it will take up a lot of time.
Andrew suggested that even if you are providing discounts, it should be only done in special circumstances like when it is a multi year contract and cash is being provided upfront.
Free upgrades are good if you have multiple products or offerings. They allow you to maintain the revenue while providing additional benefits to the customers. If the additional product/feature is actually beneficial for the customers, it may act as an upsell or a cross sell once the situation becomes normal.
How you treat your customers during tough times will always be remembered
Changing Payment Plans
According to Puneet, if the base product or any feature is not relevant, it would be almost impossible to sell the product. Value proposition should always be present as it also takes the customer’s bandwidth to use your product.
Jay said that some companies are pivoting to new use cases to provide more value to the customers. Also how you treat your customers during tough times will always be remembered. So you should aim to serve the customers in the best way possible.
Andrew said that you can be creative with our payment plans. For example, if the customer is in a positively impacted state, they can prepay otherwise the payment can be delayed.
It is always advisable to give the customer 2-3 good options and then observe what the customers actually want.
Extending certain Limits
Before extending any limits, it is important to understand what the extension will cost you. If the limit extension barely increases the cost, then it is a no brainer. It is often a low hanging fruit for customer retention.
Additional seats as per requirements
This can be quite a useful option for those customers who need additional seats due to specific requirements.
Jay commented that this is similar to free upgrades. As long as you are not going out of business and your customer requires additional seats, you can go ahead and provide the required seats.
Puneet said that since infrastructure costs of running a SaaS company is low, additional limits are usually less unless there is another provider that actually controls the limits. Another advantage of providing additional seats is that you are adding more people in the ecosystem who might want to continue using it if they get value.
Consulting and Professional Services
Jay claimed that since consulting and professional services are cash investments, they should be prioritized for key customers only.
In the current situation, professional services can be a sunk cost. If you want to retain the team, these people can provide additional value which customers might appreciate during these times.
For example, they can build a customer community which will act as a competitive advantage in the future.
Role of stakeholders
According to Jay, if you don’t have an executive sponsor program, it is a good time to start one. However, use it very less and only for high risk customers or customers with a long term relationship.
Andrew agreed and added that the executive sponsor program shouldn’t be done for everyone. Otherwise it will just be a joke. Make sure the program adds value to the customers.
Puneet suggested that the executives can lead changing of the product roadmap, pivoting the product, etc.
Customer Success is an emotionally draining job. It is crucial to take care of oneself.
Temporarily pause billing instead of losing the account
This is quite self explanatory and according to Andrew, you should pause the billing. The customer’s data, configuration, users, setup is saved and later the same process doesn’t need to be repeated.
To conclude, Andrew provided some words of wisdom. Since Customer Success is an emotionally draining job, it is crucial to take care of oneself and do walk, meditation, yoga as per individual preferences so that the body and mind can together perform at an optimal level.