Can Customer Churn Be Good for a B2B SaaS Business? Sometimes...
Customer churn tends to be viewed negatively by SaaS companies, and for good reason. However, in specific scenarios, it can actually be, dare we say, a positive.
Yes, every business wants a steady stream of new customers -- but how often does driving new business come at the expense of client retention? In reality, client retention is the foundation of growth.
Yes, every business wants a steady stream of new customers -- but how often does driving new business come at the expense of client retention?
In reality, client retention is the foundation of growth. Sure, businesses can (and should) spend time acquiring new customers, but existing customers are almost always higher quality leads. Research has shown that the probability of selling to an existing client is 60% to 70%, which is leagues higher than a 5% to 20% lead to close rate for a new customer. Moreover, most companies agreethat customer retention is less expensive and more cost effective than customer acquisition. Perhaps counterintuitively, retention is one of the best ways to drive growth, particularly through upsells.
Upselling existing customers can be a delicate balancing act. Pick the wrong customer, who’s already skidding about the cost of their subscription, and they’re likely to churn. Pick the right customer, but approach them with the wrong pitch, and you may actually turn them off from your brand entirely. In effect, you could lower their lifetime value. The risk of upsells often discourages Sales and Customer Success teams from coordinating on a proactive upsell strategy, but there is a right way to do so. Effective upselling hinges on actionable metrics and clear communication across departments.
Think of upselling like dangling a carrot in front of a rabbit. If you want the rabbit to bite, they have to be hungry. You should only try to upsell clients who are already hungry (lest you agitate them or make them sick from having too much metaphorical food). To do this, you visibility into a litany of metrics such as how customers use your product, their level of satisfaction, and their overall company size and goals. This is where a customer health score comes in.
A customer health score — which is essentially an index of several key performance indicators (KPIs) — is instrumental to client retention. It can help predict future behavior, like potential to churn or willingness to spend.
While you can use a service like Vitally to help, you can also implement your own customer health score by assigning figures to categories like:
The higher the customer health score, the more likely you can upsell or cross-sell your client. The lower the customer health score, the more likely an account is to churn and let their subscription expire.
In order to upsell and drive growth with client retention, you need to do two things: pitch the appropriate upsells and cross-sells to customers who want to spend and reel back in clients who are likely to churn. The only real way to differentiate one type of customer from the other is with data.
Once you’ve implemented a customer health score, it’s important to look at more than just the overall number. Customer Success teams should be examining what led a customer to that number in the first place -- and how they might be able to either upsell, cross-sell, or have a successful renewal.
For example, if a client has a regular subscription, that’s a great first step, but you may find out they’re rarely using your product. That puts them at a high risk to churn when it’s time for renewal, so you may want to consider enticing them with a special offer. In real life, that could look like a company with pricing tiers offering a free trial of premium features upon renewal. A client who uses your product every day may be interested in spending more for a better user experience. This is an opportunity to upsell or cross-sell to one of their other departments.
Remember: one of the killers of client retention is trying to upsell too soon. Leveraging data across your stack prevents this, and it also helps you find new opportunities. You need to cross-reference data from your CRM, marketing automation software, product analytics, support tools, and billing services.
See how Vitally can help your Customer Success team stay on top of churn risks with indicators that fire automatically
There’s a common misnomer that sales should hand off a client to customer success only once a conversion is made. This is not the best way to increase the lifetime value of your clients. Sales and customer success teams that communicate throughout a customer’s lifecycle and have a unified message maximize retention rates and customer spend. Similarly, Customer Success should also be aligned with your marketing and product teams so they can help push the same messaging -- whether it’s new products or services that CSMs can float to existing customers or discounts and special offers.
Syncing across departments might seem like a task, but it’s actually not all that difficult with a tool like Vitally that can aggregate all of your customer data. If departments are all working with the same data, they’ll better understand how to best interact with clients. You won’t have a case of a CSM trying to upsell a client too soon when they were already a little wary on the sales side, to begin with.
CSMs are viewed as a client’s trusted advisor -- but they’re also instrumental to future customer spend. It’s important to keep in mind that a CSM who takes on too ‘salesy’ a role will only inhibit opportunities for client retention and expansion. Customers don’t want to feel like they’re talking to a used car salesman when they need genuine advice. Instead, CSMs should take on a consulting-as-sales approach. What does that mean? Their upsells or cross-sells are rooted in genuine, helpful advice.
For example, a CSM might see that a similar company is using a new feature to great success that their current client has not yet utilized. This is an opportunity to upsell that feature and, in context, it will feel helpful and genuine rather than intrusive. At a minimum, most customers will appreciate their CSM being proactive with this kind of knowledge, even if it doesn’t immediately result in a sale. The key to this method is that CSMs must fully understand the product line, their client’s needs, how their client is using the product, and how like-minded companies are using the product.
At the end of the day, upselling and driving growth through client retention doesn’t just take a single department. It takes the whole company and an open line of communication. The heartbeat of maximizing a client’s lifecycle is actionable data.
About the Author
Ryan Gould architects and manages the delivery of integrated B2B marketing programs for Elevation Marketing. Ryan believes strongly in strategy, not just tactics, that effectively aligns sales and marketing teams within organizations. Ryan is known for taking complex marketing and business challenges and developing solutions that simplify processes while driving customer outcomes and business value.
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