5 internal processes to increase customer retention

By Cassie Young, Operating Partner at Primary Venture Partners

While it is important for SaaS companies to give net promoter score (“NPS”) its due, net dollar retention is typically the north star metric for customer retention. Customer success teams can move the net dollar retention needle in two ways: reducing churn (and contraction) and growing their existing customer contracts. Mitigating churn risk is the critical path to net negative churn (100%+ net dollar retention), yet all too often churn reduction efforts are reactive. A preventative approach to churn reduction — a strategy that thoughtfully incorporates risk mitigation efforts into all points of the customer lifecycle — pays dividends in boosting net dollar retention.

Companies should be embracing these 5 “plays” in their internal process playbooks as they work to minimize churn:

1. Leverage — and action! — customer insights.

Businesses should continuously revisit their working assumptions about which attributes yield the stickiest customers, both in terms of explicit traits (company size and resourcing, industry, contract size, etc.) as well as more implicit usage and adoption information (“sticky drivers”).

Businesses — more specifically, customer success leaders — should study their retention curves and optimize both their new business and customer success strategies accordingly. If small customers regularly churn (or put an undue resource strain on your business), consider instituting a minimum deal size. Once you unlock your business’ “sticky drivers,” your onboarding and broader customer success playbook need to be maniacally focused on driving customers toward those milestones and behaviors.

2. Run an internal line-by-line process with executive team involvement.

A quarterly line-by-line process (“LxL”) — wherein CSMs review a segment of customers line by line — is a powerful accountability framework for the entire business. The LxL is a forum for the entire CSM team plus other CS leadership (e.g. head of technical support, head of implementation) and the entire executive team to discuss at-risk accounts. Generally, CSMs will present accounts in their books that are either at-risk — because a calculated health score tells them as much or because the CSM can sense it — or ripe with upside for expansion (sometimes those two traits are one and the same!). The CSM will provide a brief history of the account, key challenges, and then make very specific asks of the business in support of the partnership (e.g. CEO alignment). The LxL ensures that all of the right people are in the room to align on the requests and/or to brainstorm tactics for saving and growing the customer. LxLs also serve as a great platform for CSMs to gain visibility with the executive team.

Companies can review a host of different health factors in these LxL sessions. Alloy, which offers an API for regulated companies to collect and manage customer data from different sources, will look at support ticket metrics and trends (open tickets, wait times, etc.) on a per-customer basis. Alloy’s process also includes customer-specific deliverables and action items that are reviewed in the following LxL to ensure action and accountability. Chartbeat, which provides data and analytics to publishers, similarly focuses on action items with clear ownership from across the business. Chartbeat structures their quarterly LxLs to review any accounts that are six months out from renewal, which allows them to celebrate successes in addition to leaning in on challenges.

3. Build internal feedback loops to ensure a customer-first culture.

Customer success is everyone’s job, but it is challenging to excel if there is no visibility into what customers need. It is important to build a customer-first culture where there is radical transparency around customer feedback. All NPS data (including verbatim feedback) should be made public to the company, and should ideally be used to dictate product roadmap work. NPS write-in responses are also helpful for identifying relevant candidates for beta tests. Rapid UX prototyping and beta testing are both inherently customer-centric practices.

It is important to diversify the customer feedback mix beyond just NPS and customer satisfaction surveys, especially given those surveys often yield only a ~10–20% response rate. Hosting customer talk forums where an executive interviews two or three customers in a panel-type format is a great approach for gathering live feedback.

Formal customer advisory boards of 12–15 client executives are extremely valuable once companies have confirmed product-market fit. These groups convene live a few times per year and provide executive teams direct feedback around the competitive landscape, the product roadmap, customer service and so forth; radical transparency around company challenges is also important with these advisory board participants for deriving maximum return. Executive sponsors in your accounts will of course seek input from their direct reports, so it is helpful to assign a bit of homework in advance of advisory board meetings to ensure that participants are properly informed by their key stakeholders.

Companies such as marketing technology company Sailthru have also seen success with standing up regional user groups targeted at non-executive stakeholders; they host semi-annually localized meetups where 3–4 customers present on deployments and product use cases and all customer attendees connect and trade notes amongst themselves. This is also a great way to present the latest product roadmap to customers and gather feedback to ensure the voice of the customer is being heard directly by the development team. (Interestingly enough, Sailthru’s executive-level advisory board members were the ones who suggested these regional user groups!). Given that in-person events cannot happen currently, Sailthru is kicking off its first global remote user group program this month.

A customer-first culture is particularly important in the era of COVID-19 and the challenges it has presented for business growth, which typically translates to being flexible. Recognizing the importance of playing the long game, Rocketrip has sacrificed short-term revenue in a few scenarios in the name of long-term retention; customers always remember and appreciate vendors who partnered with and supported them during challenging times.

4. Align incentives to outcomes.

CSMs may technically “own” their customers, but again, customer success is everyone’s job. If companies do everything in their power to ensure customer success, it would take something catastrophic for those businesses not to be successful themselves. Aligned incentives ensure everyone is rallying behind the customers, and that alignment starts at the top: devising an executive bonus plan that is consistent for the entire leadership team cements the business’ priorities. Rather than set an NPS or net retention target for your customer success leader, set it as a component of every executive’s bonus plan; you will be amazed by how the customer influence on the roadmap subsequently unfolds! (The same calculus applies beyond customer success; for instance, if a company institutes cash or EBITDA bonus targets for everyone, not just the CFO, other leaders will prioritize strategies for improving margin, etc.).

Aligned incentives also need to trickle down into the broader organization. Companies most often use a bookings attainment figure to calculate a sales manager’s bonus; if they augmented that with a kicker for hitting churn targets, surely the sales manager would be thoughtful about investing time in helping to “re-pitch” at-risk customers. These incentives also apply to individual contributors. Even if CSMs do not manage renewals, they need to be compensated on the net dollar retention rate so that they are incentivized to both mitigate the risk of churn as well as to drive upsell and expansion in their accounts.

5. Conduct churn retrospectives.

Churn is inevitable, but it is important to learn from it; as a mentor once told me, “sunlight is the best disinfectant.” Companies should conduct robust churn retrospectives when customers are lost, particularly in scenarios where the churned customers were not surfaced as risks in the aforementioned line-by-line exercises; these retrospectives should summarize the history of the partnership and outline measures that could have been taken to prevent churn. Ideally, those learnings are then operationalized into the company’s customer success playbook.

It is also important to learn about churn first-hand, ideally through both internal and external interviews. Customer success leadership is typically well-equipped to conduct an exit interview with churning customers, and that process is best handled once the customer has fully wound down so as to ensure the greatest level of transparency and detail (of course CS leaders should ask the “is there anything we can do to save your business” question? when they learn of the churn!). Conducting anonymous post-churn interviews with an external third party is often particularly helpful, so businesses should consider using a consultant or even investors for this tactic (we regularly conduct churn interviews for Primary’s portfolio company customers).

Customer-facing retention tactics are equally important to safeguard your internal processes for churn mitigation. Stay tuned for our next blog post with tried and true ways to approach those customer-facing plays.

This post was originally published on Medium.
Illustration by Karthikeyan Ganesh