The cost to acquire one dollar of new customer Annual Recurring Revenue (ARR) is $1.60., while the cost to expand an existing customer is only 69 cents. To successfully drive real growth for your business, you must focus on preserving and expanding the customers you already have.
Despite the obvious advantages of mastering and scaling the renewal process as SaaS companies grow, renewals still pose a big challenge for most. Some of the renewal management challenges for many businesses include:
- Lack of a customer-centric approach
- Overwhelmed CSMs managing renewals, health, and expansion.
- Too many customers for the current headcount
- No harmony between teams and touchpoints involved in the renewal process
- Failed attempts at scaling renewals that end up in fire-fighting
- Problems interpreting data for accurate forecasts
- Poor automation and customer segmentation
- No proven renewal playbooks
- Customers derived little to no value
1. Determine What At-Risk Means And How To Monitor For It
Risk should be the foundation for any renewal strategy. By identifying risk in your customer base, your team will drive action to mitigate it faster and help drive up retention. Naturally, the first step of establishing a renewal process is defining the leading indicators of risk within your customer base. They could include:
- Change of an executive sponsor
- The number of support tickets opened
- A drop in usage of your product or key features
- Negative survey responses or low NPS/CSAT
- Missed onboarding, adoption, or lifecycle milestones
- Lack of perceived value by your customer. This includes shifting priorities within your customer’s business, which are likely during this economic downturn.
- Lack of visibility or missing indicators that can escalate the possible churn of a customer
And it’s important to consider how these leading indicators change between customer segments or lifecycle stages.
But merely identifying those indicators is not enough – it’s essential to have a system in place to monitor for these signals and automatically alert your customer success team when they appear. This system should also understand which signs are most important or indicative of customer health, and treat those signals differently.
An excellent tool for assessing risk is journy.io customer success platform’s health scorecard. Leveraging your Customer Success (CS) platform to monitor health and identify at-risk customers will allow your team to resolve any issues and not face surprises come renewal time. Some examples of measures we see commonly included in Scorecards are:
- Engagement frequency, including executive engagement
- Product usage or license utilization
- Support tickets (number of opened tickets and priority)
- Customer sentiment (e.g. NPS, CSAT)
- CSM assessment
- Return on Investment (ROI)
If you’ve already established a basic health scorecard and are ready to take it to the next level, incorporate signals from sources outside of the customer data you collect in your CS platform. These signals include important news and business driving events, such as acquisitions, funding rounds, CEO changes, or financial losses that occur at a customer account.
2. Proactive Communication Throughout the Entire Customer Lifecycle
It’s been said before, communication is key. I like to think that the reason people say this is because without it, you are locked out of a situation (without the metaphorical key). In this case, without knowing how to properly communicate with certain clients, you are going to have a hard time getting back into that house.
Building a proactive customer retention strategy by being the trusted adviser allows you to focusing your energy on long-term client health. Here are a few ways you can practice staying proactive in order to improve your overall renewal strategy:
- Show Initiative: A proactive communication approach rather than reactive shows initiative. Practice active listening during your client meetings to understand their challenges and increase engagement. This will open the door to new opportunities during the renewal cycle and contribute to their KPIs.
- Identify Pain Points: Renewals are a practical indicator of good client health. It also suggests whether they are adapting to your product or not, and also where they can improve through your company’s other products and services. By proactively identifying pain points and providing solutions, you become an indispensable resource to your client and your management.
- Set Expectations: worldwide public cloud revenue will grow
This is good news for cloud spending, but it also means there are a lot of competitive products on the market. Enterprises are constantly vetting their current marketing solutions. A negative customer experience could have devastating effects by the time it comes to your renewal discussion. Setting realistic expectations upfront will increase customer satisfaction and reduce churn, as well as avoid having your business end up on the chopping block of SaaS tools.
Step 3: Limit Sales’ Involvement
If no one owns renewals, they will not get the attention they deserve. That being said, most salespeople who are really good at closing business, are really bad at managing the renewal process. The skill set required to keep an existing customer happy is different from the skill set that’s required to close net new business. Of course, there are some exceptions to this rule. However, you can’t design a scalable process around those outliers. Each customer should be passed from Sales to Customer Success after the sale is closed.
Step 4: Build the Process into your CRM
Most CRMs aren’t built to track renewals so doing so requires some customization. That means you need to create mandatory fields in your CRM to ensure your organization knows when customers are due to renew.
- Renewable Product (Yes/No): If possible, add a field to each product indicating if it is renewable or non-renewable. For example, annual licenses are renewable. Configuration fees are not.
- Renewal Date: Add a custom date field to Opportunities that shows when a license is set to renew.
- Renewal Stage: Create a drop-down for renewal opportunities that better reflects the stages of a renewal (in contrast to the traditional sales stages the CRM provides off the shelf).
5. Leveraging CS tools for renewals
Customer Success relies on strong, timely communication with clients at all phases of the customer journey. To make this process more efficient and effective, automation plays a key role. These same platforms can be utilized for disseminating renewal reminders, product awareness information, and other recurring renewal messages.
Similarly, data gathered by CS, such as level of adoption, feature usage, license utilization and a customer’s time to value, can be invaluable information in driving renewal success. The same database used to pinpoint areas that may require a CSM’s attention can be utilized to identify useful feature usage trends, areas of focus and specific churn risks for renewal purposes. Available data can also be leveraged to help the clients themselves make a better informed decision about their renewal options. For example, if the data shows they aren’t using one feature they’re paying for, but are maxed out on another and could benefit from additional users in that area, maybe that becomes an upsell play during the renewal.
6. Planting renewal seed early
Wherever the actual responsibility for renewals falls within your company, Customer Success can and should be a catalyst to help drive renewal success. CSMs have the ear (and hopefully the trust) of your clients. They can predispose a client toward renewal by constantly spotlighting the value being realized from your solution. They are also likely familiar with areas of the client’s operations beyond current product applications and can prime the pumps for an addition of features, products or services during the renewal, regardless of who’s processing that paperwork.