Wednesday, 07 August 2013 14:08

The Customers You Need To Know

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Do you know the customers you want to know

Have you started to catch up on customer retention material or looked at software that tells how many times you have touched a customer in the past 90 days. Do we really want this type of information about all of our customers? Are all of your customers worth knowing – worth keeping? The better questions to ask might be “Do you know the customers you want to know”?

There are many valid reasons for caring about customers (particularly for companies with a SaaS business model where client acquisition and exit is faster and more frequent than purchased solutions). SaaS customer retention and preventing customer churn has a dramatic effect on the business and lead to a variety of critical business challenges including:

  • Low-client retention dramatically lowers company valuation
  • High costs - FTE intensive to save an unhappy customer (not scalable)
  • “Save every customer” mentality which exacerbates the problem - no clear repeatable way to identify the right customers to retain (also not scalable)
  • No way to identify how much resource and “when to apply”

The causes of customer churn are varied:

  • No way to quantifiably measure and claim success with existing customers
  • Organizations mistake implementation completion as “the end” rather than ensuring “promised value achieved”
  • Most companies lack tools for voice of the customer and tend to force fit “new customer acquisition sales cycle” methodologies that don’t work for retention
The reasons we might want to address these critical business challenges;
  • On average, a company loses between 10% – 30% of its customers every year – McKinsey
  • The probability of selling to an existing customer is 60 – 70%. The probability of selling to a new prospect is 5-20% – Marketing Metrics
  • It costs 6 – 7 times more to acquire a new customer than retain an existing one – Bain & Company
  • 68% of customers leave because they think that you do not care about them – Rockefeller Corporation
  • 63% of executives are seeing higher churn rates – CMO Council and Satmetrix
Consider the following: Two companies have the same $20m in revenue and each is growing at 50% per year. Company 1 has a 5% customer churn and Company 2 has a 15% churn. At the end of five years Company 1 has $90M in revenue and Company 2 has $60M. Using a typical 5 times revenue for a SaaS company valuation, Company 1 is worth $150M more than Company 2.

Many organizations have bought marketing automation and analytics to solve these problems. The former helps establish a better connection to customers. The latter helps identify and even predict problems, but the three causes identified above can’t be solved with marketing automation. A Strategic Account Plan or Voice of the Customer (VOC) program designed specifically for client retention is needed to solve these problems.

The VOC program should include:
  1. A measurable way to categorize and prioritize customers into one of three buckets;
    • “A” – worth retaining and represent strong upsell/cross sell opportunity
    • “B” – worth retaining
    • “C” Little interest in retention—let them go
  2. A relationship value check to determine who signs a SaaS extension, upsell or cross sell
  3. A way to quantifiably measure value delivered and a process to systematically claim success
  4. An executive-worthy verifiable presentation of value
  5. Automation to ensure scalability
The business benefit of solving this problem is huge:
  • A 5% increase in customer retention can increase profits by 25% to 125% – Bain & Company
  • A 2% increase in customer retention has the same effect as decreasing costs by 10% – Leading on the Edge of Chaos, Emmet Murphy & Mark Murphy
  • Customer profitability tends to increase over the life of a retained customer – Leading on the Edge of Chaos, Emmet Murphy & Mark Murphy

Do you know the customers you want to know? The answer might be worth $150 million.