Poke the bear - how proactive customer contact boosts retention
To poke or not to poke? That is the age old question for anyone running a SaaS business.
“Poking the bear" relates to actions that may provoke or annoy someone that should be left undisturbed. In SaaS, the bear is a low usage customer that continues to pay their bills. The fear is that any form of contact may encourage the customer to re-think the entire relationship and leave.
The fear is real because the stakes are high. On average, 92% of the first-year contract value is spent on an initial sale and it costs five to ten times more to acquire a new customer than it does to retain an existing one. I’ve already given away my position in the article title. So why do I think you should poke that bear? To answer that you first need to know why customers churn.
Why customers churn
There are a variety of reasons why customers churn, but in my experience, there are five general factors:
Over-selling: This is more common than you think, and is simply a function of the company not delivering what sales and marketing promised when the customer signed up. Monthly sales targets and performance improvement plans only encourage this
Organizational changes: Particularly common for companies that have a large SME base, this often relates to a company downsizing or going out of business (usually resulting in bad debt). However, it can also be triggered by a key decision maker or advocate for the platform leaving the company, resulting in the main source of perceived value
Platform issues: Put this one squarely in the Product team’s lap. The most frequent reasons I’ve seen here are a lack of flexibility (every customer wants the platform customised for their own needs), overly complex functionality and insufficient training (the most successful platforms are often the most basic), and downtime/bugs.
Pricing changes: That “we’ve held off as long as we can, but we have to increase our prices” email is definitely going to spike a review of the relationship for some customers
Lack of customer support: This is particularly impactful during the onboarding phase. While usually associated with reactive support, it also includes how proactive the company is in ensuring a positive customer experience
You’re probably thinking that I’ve missed “lack of usage/engagement” from this list of reasons. This is absolutely a huge factor, but I see this more as a symptom of the above factors and a leading indicator of churn that can be easily quantified.
All of this aside, these factors all negatively impact the customer’s perceived value and it is a lack of perceived value that ultimately results in churn.
How do you influence perceived value?
So much of SaaS customer retention boils down to selling on value, and continually reinforcing the value provided. One of my mentors was the CEO of a large SaaS company and he was constantly asking his sales executives to re-sell and reinforce the value that was being provided. There are a number of ways to do this, but each initiative can only fall into one of two buckets - proactive (preventing a problem before it happens) or reactive (solving a problem once it occurs).
Reactive levers
With reactive support, you’re on the back foot. Your customer knows any attempt to understand their situation or improve the value they receive is in response to you potentially losing something, rather than trying to proactively create value. With that being said, the customer providing notice of their intent to cancel their subscription provides a clear window of opportunity to save the customer. An easy thing to do is document your notice to terminate (NTT) process as a playbook and ensure everything is covered. For example, one of our clients couldn’t work out why they were being blindsided by unexpected churn. After a quick audit, they realised that some customers were emailing their NTT directly to the original salesperson who may have left the business. The playbook can include things like the process the customer needs to follow, how the NTT gets allocated internally, the SLAs for contacting the customer, call scripts, approved discounting delegations and reporting.
Proactive levers
Proactive support offers many more options that provide a greater opportunity to influence an outcome. It’s important to take an omnichannel approach, including email, SMS and in-platform messages and leverage a Customer Success team that is KPI’d on maximizing the value customers receive from the service. Smaller companies without a Customer Success team can transition Inside Sales representatives into Portfolio Managers responsible for ‘net growth’ (ons and offs) so that they are able to fulfil both acquisition and retention requirements.
The four key levers I have found to have the most success are:
Customer segmentation: Understand first, execute second. Pretty much all SaaS product usage tools offer out of the box user segments you can append to contact records in your CRM and tailor communications accordingly. While this will get you moving, there’s no limit to how advanced your segmentation can be. For example, we custom built a segmentation combining usage and spend metrics that presented ‘Transactional Engagement’, ‘Insight Seekers’ and ‘Active Business Growth’ engagement tiers. These tiers correlated closely with overall customer engagement and future spending and enabled communications to be tailored, advancing customers up the segmentation tiers and significantly reducing account downgrades
Milestone-driven support: Utilize pre-set milestone driven communication to guide customers through pivotal stages of their journey and customise based on subsequent individual actions. A focal point of this strategy is this initial 90-day onboarding, featuring a series of communications from the day of sign-up through the first three months. Extend this approach by proactively reaching out on each annual anniversary of sign up or any other relevant milestones your CRM collects.
Create desired behaviours: Rather than jump straight to features and price discounts, we’ve previously introduced communications designed to encourage "customer interactions" that hypothetically positively impact retention. These interactions include app downloads, conversations with Customer Success Managers, participation in training sessions, business health checks, and attendance at events. This approach has generated significant uptake in customer interactions and confirmation that they positively correlated with improved retention and growth rates.
Inactivity alerts/declining usage: Retaining customers is a tough ask when they aren’t using your service. While some customers naturally have less frequent needs (50% of SaaS customers only use the product once a month), a lack of engagement often signals potential churn. Usage based alerts that fire when usage reaches a prescribed level or decreases by a certain amount are simple to set up and can be tailored for each segment based on their ‘normal’ usage patterns. Assigning engagement scores that factor in session times, page views and feature usage is another approach that provides a more comprehensive view than mere log in activity. When a customer triggers an alert, it’s an opportunity to express gratitude, offer assistance or provide incentive, all influencing perceived value and enhancing the chances of retaining their engagement.
Conclusion
Research indicates that for every customer complaint, more than 20 others harbour unvoiced concerns. Proactive outreach provides an opportunity to address these unknown concerns and reinforce value the value you sold to customers at acquisition.
I’m currently in the early stages of building a customer contact programme for a SaaS client, but churn is such a pressing issue that we have had to take a highly pragmatic approach by simply forming a list of inactive high value customers and jumping on the phones. Even then, within one week we have seen 50% of inactive accounts with attempted contact logging back into the platform. With a 45% contact rate, even just leaving a voice message or sending an email has been enough to initiate re-engagement without triggering additional churn. A more considered, longer term programme for another client had a headline 50% reduction in churn and within 12 months of onboarding, 60% of new accounts had progressed to the most engaged level of their segmentation.
Am I saying that in these examples, not a single dormant customer decided to leave after receiving an email or phone call? Absolutely not. You will no doubt awake the odd sleeping giant. However, any form of contact can prompt a reaction (e.g. a re-pricing email or a new platform log in) and from my experience, the benefits of proactively poking the bear far outweigh the risks.
So what are you waiting for? Go get poking.
