Renewals Plays: What you Need to Ask & Where to Start
A while back, Peter Armaly of Oracle, and I had the opportunity to attend and to speak at the Customer Success Summit (Totango’s annual conference) in San Francisco, CA. The event brought together customer success leaders brimming with thought-provoking ideas – some that we didn’t necessarily agree with and some that were affirmations of what we are already doing, or anticipate seeing and doing, in customer success (CS). Like many customer success management conferences this past year, the general themes were: how to scale the CS organization, the role artificial intelligence and bots should play in services; cross-organizational implications of customer success effort; and the need to focus more intently on designing processes and activities that accurately target and nurture the customer along their journey.
These are all extremely vital and relevant customer success topics and the industry’s collective energy around generating best practices for each will likely yield big business benefits in the years ahead. We caution though about the tendency to draw attention away from a topic that is even more fundamental and yet has been insufficiently addressed. We decided to collaborate on this post because we believe the industry is in a rush to get to the finish line before it has figured out the answer to “what is the primary role of customer success?” To answer that, we need to state this. We consider the customer’s ability to adopt a solution the key building block to success and to the customer’s likelihood to continue their investment in the product. Persistently high churn rates and persistently low retention rates offer the most obvious proof of that and that much work needs to be done to develop best practices for adoption. Before you can even start talking about renewals and expansion opportunities we believe goal-based adoption must become the main focus of a customer success manager. Because before you can even think of talking to a customer about a renewal you need to have the answers to the following questions:
- who are they?
- how would you characterize the health of the relationship between your company and the customer?
- what challenges did they overcome to derive business benefit from your solution?
- where are they on the solution maturity scale?
- when did they expect the solution would address their business goals?
- why should they be excited about reinvesting in your company and your solution?
If they haven’t adopted your solution, what do you think the odds are of you having answers to these questions?
In its most recent customer success industry baseline survey, the Technology Services Industry Association (TSIA) reported in this publication that only 45% of those companies have their customer success organization focused primarily on driving adoption. Another 45% reported that their CS organization is focused primarily on driving retention. The remaining 10% of companies say that they have their CS org focused on driving growth. While acknowledging there are all kinds of companies at all levels of maturity and recognizing that companies are still looking at pulling as many revenue-generating levers as they can, we find it counter-intuitive to believe there can be any long-term success in achieving and maintaining high retention levels (let alone growth) without first achieving the hard part, successful adoption of the product/solution. We feel strongly about this especially when we read a blog like this from Kissmetrics in which they explain how customer analysis can significantly reduce churn rates. They argue, (and we agree with them), that [customer] “Research matters because it offers your team the opportunity to create the ultimate customer experience. To satisfy customers, you must understand their behaviors, needs, and wants. You need to know the why and how behind all their actions.”
Does customer experience factor into their propensity to renew? Does it factor into their propensity to invest more with your firm? We feel foolish for even asking those questions because the answer is so obviously YES to both.
We all know the success of a SaaS company hinges on many factors like showing your potential investors low customer acquisition costs (CAC) while amassing a recurring revenue customer base that is continually expanding and renewing over time. How do you build and expand your company in a way that is scalable and retain customers over time? It isn’t by forcing the latest feature on your customer or simply by getting them live on your platform, without having identified any real value just so you can recognize the revenue. The path to success is identifying what problem your customer is seeking to solve and delivering on a promise to solve it in a fairly seamless and effortless way.
Don’t just take our word for it. The highly regarded VC firm, Bessemer Venture Partners, included extensive evidence substantiating our claim in this report, but we’ll call out just two:
“Wall Street investors and your customers hate to see a large mix of services revenue in cloud businesses. You should focus your product development, sales, and client success teams on reducing the implementation friction, time, and cost as much as possible.”
“It’s very difficult and expensive to grow subscription businesses if you have moderate customer churn– and prohibitive if your churn is high. As detailed financial models of CLTV (Customer Lifetime Value) and Free Cash Flow demonstrate, the single biggest driver of long-term profitability for your cloud business (and thus valuation) is the renewal rate of your customers.”
Still not convinced? Think about your own buying behavior. Would you renew a contract for your home Internet Service Provider(ISP) if it never delivered a consistently reliable performance? If it failed to provide the ease-of-use and speed that was advertised and promised by the vendor? Of course not. Now think of your customers. You shouldn’t really be surprised that they decided to not renew when you should have been aware that:
- they aren’t using the product to the extent you had expected
- the tickets they’ve opened with your contact center indicate a pattern of usage suggesting they are at a very immature stage of adoption
- they aren’t responding to your communications
- they aren’t even opening your communications
So how can you get out of this rut?
There is a plethora of publicly available written content that focuses on user adoption tactics, best practices for utilizing the various customer success tools that can help with this process, how to scale while improving your ability to factor in your customer’s behavior and anticipating their needs, and how you can prioritize adoption as the most powerful process you will ever have with your customer. It’s the one that matters most to them and should therefore matter most to you.
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This blog was co-authored by:
Emilia D’Anzica is a customer success & executive coach. In the span of her career, Emilia has received several awards for being a top client service manager and leader while scaling global customer success teams. Emilia is a certified Scrum Master, active PMP certified Project Manager, and an MBA graduate from St. Mary’s College of California. She is based in San Francisco, Bay Area, California.
Peter Armaly is a Principal Transformation Advisor at Oracle Marketing Cloud. He is a senior-level customer success and digital marketing transformation professional with extensive experience working with wide-ranging clients of both SaaS and On-Premise engagement models. His career includes working for companies as varied as: Oracle, TSIA, BMC Software, Eloqua, CA Technologies, Rogers Telecommunications, Canadian Tire, and CP Rail. Peter is a visionary leader in the Customer Success industry and has made solid contributions to quality content (presentations, blogs, podcasts). He is based in Toronto, Canada.