The Not-so-Secret Weapon That Increases SaaS Retention and Crushes Churn
By Lauren Thibodeau
Let’s get right to the point. Data analysis from 500 B2B SaaS companies reveals that the more mature a company’s Customer Success practices, the higher their recurring revenue and the lower their churn. And when mature Customer Success practices are combined with Customer Experience and Value Realization best practices, your company has a churn fighting superpower that is virtually unrivalled.
Customer Success maturity directly raises both straight renewal revenue from existing clients, as shown by Median GRR (Gross Revenue Retention) below, and through the addition of follow-on expansion sales to existing customers, as shown by Median NRR (Net Revenue Retention). And for younger SaaS companies in a period of rapid growth, both GRR and NRR can be significantly higher than the median values below, provided several factors, including Customer Success and Customer Experience best practices, are in place. If these practices are not in place, adding new customers is like pouring cash into a leaky bucket. It just drips out the bottom, and your customer acquisition costs skyrocket as you are forced to acquire new customers at a faster rate to replace the ones that have churned.
NRR is a big deal. It’s one of the key metrics investors look at to determine the health and valuation of SaaS Companies. SaaSCapital found that raising NRR by just 1% drives a 15% increase in company valuation over 5 years (2019, n = 400).
In addition, mature Customer Success practices accelerate your customers’ time to first value and the ongoing achievement of their business outcomes. When customers achieve their goals and have exceptional client experiences, they become your best advocates. This is paramount in today’s feedback economy where a full 82% of customers find customer testimonials more trustworthy than what a company says. (Survey Monkey, 2018).
To determine how complete and mature your Customer Success (CS) and Customer Experience (CX) practices are, you’ll want to start by looking across 5 key dimensions: Strategy & Big Picture, People, Process, Metrics, and Technology.
Strategy & Big Picture
1. Do you have a clearly articulated Customer Experience vision that meets the AIM test: Authentic, Inspiring, Mobilizing?
2. Do you have a clearly defined primary charter today? The 3 most common are:
Onboarding & Adoption
Retention & Renewals, or Value Realization in client terms
Revenue Expansion, or Value Acceleration in client terms
3. How mature is your Customer Success/Customer Experience function today? For example, is CS/CX primarily:
Reactive: You are mainly reacting to support tickets, reacting to client issues, firefighting. Although you may call it Customer Success, it’s really Customer Service, Customer Support, or in some cases, Managed Services.
Gaining Insight: You are starting to gather 360o data on all clients in one place, mapping the end to end customer journey, tiering customers by multiple factors, and managing a closed loop feedback program.
Pro-active: You have a highly effective onboarding and adoption program that not only accelerates adoption but also reinforces your brand promise and personality, rock solid renewal and expansion playbooks, a multi-level client engagement model, and a scalable client “value at risk” program.
Transformed: Customer Success is fueling and enabling strategic decision making across the company including: product strategy, product development, professional services, and customer support. Advocate management is a well-oiled machine.
4. What is your annualized Gross Revenue Retention (GRR) today?
5. What is your annualized Net Revenue Retention (NRR) today?
6. Do you have a dedicated, experienced leader of a CS/CX function today?
7. If so, who does the leader report to and does the leader have a clearly defined job description that aligns to the primary charter of CS/CX?
8. Do you have Customer Success Managers today?
9. If so, do CSMs have a clearly defined job description that aligns to the primary charter of CS/CX?
10. Do comp and incentive plans align with the CS/CX charter, and drive the desired behaviours and results?
11. Do all customer-facing employees have 360 degree visibility of customers today?
12. Do you have a comprehensive, customer-centric Customer Journey Map, that has been validated with customers and adopted internally?
13. Do you have effective handoffs and knowledge transfer both internally and between customer stakeholders throughout the customer journey?
14. Do you tier or segment your customers today and focus CS/CX differently as a result?
15. Do you assign customer health scores to all customers today, based on a combination of factors?
16. Do you have documented Playbooks that enable you to operationalize your Customer Journey, and provide a consistent customer experience for both pro-active and re-active interactions? Examples include: Onboarding, Success Plans (or Account Plans), QBRs, Health Checks, Renewals, Value at Risk Plans, User Group, Customer Advisory Board, Exec Sponsor Program.
17. What leading and lagging indicators of CS/CX do you measure today?
18. Do you track desired business outcomes for all of your customers today? If so, how?
19. Do you quantify customer business outcomes and value realized? If so, how?
20. Do you have Customer Success/Customer Experience specific technology today? Common ones include ChurnZero, Client Success, Appcues, and Gainsight.
21. If so, does it have two-way integration with your CRM system for things like customer contact records, license entitlements?
22. Do you leverage “tech touch” interactions with customers to scale?
23. Do you have in-product technology to support customer onboarding, adoption, and increased knowledge and skill over time? Common ones include Appcues, Pendo, Gainsight PX, and Walk-me. Is this integrated to your CS/CX tech?
24. Do you have a Learning Management System (LMS) to provide ongoing learning in prescriptive, role-based learning paths, track and report on learning completion metrics, and test, certify, or digital badge learners? Is the LMS integrated into your tech stack?
After assessing your current practices, the next step is to identify quick wins and longer-term strategic initiatives to elevate your CS/CX practices. Then armed with a robust and iterative implementation plan, you can elevate your Customer Success and Customer Experience maturity, resulting in more reference customers, higher recurring revenue, and lower churn. And who doesn’t want that!
Customer Success (CS)
“The concept of achieving business growth by adopting a customer focused approach.” - Gainsight
Most commonly a post sales function.
Customer Experience (CX)
“How customers perceive their interactions with your company.” - Forrester
“The "cumulative impact of multiple touchpoints" over the course of a customer's interaction with an organization. – Forbes
Starts from the moment of first interest a customer has in your company. An end-end function, reporting normally to the CEO ie Chief Customer Officer, Chief Customer Experience Officer.
Gross Revenue Retention
Gross Revenue Retention (GRR) = Starting revenue minus lost revenue from the same customers in a set time period, for example a month or a year. Excludes upsells/cross-sells. GRR cannot exceed 100%.
Net Revenue Retention
Net Revenue Retention (NRR) = Starting revenue minus lost revenue from the same customers in a set time period. Includes upsell/cross sell. NRR can reach well over 100%. Note: This is counter to the customary definition of gross – which is generally a larger value, and net – which is generally a smaller value. In SaaS, NRR should be higher than GRR, because that means you are expanding the amount of revenue you collect from your existing customers.
Customer Service / Customer Support / Technical Support
“Customer service is more reactive in nature with the organization offering technical help or guidance in solving product or service issues.” - TSIA
The practice of outsourcing day-to-day technology management responsibilities to a third party. - TSIA
Umbrella term often used for customer support, customer success, services