The Marketing Budgets Report by Econsultancy revealed a bias by companies toward acquisition marketing. This bias comes at the expense of customer retention.
What does this statement mean? Many organizations actively place a lot of emphasis and spend more money on customer acquisition programs. Unfortunately, these organizations are not paying equal attention to customer retention initiatives.
Without knowing it, these companies are standing in the way of growth. According to Bain & Company and the Harvard Review's collaborative research, here are some facts about retention:
- A 10% increase in retention can grow your company's value by 30%.
- It is seven times more expensive to acquire a customer than it is to retain one.
- A 5% increase in retention rates can lead to a 25% to 90% increase in profit.
SaaS businesses do a better job prioritizing retention than other company models. When you charge for your services every month, it is easy to appreciate the value of retention. SaaS companies take retention more seriously than other business models. However, they make one mistake, failing to know who's in charge of retention. Below are some common assumptions in the industry:
- "Because other businesses do it this way, so-and-so is responsible for customer retention."
- "We are all in charge of customer retention. We need to do a great job."
- "If we do a great job, no one has to worry about customer retention."
From the statements above, you can make one deduction; no one worries about customer retention.
Understanding Customer Retention
What is Retention?
Retention is the measurement of customers that either utilize or return to your service. Retention refers to a company's ability to keep users over a certain time.
High retention means that users stick with the software. Low retention means that customers tend to stray away from the service. For example, social media companies can measure how many users they retain daily.
This number can and will fluctuate. It is possible to increase retention and your ability to keep users. To attain this goal, you need to assign someone to be responsible for customer retention.
The Importance of Retention
Being able to retain customers shows the value of your company. A company with that is valuable, attracts more users, and keeps them longer.
A relationship with your users reduces churn. The bond also provides the infrastructure to retain more customers. Why, though, should you retain customers? According to Small Business Trends, "65 percent of a company's business comes from existing customers."
Retaining more customers will boost your bottom line. The longer users use your software, the more revenue they bring. The more users you attract, the more revenue you also make. When customers trust you with their money, your company's value grows.
So, Who's in Charge of Retention?
Customer retention is a critical part of running a business. Your company mustn't ignore retention. High retention is what we're after. We cannot optimize customer retention without assigning responsibility to someone.
The designation of retention will ensure that there is some focus on the fight against churn. Your company will never forget to address retention. When most companies start, the responsibility of customer retention falls on the laps of the owner.
As the business grows and accumulates more resources, it should assign retention building to a specialist. It is the responsibility of this person to formulate and execute customer retention strategies.
Who is perfect for the role? The right candidate should be someone with the appropriate skills. Customer retention requires knowledge in communication, marketing, and customer service. Your ideal candidate must check all these boxes.
All of these skill sets play a role in understanding how to retain customers. Technical knowledge is also beneficial for product development and building customer relationships. It's possible to find someone who can do the job.
Taking the step to designate the duty to a specialist will benefit your company significantly. Although it is a job for a single person, everyone in your company can contribute to retention.
Retention is Everyone's Responsibility
To some capacity, everyone in your organization plays a role in customer retention.
Retained customers will drive a majority of your revenue. This is an income stream that you should protect. Every department has a role in retaining customers.
The product developers have to make a hot product to sell. Your marketing department has to attract well fit leads to sales. Your technical support teams and account managers have to handle customer complaints satisfactorily and quickly. The management teams must assign the right duties to the right people.
Everyone has a role; even your receptionist has to answer calls in the right way. You can develop internal metrics that departments and teams can use to measure themselves. These metrics should support customer retention. For example, the marketing team should measure lifetime value (LTV) while the product developers track the features they create.
When your organization records a drop in retention, everyone must find ways of restoring customer retention. How can you enforce this system?
Regular Meetings are Essential to Customer Retention
The person in charge of retention should hold meetings between team members. These meetings must address and set goals for building retention. Delegate tasks based on retention goals. Having a leader is important.
You need someone to say, "Hey, we must do this to retain users." Work through issues that there may be within retention. There are elements of retention that require everyone as a collective. Everyone must be accountable for their part. Whether it's the technician or customer service agent, everyone can contribute to user retention.
Customer Success is Key to Retention
Most SaaS companies build customer success teams because they want a body to take charge of the numbers. Customer success teams cannot work alone, but they can conduct the orchestra. Your customer success team should monitor, organize, and improve the retention work of all teams.
Customer success managers must organize and engage with the sales, marketing, product development, and support teams. As the conductor, your customer success team cannot play every chair. However, they can assign the right players in the right positions and guide the song (retention strategy).
Aligning Customer Success with Other Teams
Interactions with the customer allow you to accumulate data. The customer success team has the most and closest interactions with the users, so they hold the heaviest data. From this data, marketing should capture the warmest leads.
The sales team should use the information to sell your products to the right consumer. With help from the customer success team, you can align the marketing funnel to the sales cycle. In this way, you always sell to the right customer and minimize churn.
Customer success and account management should use the data to provide the best service to the customer. They should anticipate problems before they happen and have a solution ready. They should determine the customer's definition of value and guide users towards this goal. This information is also valuable to product development teams. They can use the data to build and improve product features.
Incentivising Customer Retention
There is a connection between customer retention and the majority of your revenue. Therefore, you need to find ways of incentivizing retention.
How do you go about this task? Many people may feel that tieing your customer success managers' performance with a commission is a good idea. This would be a mistake.
At its core, customer success helps your users find value in your products. Retention is the end result, not the means. If you tie a commission to the destination, your subjects may not use the right means to get there. They may become combative with other commission-based employees or neglect other duties.
Commissions are great incentives, but customer success teams should not operate like this. Bonuses are also problematic. Retention is everyone's responsibility. It would be irresponsible to hand out a bonus to the success team when other players played a role in retention success.
If you have a bonus structure, you can set team goals that support customer retention. Upon the achievement of these goals, you can reward the achievement of team goals quarterly.
Getting the formula right on your first try is quite hard. If you are willing to tweak things as you go, things will improve.
Make Customer Retention a Team Effort
Retention plays an important role in the success of a company. For your organization to pay the right amount pot attention to retention, you must assign the responsibility to someone.
Certain skill sets can prove to be a better fit for the role than others. However, it's quite possible to find someone up to the challenge. Retention is a broad issue.
The best approach is to understand your customer. For this reason, you have to involve many players. You will need your customer success, product development, support, sales, and marketing teams.
Make retention a team effort, and demonstrate to everyone why it's important.