As you’re growing your SaaS business, you probably find yourself focusing on what feels like the most pressing part of the adoption process: acquiring new customers. You aren’t alone. According to a report by Invesp, a whopping 44 percent of companies have a greater focus on acquisition, versus a mere 18 percent that focus on retention. But the truth is, according to the same report, it costs five times more to acquire a new customer than it does to retain one. Not only that, but increasing customer retention rates by just five percent can result in a 25-95 percent increase in profits.
Clearly, if you aren’t paying attention to retention you’re missing out on a lot of potential revenue. And a key part of an effective customer retention strategy is customer renewal. So often, though, renewal is thought of as an isolated event rather than an integral part of the growth stage. It’s seen as something to address only when it’s time for a customer to actually renew. Why bother spending time thinking about it beforehand, the thinking goes. After all, if you’ve already acquired those customers -- especially if they’re in an annual contract situation -- it’s easy to think of them as a done deal. If you think of them at all, that is.
But what if those seemingly solid customers aren’t happy? What if they haven’t been using your product much, or at all? What if they haven’t been extracting any of the value you thought they’d derive? And what if, in the midst of the struggles and obstacles they’ve been experiencing trying to succeed with your product, your only interaction with them is to remind them it’s time to pay up? Essentially what you have is a ticking time bomb: a big chunk of customers who are about to churn.
And so, given how much more cost effective it is to retain customers as opposed to acquiring new ones to replace the ones you’ve lost, doesn’t it make sense to start paying serious attention to renewals as part of your long term growth strategy? After all, as customer success expert Lincoln Murphy points out, “There’s no more efficient – and done correctly, rapid and exponential – growth than growth within and from your existing customer base.”
But in order to make renewals a viable part of your long term growth strategy, you have to start looking at things a little bit differently. You need to start thinking about renewals more organically. Rather than isolated events to worry about later, think of renewals as the logical step in a continuing process of value delivery. If you’ve been providing consistent and accessible value to your customers, renewing, from their perspective, should be a no brainer.
It’s easier to grasp why this makes sense in a month-to-month subscription scenario. In this case, the line between renewal and retention blurs, because you only have one month to continuously make sure your customers are successful and happy enough to renew. Rinse and repeat. The whole “set it and forget it” mindset is easier to fall into when you’re dealing with annual pre-pays or long term contract situations. But if you neglect those customers and stop ensuring that you’re delivering value -- whether that’s for a month or a year -- you’re setting yourself up for sobering amounts of churn.
We’ve talked about what not to do:
- Don’t forget about your customers until it’s time to renew -- no matter their contract length.
- Don’t let your only communication, whether it’s via email, in app or personal, happen only when it’s time to renew.
- Don’t ever assume your long term and annual contract customers are going to renew
So how should you begin to think about renewal as part of a viable growth strategy? First and foremost, think of it in terms of the bigger adoption and engagement picture. Here are some important top level concepts:
Wow Them With Your Onboarding
You never get a second chance to make a first impression, and onboarding is the time your product really needs to shine. This is the first time your users will experience, first hand, the value you can provide. Provide quick wins and “ah-ha” moments as early as possible. Great onboarding will propel users right into avid use -- and an avid user is more likely to renew.
Value, Value, Value
Yes, renewal is what happens when you’ve been consistently delivering value that results in success for your customers. But remember: we’re not talking about the value YOU think they should perceive or how YOU define success. You have to deliver the value THEY want to extract to experience success as THEY define it.
How do you figure all that out? Well, we’ve said it before and we'll say it again: Understand the job your customers are hiring your product to do. Understand the struggles and obstacles they’re facing as they try to make progress in that job. Uncover ways to make it ever-easier for them to successfully perform that job.
A great way to do this is through a Job Desirability Map. Digging deep into customer motivations, hopes, and frustrations with a SLOW interview is also helpful (we talk more about this here). Observing your customers interact with your product is another way to understand how they perceive and extract value. The important takeaway here is that renewals aren’t a foregone conclusion -- first and foremost the customer has to consistently be deriving value from your product.
Of course you can’t know if your customers are extracting value and engaging in avid usage if you don’t monitor their behaviors. Look for leading indicators of churn, and understand how and when they interact with the product. Where are they abandoning the app? Where are they having struggles? Where are they deriving the most value? Be proactive and help those customers who are struggling, and use the behaviors of avid users as clues so you can help other users become more actively engaged. We’ll talk about notification and communication techniques you can use to drive avid usage and ensure renewals in part two of this series.
Understand That Value Evolves
Value isn’t a static state. Your users' needs will evolve over time. Because of this, you can’t let your efforts stagnate -- always be looking for ways to expand on the value that you’re already delivering. In this way, as Ideanomics editor Greg Daines puts it, “Expanding the account is actually a cause of renewal, rather than its outcome.”
Deliver Even More Value At Renewal Time
Whether you’re sending an email or making a phone call, when it’s time to talk about renewal, deliver value along with your reminder. Remind customers of the value they’ve been getting, and show them how they could go on to get even more value if they renew.
Look at it this way: If you’ve been consistently helping your customers grow in their success, they’re more likely to renew and help you grow in turn.