How To Shift Your Focus From Customer Acquisition To Retention During COVID-19 and Beyond

Rich Waldron, CEO and founder of Tray.io, explains why retention is now the new growth. Due to the impacts of the COVID-19 pandemic, businesses can no longer focus on acquiring new customers as aggressively as they have in the past. So what now? Shifting attention to the customers they already have.

Think back to your business pre-COVID-19. Chances are, you were operating in a completely different way than you are today. The pandemic has forced companies to undergo many changes to adapt to the changing environment, from transitioning to remote work and implementing new tools in their tech stack to solving supply chain disruptions and adjusting budgets.

To survive in this challenging new economy companies need to shift more of their focus to retention. Retention has always been a priority for smart businesses but today, companies need to be judicious about their resources. At minimum, smart organizations should be aware of balancing out the cost of acquiring new customers (CAC) against the significantly more-economical activities of renewing and upselling to existing customers. Some research suggests that upselling to existing customers is 2xOpens a new window more efficient, and renewing existing customers is 7x more economical, than acquiring new customers. Now, more than ever, customer retention has become a key metric to determine whether a company will survive and have a chance of thriving.

Learn More: How to Boost Customer Experience With Omnichannel Decisioning

In a recent online industry panel, several experts from leading SaaS companies and venture capital firms came together to discuss customer retention as the new growth in 2020. Panelists included the business technology leads of successful firms such as Wendy Stockholm of InVision, Justin Tung of Segment, and Santhosh Soudamini of Miro, and also included venture capital perspective from Alex Clayton, general partner at Meritech Capital. During the panel discussion, each expert shared how their organizations were pivoting to meet today’s evolving business demands. While the discussion centered on the SaaS industry, many of the takeaways are relevant for any business with recurring customer revenue. Here are some of their key insights:

1. Take Customer Health Seriously

Some companies use the terms “active user” and “healthy user” interchangeably. In today’s economy, it’s critical to be mindful of the difference. Our panel of senior business technologists shared the following insights on customer health:

• Track specifics on key user behavior – Beyond whether users have recently logged into your company’s software platform, it’s crucial to track transactional data and look at the customer lifecycle holistically. Just because new customers have survived your onboarding process doesn’t mean they’re highly engaged users who will stick around.

• Track both usage and overages – Commonly-used metrics such as usage and overage can tell a clear, at-a-glance story about customer engagement that can inform your team’s approach to preventing churn.

• Go beyond usage metrics to track “stickiness” – In addition to simple usage, it’s useful to create and monitor secondary behavior metrics that monitor how “sticky” your product is to ensure customers remain active on your platform. The more data you can gather and analyze, the more accurate your view of customer engagement will be.

2. Drive Alignment Between Departments

Many businesses have had to re-evaluate, if not completely rewrite, the annual business goals they started with in January for revenue, retention, expansion, and growth. Naturally, these changes have had a knock-on effect across every department in your company, which means that every team has needed to realign with those new goals. (Your teams have also probably had to go through additional realignments and will likely change course several more times before the year is over.) At the same time, ensuring new closed-won accounts smoothly transition into engaged and happy customers is more vital than ever. It’s been estimated that 25% retentionOpens a new window past two months is a baseline target for SaaS companies, for instance, though high-performing organizations should aim for 60-75% or higher.

To ensure you drive time-to-value, business technology experts share these recommendations:

• Align across departments – Running a successful organization has always been a team sport, but it’s now more important than ever to keep different teams on the same page. Marketing teams need to acquire ideal customers that convert quickly to valuable opportunities. Sales teams need to absolutely nail the handoff to customer success teams to ensure new customers ramp quickly and realize time-to-value immediately. Share feedback and reassess often. Realign as necessary.
• Don’t hesitate to reconfigure or build new teams – To retain your customers, they need to be happy, successful, and empowered with the knowledge and ability to do everything they need with your products. So your organization may need to reallot resources across different product lines to ensure your most valuable customer accounts stay with you. You may also need to create task forces to navigate new challenges specific to COVID-19. One specific example: our panel cited significantly improved retention rates by assigning separate renewal managers to its customer team, which freed up customer success managers to focus 100% of their time and resources nurturing customer health.

3. The “Work-From-Home Era” Makes Automation Necessary

Each panelist highlighted the importance of automation, particularly since their companies have shifted to remote work. In a remote environment, integrating your tech stack and automating processes helps any organization move more quickly and get efficient. Our business technology panel offers the following tips to navigate these unusual times with automation:

• Skip redundant tasks and respond faster – Integrating your tech stack and automating mission-critical software processes cuts out the need for redundant work (such as time-consuming, error-prone manual data entry). More importantly, speed affords your teams more time to both focus on more-strategic decisions – which you need to make faster than ever – and also effectively enables teams to respond faster to customer inquiries. 90Opens a new window %Opens a new window of customers rate an “immediate” response as important to their experience.
• Enable faster on-boarding while reducing helpdesk burdens – Smart organizations are using automation to onboard new customers (as well as new employees) with automated workflows that include proper documentation and proactively-provided answers to frequently-asked questions. By automating on-boarding workflows, businesses can get customers up to speed faster and minimize the impact on their already-strained helpdesks.

Learn More: How Ambitious Marketers Hold the Key to a Differentiated, Personalized Customer Experience

4. Investors Have Their Eye on Retention

Retention isn’t just a key metric for software companies, but for their investors, too. Meritech Capital investor Alex Clayton asserts that net dollar retentionOpens a new window is one of the single most important metrics that venture capitalists consider. In fact, a recent study by Meritech found that in every high-growth public SaaS company, the net dollar retention, and dollar-based net expansion rate (which measures the financial health of a SaaS company by calculating the percentage of revenue from retained customers) was 120%, highlighting retention as a critical component of the software business. According to Meritech:

• Churn is the top threat to growth – Churn is always painful, but in a challenging economy, CAC will become an outsized burden as companies necessarily invest in acquiring new logos to replace the annual recurring revenue (ARR) of customers that have churned. VCs are absolutely on the lookout for startups that can support, delight, and keep customers around. The best customer is the one you already have!
• Retention can grow the bottom line – As we’ve seen, it’s absolutely possible for retention to pave a path to revenue growth. As noted in recent newsOpens a new window , some companies are reporting revenue growth without acquiring a single new customer, such as Twilio, whose net retention of 143% means that it can still grow 43% annually without acquiring a single new customer.