Category: customers

customers

Keep Your Customers Coming Back: How to Increase Repeat Business and Reduce Churn

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Are you in a business that depends on returning customers?  Or a business that sells a subscription service?  If you are, then you already know intuitively that bringing your customers back — or ensuring they renew — is the lifeline of your business.

Knowing that, are you spending disproportionately on new customer acquisition and leaving renewals to a customer service team that lacks the incentive to maximize return/renewal revenue?

Many of my clients are in the technology industry, which is in the midst of making an industrywide shift from one-time product sales to subscription based services (the trend to so-called cloud computing is leading the way).  In the old model, it was fair to assume that once a customer purchased a product, they would most likely use it and then buy smaller add-ons, such as upgrades or service contracts.  In that model, most of the revenue came from the initial purchase, so most of the marketing and sales effort went into new customer acquisition.

But as the model has shifted, the investment has not kept pace.  My clients see symptoms such as customer service teams that are expected to renew their customers but have little or no incentive to do so or sales reps that have no incentives tied to long-term customer success.  The result?  Churn (customer turnover) rates as high as 33% are common.

So how do you keep one-third of your revenue from walking out the door every year?

The most common response I get when I ask this question is, “Good customer service.”  But what does that mean?  It’s usually measured by anything from product performance, to support center response/resolution rate, or to customer satisfaction survey scores.  This is all good, and these are desirable results.  But they are not (necessarily) what keeps your customers coming back.

To succeed in a repeat customer or subscription renewal business, you need to do two things very differently:

  1. 1. Redefine your business strategy and goals to align with this desired result.
  2. 2. Create metrics that both demonstrate success and allow consistent incentives to be

provided to those teams responsible for that success.

Aligning Your Business Strategy

You have, I presume, a very successful sales and marketing strategy and process for acquiring new customers.  Do you have a parallel sales and marketing process for bringing customers back?  This won’t be the same approach as customer acquisition, but it will take advantage of the existing relationship — and everything you know about your customer and how they value your products.

The information you have from your ongoing customer relationships will determine how to set strategy and process for renewal/return sales and marketing.  To define that strategy, you must answer questions such as

  • What customers are most important to you? Why?
  • How do you determine the value of a customer to you?  Are you considering all the aspects that matter?
  • How important are you to your customers?  Why?
  • What criteria do they use to evaluate your relationship and determine whether they return/renew?
  • How predictable are return customers or renewals?  What predicts them?

If you have sources of data — and you likely do — that hold information about customer behavior, usage patterns, specific activities, interactions with the various parts of your organization, etc., then you have an opportunity to mine that data, test (or defy) conventional wisdom, and learn very specifically what actions (or lack of action) can give you a reliable signal about your customers’ intentions.

Which leads to the second part of building an effective strategy: investing in the right people, systems and processes.

Once you know how to value your customers — what actually signals a return or renewing customer and what signals a departing customer — you can then institutionalize this in processes and systems, and communicate it to your people so concerted, prioritized action can be taken to maximize your ongoing revenue stream.

Creating Metrics and Driving Results

How you measure the success of your renewal/returning customer sales and marketing processes will depend on your specific business and what results you want to achieve. But with the data about how to value your customers and predict behavior, you can start by creating metrics that measure things such as

  • Increases in renewal/return rates year-over-year (or reduction in churn).
  • Increases in value of your customers to you.
  • Increases in value of you to your customers.
  • Success of programs that persuade customers to take the actions that predict renewal/return.
  • Success of programs that convert predicted nonrenewers to predicted renewers even before it comes time to renew.

A variety of other metrics can apply, depending on how your organization is structured and how your customers come back to you.

An important point to keep in mind is that a repeat business or subscription based business model is fundamentally different from a single product sale model.  The differences go much deeper than how you bill.  The investment levels are different, the management of the customer relationship is different, the way you offer and likely distribute your product is different…the list can go on and on.

Those of you in telco (telecommunications) and banking (and similar businesses) will know how to do this intuitively; these businesses depend on repeat customers.

For those of you who are in industries trying to make the shift to a recurring revenue model, don’t underestimate the fundamental changes in strategy and process that are needed. Looking at how you make sure your customers are coming back again and again is a very good start.

In my practice, we have found that understanding the true depth and value of the customer relationship can make the creation of a recurring revenue business much smoother and more successful.

Do you run a recurring revenue business?  Or are you trying to convert to one? Share your thoughts on the challenges and how you address them!

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Making Better Investments in Your Customer Relationships

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(this is a repost of a post written by me for PAKRAgames. It is part four of a series of four.)

Business relationships are not this intuitive (though I contend they should be), but let me ask you this (if you’re in a long-term relationship, think back to when you were single).

When you started dating, you had opportunities to begin and pursue relationships. How did you make the choice of which woman/man to pursue? Was it the best looking? The smartest? Maybe the most accessible or one you thought would say yes? And if you were lucky enough to have several people from which to choose, into which relationships did you invest your effort? Was it with the cutest partner? The one who seemed most likely to succeed? The one most likely to commit to you?

I’d be willing to bet you made these decisions based on some form of intuition. You probably agonized, analyzed and got lots of advice from your friends and family, but some sense of the “right” choice probably made itself apparent, and off you went.

We don’t do the same with business relationships. We look at forecasts, financials and, if we’re smart about it, marketing and culture compatibility. Specifically, when we look at our customers, we have pretty much one measure of desirability: Customer Lifetime Value (CLV), which is essentially a net-present-value of expected future revenue from that customer.

But if you ask your sales people and customer service and support representatives, you might see a very different story. You’d hear endless anecdotes that go something like this: This customer may not produce much revenue for us, but they (pick one or more of these) helped us fix several critical bugs, showed us some new uses for our product, are really devoted to us, use only our products and never our competitors’, or have been our best reference customer and a big advocate in the market.

How much value do you place on any (or all!) of those things? My guess is that when it comes to making decisions on how much effort to put into the customer relationship or how hard to try to save them if they suggest they may not come back next year, you put not much value at all (or maybe a little, as an exception).

But you should. Companies that do have customers who keep coming back to them and not their less-successful competitors.

Here’s one example of why: Clayton Christensen’s (@ClayChristensen) “Innovator’s Dilemma” suggests (among other things) that as companies grow, they miss the customer doing something weird with their product. Smaller entrants see it, find the new market based on it and can disrupt the larger company’s market in doing so. But if you — I presume you are the larger, growing company — found the customer doing that weird thing and knew they were valuable, then worked to keep them, you would be able to see the new opportunity and capitalize on it.

There are similar examples for any number of the possible reasons noted above that customers can have value beyond CLV.

So what do you do about it? It’s a simple yet hard answer: Develop a model that can evaluate any given customer’s true value to you (building and helping you manage this model is one of my firm’s main services). That model must include revenue (CLV), but also must include the other dimensions that could make a customer useful and valuable to you. Not all possible dimensions will apply to all companies and, even among the subset that applies to you, not every customer will have much value in each one.

Once you have a model that can assign a quantitative value to each customer relationship, you not only know how valuable each customer is, but how to rank them and know who is genuinely more (or less) important to you. Then you can make well-conceived and well-informed investment decisions. You’ll also know why exactly you are making those decisions.

So when it comes time to allocate budget, time and people to ensure customers are happy, you’ll know who to make happiest. It’s not exactly intuition, and your friends may not have much to say about it, but it will ensure you are doing the best for your customers and for your company, and building relationships that last.

Conclusion:

Over the four parts of this series, I’ve suggested a new way to approach improving and deepening customer relationships, which can reduce churn and ensure customers who walk in the front door this year don’t walk out the back door next year.

I’ve covered:

– Rethinking our business model to ensure we’re making the most of recurring revenue

– Building an effective and measurable sales and marketing process for renewal revenue, and why that’s just as important as your acquisition process

– Learning to understand the value our customers place on our services

– Valuing customer relationships and making better investment decisions

I hope this has helped you think about your business model a little differently and more clearly, and that it has helped you focus your efforts on maximizing the power of your recurring revenue model.

We’d love to hear your story about how you are making the most of your recurring revenue model. Tell us in the comments. And thanks for reading!

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customers

The Missed Marketing Opportunity: Your Customers

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(this is a repost of a post written by me for PAKRAgames. It is part one of a series of four.)

Why would you let as much as one-third of your revenue walk out the door every year? And knowing it will, why include it in your forecast, and consider it a “success” as long as it’s no more than one-third?

This is exactly what many companies with subscription-based business models are doing.

The move to subscription-based business models has accelerated in the past decade, led by technology-services companies moving to cloud-based offerings. Most companies that have made this shift have benefited from having a recurring revenue stream and the ability (generally) for more automated sign-up and service options for prospects and customers.

But we missed something.

Recurring revenue means it’s critical to ensure that customers who walk in the front door this year don’t walk out the back door next year. Put another way, it means the value of renewing your customer’s subscription is just as high as starting the subscription in the first place.

A few of you who are doing this right may take exception to this, but in most of the organizations with which I’ve worked, the effort devoted to renewing customer subscriptions is not even close to the effort put into acquiring the customer in the first place. Ask yourself this: In your organization, how much of your budget and staff are devoted to ensuring customers renew? I’ll bet you’ll be surprised at the answer.

Conventional wisdom says it is far less costly to keep a customer than to find a new one. But translating that into action is far more challenging than it sounds (isn’t it always easier said than done?). Some companies do a good (sometimes great) job of bringing a customer up to speed with their products or services (called on-boarding), but then don’t do much of anything else until it’s time to renew. At that point, many companies will alert their customers of upcoming renewals and even assign so-called renewal reps to solicit the renewal.

Which means those companies missed numerous opportunities in between to understand how the customer uses their product and gets value from doing so.

Is it any wonder that as many as one-third of customers walk away every year?

How do we do better?

I propose three areas on which we need to focus to do a better job:

  1. Treating renewals with the same respect we do new customer acquisitions: This will ensure we gain the expected financial and market benefit from our customer relationship.
  2. Gaining a better understanding of how customers value our products and services: This will help us understand why customers renew or don’t — and what do to about it.
  3. Understanding how valuable our customers are to us: This helps us understand how to prioritize investment in our customers and in our renewal efforts.

Parts 2, 3 and 4 of this series will discuss these and how to make them work for you.

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