Category: Relationships

Customer Success

Three Keys to Increasing Renewals

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(this is a repost of a post written by me for Totango.)

This happens to you more often than you’d like to admit. Your sales team lands a new customer with great potential. You work hard at the on-boarding process and hit all of the milestones. Roll-out is on schedule. Over the year(s) of their contract term, you resolve every issue quickly. Then two months before renewal, you get the call: They’ve decided not to renew.

Wait. What?!?!

This probably came as a surprise to you. You probably have a list of reasons these customers give for not renewing. Some of the items on that list are understandable, from product shortcomings to changes in the customer’s business (such as acquisition). Others you know are just excuses, such as pricing, or that one support issue that was only 90% resolved.

Now tell me, honestly: Was there something you could have — or should have — known that would have let you save this customer?

There are three things you should be examining closely every day to get a deeper understanding of — and a deeper relationship with — each and every customer:

1. Ask good questions

In an earlier post, I discussed the idea of measuring customer success from the customer’s point of view and choosing the right measurements. You have to help your customer use your product, but you also have to help your customer get the value they need from your product.

Your market is crowded. You are competing not only against companies that provide similar products, but with all the other investment priorities of your customer, and your customer is deciding whether whatever work you support is worth funding at all.

One of your first tasks when you assume responsibility for a customer is to understand how your customer will measure their success because of your product. If they are not clear, help them define that measure. (Again, suggestions are here).

One company with which I’ve worked offers tools to bring social information into the selling process. If you ask generically how they make customers successful, they might say they increase revenue. Well, yes. But so many factors affect revenue and the effect of their product may be small compared with others, so it’s a meaningless measurement. They could also quote their marketing material and say they provide a deeper understanding of each prospect. Again, yes, but can you measure that? And is it a benefit or just a thing the product does?

While the product provides many benefits, one that is particularly interesting is it shortens the sales cycle (decreasing time to revenue). So they ask every new customer how long their average sales cycle is. Then they look at the users of their product and ask them three months, six months and nine months later how long their sales cycle is. The length drops every time.

The customer is now convincing themselves that the product has significant benefit. And you know exactly how much and why they should renew (and how to sell the renewal).

Pick your measurements. Ask good questions. Make sure your customer realizes value. And they are less likely to leave.

2. Social engagement

I don’t think I need to convince you business is social. Your customers are in the social channels, discussing their business challenges and issues, as well as the products and services they like and don’t like.

The best possible case is when your customer loves your product so much that they recommend it to their friends and colleagues. You can see this from high NetPromoter scores or by looking at your brand advocates with services such as Zuberance.

The worst case is when they don’t talk about you at all. Remember the adage, “The opposite of love is not hate, it’s indifference.” If your customers are indifferent, they are not getting value from your product, and they are less likely to renew.

So, listen and engage. Follow your customers on whatever social networks on which they are active. Connect to their professional networks. See what they are up to. Talk with them. Focus on issues and items of interest to them.

LinkedIn offers advice to recruiters about retaining candidates. They suggest adding new employees to your network, then watching their new connections. If you see them connect to a bunch of people at your competitor all at once, there’s a pretty good chance they’re interviewing.

Do the same. If a new competitor comes up, and suddenly your customer connects to lots of their people, it might be time to strengthen your connection.

3. Look at the data

You have data. Lots of it. Don’t be afraid to use it. But don’t get caught up in the “big data” hype. Here’s how to make it useful:

You already track every single action your customer takes in your product. You know every interaction, and you probably know the results of those interactions. All of this may not be well organized, but a close approximation will work pretty well for this purpose. And your data analysts can help you make sense of it all.

The key to analyzing large amounts of data is asking the right questions. You should be asking one or both of these:

1)    What specific actions predict either renewal or non-renewal?

2)    What are the relevant (predictive) differences between customers who renew and customers who don’t?

If you know the answer to one of those questions (they are just two sides of the same coin), you will have a much better idea much earlier whether any given customer is on the path to renewal.

It’s important that you not just look at this data when it’s time to ask for the renewal. You must look every month (ideally) or periodically throughout the contract term. Don’t wait until they’re ready to say No to talk them into Yes. Get them on the road to Yes much earlier.

This can feel like a lot to do with each and every customer, and you might be thinking you can only do all of this with your largest customers.

I warn you: That is a mistake. The biggest danger for non-renewal — and for large revenue losses — lies in the middle of your customer base, with those customers who matter, but still fall outside your high-attention area (e.g. your enterprise group).

There are lots of technologies available today that allow you to watch large data sets, interpret social streams and collect customer data. Even I, as an independent consultant with no staff at all, engage and monitor social streams for clients, prospects and new business opportunities. Is easier — and cheaper — than ever to scale these efforts.

Now what?

1)    Pick a question or two to ask your customers every month.

2)    Choose a set of customers with whom to engage on social networks.

3)    Ask your data analysts one of the two questions above.

Most importantly, start counting your surprise non-renewals and the number of customers at risk of non-renewal. And (this is how I deliver value to my clients) watch the numbers drop.

Tell us what you choose and how you do in the comments.

Photo Credit: .krish.Tipirneni. via Compfight cc

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Customer Success

Investing In Your Customers (and How to Avoid Churn)

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I had lunch with a friend recently who ran customer success for a SaaS  company.  Customer success in the SaaS business is typically responsible for handling customer support and service to build renewals when they come due while avoiding churn (customers who do not renew).

As we discussed the issues surrounding delivering a great customer experience and handling renewal sales, he commented that his biggest surprise was how much churn hurt his business.  He noted that every percentage point increase in churn had a multiplier effect on the top line for the business.

I had lunch with a friend recently who ran customer success for a SaaS  company.  Customer success in the SaaS business is typically responsible for handling customer support and service to build renewals when they come due while avoiding churn (customers who do not renew).

I’d be repeating myself if I included a rant on how keeping customers coming back is the only way to realize the return you expect on your investment in customer acquisition.  So instead, let’s talk about investing and how you can apply some very simple investment concepts to your marketing ROI.

Let’s talk bonds to demonstrate churn.

I know:  bonds are much less exciting than stocks when it comes to investing, but if you’ve listened to any of the decent advice out there, you probably have a reasonable percentage of your portfolio invested in bonds.

Here’s the thing about bonds:  they provide you with an income stream.  You expect the issuer to pay the coupon on the bond (the debt payment) at the scheduled interval. The market places a value on the bond that is largely based on the dollar amount of those coupon payments, the time over which they will be paid, and the current market interest rates.  If all goes well, you invest a lump sum and get paid back with interest over time.

Sometimes, all does not go well.  I hope it’s rare for your portfolio, but defaults happen. Companies (sometimes even governments) fail to make the coupon payments.  When this happens, you lose your money.  Yes, it’s part of the risk of investing, but it also means your money is gone.  Not exactly the outcome you wanted.

Connecting bonds, marketing, and churn.

Marketers have been talking about a concept called “customer lifetime value” for the past few years.  Whether you are in a business that depends on subscribers or repeat customers, you can look at your customer the same way you look at a bond:  you pay some amount up front (your acquisition cost), and you get a revenue stream that comes in at predictable intervals over time.  As with the coupon payments on a bond, you can use the risk of the market and net present value formulas to determine the value of a customer’s revenue.

But sometimes customers don’t come back or don’t renew.  The difference is that this happens at a much higher rate than bond defaults.  For some SaaS software companies, churn (the rate of non-renewals) can be as high as 30% annually.

Let me show you what this does to your portfolio or your top line in marketing terms.

For the sake of simplicity and illustration, let’s assume you have 1,000 customers today, and those customers are paying you $100 per month for your service.  Let’s also say you are a fast growing company, hitting growth rates of 50% annually.  Here’s what churn (or customers not coming back) does to your business over three years.

On the chart above, the green line shows monthly recurring revenue (MRR) growth over three years, assuming there is no churn.  The yellow line shows the same growth rate, but assumes 10% churn.  The red line shows the same growth rate, but assumes 30% churn.

If you lose 30% of your customers every year for three years, your revenue is lowered by 56%.

If your portfolio underperformed by 56%, I’m guessing you’d be looking for a new investment adviser.  Likewise, if your revenue is 56% below where it should be, I’m wondering if your CFO isn’t thinking about a new CMO.

I’ve been fortunate to work with many companies who understand the financial leverage keeping customers holds for your company.  And I’ve helped a few gain insight into this leverage.

Which leads me to ask:

– Are you investing appropriately in keeping those customers?
– Does your company know how many customers it’s losing?

Tell us how you’re getting it right (or wish you were) in the comments.

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3 Reasons Recurring Revenue and Renewals are Critical [Podcast]

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I was honored to be interviewed by Linda Popky of Leverage2Market Associates and one of the leaders in marketing innovation in the technology business. We discussed a range of topics, including:

  • Why recurring revenue and renewals are so important to so many companies
  • Why many companies (particularly in the technology business) don’t invest enough in recurring revenue
  • How marketing and selling to renewing and repeat customers is different from new business
  • What companies can do right now to increase recurring revenue and renewals, and reduce churn

You can find the podcast here (just under 30 minutes). I hope you find it useful – please let me know in the comments.

Photo Credit: Colleen AF Venable via Compfight cc

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Customer Success

Getting Customer Success Measurement Right

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The other day, the local news featured a story about the increasing number of San Francisco Bay Area cities and towns removing their red-light cameras. For most cities, the original goal of these cameras was to improve public safety by reducing accidents. While there are now fewer cars running red lights, it turns out accidents have actually increased, mostly due to drivers coming to sudden stops (to avoid a ticket) and getting rear-ended.

It also turns out the company that provides these cameras to most of the cities in this news report (RedFlex) takes, as part of its payment, a percentage of the revenue from the tickets issued using pictures from these cameras.

What does this have to do with customer success measurement? For RedFlex — and for you — everything.

How to get it wrong:

I can’t say what RedFlex knew about their customers’ (the cities, and presumably, their police departments) objectives when they sold the system. But I can tell how RedFlex defines the success of their customer: more tickets issued equals more success.

How do I know this? Because (according to the news report) they get paid on the revenue from tickets, and therefore have an incentive to make products that maximize ticket revenue.

But that’s not the main goal of the their customer. The police department’s goal is to improve public safety by reducing traffic accidents. RedFlex appears to have no incentive to do this.

RedFlex is using the wrong measurement: They don’t seem to understand how their customer defines success, or they don’t align to that definition. As a result, they are now losing customers.

How to get it right:

ShotSpotter (disclaimer: ShotSpotter is my client) sells a gunshot detection and location system. Like RedFlex, they sell this to cities, in particular to police departments.

When ShotSpotter sells a system to a new customer or renews a contract with a current customer, they ask questions such as: “How many more gunshots have you identified using our system?” or “How often were you able to get to a crime scene faster and make an arrest because of our system?” or even “How many times were you able to prosecute a perpetrator because of evidence from our system?”

These questions and the measurements that result from them align perfectly with the definition of success their customers have for themselves: Police want to respond to crimes quickly and catch perpetrators, and the district attorney wants to prosecute those perpetrators effectively and get them off the streets.

When it comes time for ShotSpotter’s customers to renew their contract (their main product is sold similarly to SaaS or cloud services), the customer and ShotSpotter both know exactly how successful they were using the system, and the customer can make a renewal decision based on exactly the right criteria. And ShotSpotter has a strong incentive to make a product that helps their customers meet those criteria.

What you should do right now:

Your customers may not be police departments. But every single organization, including your customers, has a reasonably well-understood definition of their own success. They know what they are trying to achieve, and they are looking to you to help them get there. It’s now your job to know what success means to them and be quite certain you can align your work to their goals.

Ask yourself: How do you measure the success of your customers, specifically as it relates to the use of your product or service? Do you know how your customers use your products to make themselves more successful?

That’s the easy part.

The hard part is looking at your own organization, not just at customer success, but at everyone who plays a role in how successful your customers become as a result of your products. That includes sales, marketing and product development, just to start. I’d bet it includes everyone in your organization.

Now you have to ask: “What incentives do we give our people to advance the success of our customers?” and then ask the most important question: “Are those incentives producing the right results for you and your customers?”

If the answer to that last question does not EXACTLY align to how your customers define success for themselves, then you are not using the right measurements or incentives.

And if your measurements and incentives are not quite right, you are left with two choices:

  1. Change them, or
  2. Watch your customers disappear

Do you have a good story about how you measure customer success? Or do you know companies that can’t quite seem to get it right? Share your story in the comments below!

Photo Credit: Bludgeoner86 via Compfight cc

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Selling Again: Your Biggest Missed Opportunity

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Next week, I’ll be spending lots of time at the Sales 2.0 Conference in San Francisco with people who think about revenue.

One of the topics I will be discussing with those revenue leaders is how to take advantage of the biggest revenue opportunity of all: selling to your current customers.

If your business depends on recurring revenue (for example, your customers buy subscriptions of some kind, say cloud services), then you not only have an enormous opportunity right in front of you, but if you overlook that opportunity, you are placing your business at significant risk.

Let me illustrate: Let’s say you sell a cloud (or other online) service. Your customers pay for a one-year subscription when they sign up, then pay for one year at a time every year when they renew — if they renew.

Your growth target for this year is 50%. But your churn rate (percentage of customers who do not renew) is 20%. That means you need to sell 70% more this year than you did last year to make your growth target.

I’m guessing your growth target is already a stretch. Can you really beat it by 20% or more?

Or should you take a different approach?

I help my clients focus on the relationships they’ve already built with their customers and building a sales and marketing process to make sure more of them renew and fewer leave.

Read my recommendations at the Sales 2.0 Conference Blog.

And join me in San Francisco on April 8th and 9th.

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Timing Matters: A Different Way To Fill Your Pipeline

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As marketers, we are very good at understanding our products, knowing how they bring value to our customers, and helping our customers translate our products into that value.  We know how to promote our products and how to target market segments and different buyers with the right messages in the right channels to make sure everyone in our market knows about the benefits of our offerings and can bring them.

We work to generate interest and then determine if the person interested is “qualified” (meaning, generally, they can buy our product), then we create what we call a lead. Sometimes those leads buy, and sometimes (likely the majority of the time) they don’t and are sent to the cultivation pool.  There, we do things to keep in contact until they are ready to buy.

To do all of this, we run campaigns that target certain profiles of buyers.  Those might be by preferences, industry, or some other market segmentation.

But what if we segment by time?  What if we run campaigns targeting people who are ready to buy?

One of the ways I help my clients is to use the massive amounts of data they have about their prospects and customers to discover the actual triggers that cause prospects to make buying decisions and customers to make repeat buying or renewal decisions.  Once you have this information, you can go beyond a simple understanding of the reasons they buy to gain insight into what events trigger the decision.

Then, you can focus your campaigns around these events.

Consumer marketers have been great at this for decades.  You know this if you’ve ever bought a house or gotten married.  Suddenly, new homeowners are flooded with catalogs and emails promoting interior design, home improvement, and other related products new homeowners typically need.  Brides- and grooms-to-be are inundated with ads for wedding services, flower arranging, music performance, and other wedding related services.

Can this translate into the B2B world?  Of course it can!  But it has not done so very well.  At least not yet.

I recently talked with a vendor of marketing automation systems about their segmentation, and it turned out that they were very good at selling their system to young, growing companies.  So they were running campaigns targeted at those companies.  I asked them to review about 50 recent sales to this type of company, looking for things their sales reps knew had happened to the customer in the months before the sale.

There were several things that seemed to be common, but one that stood out was the closing of a fund-raising round (typically what Silicon Valley folks call a “B” round). Suddenly the company had money, and the primary use of that money was to invest in customer growth—meaning marketing and sales investment.  One of the first things they did was to buy a marketing automation system.

After this, they started running a campaign targeted specifically at companies who had just closed a “B” round of funding.  And, yes:  conversion rates shot through the roof.  Contact-to-lead ratios jumped dramatically.  Cost-per-lead dropped.

The next question is:  where do you find the people or companies that have recently experienced a buying trigger event?  Depending on the event for which you are looking, there may be publications or data sources that list these.  In the example above, we used some of the popular venture capital publications to get the lists of companies and then merged that with the data already in the CRM system.

If the event you choose does not have a data source or publication associated with it, you can use both traditional and social research techniques to find both the companies and the people (If you sell marketing solutions, imagine finding the tweet posted by someone you didn’t previously know celebrating their appointment as CMO.  You’d probably want to get in touch with them). This can require some data scrubbing, but it will yield a much higher quality of lead.

The important question we miss all too often is, “When do our customers buy?”  We are quite good (I hope) at knowing why, but knowing when is just as important.

Selling to your prospects when they are ready to consider buying changes your lead generation and cultivation strategy.  You can become much more efficient in your outbound efforts and much less annoying to all those customers who just don’t want to hear from you this week.

I challenge you to consider:  do you know any events that trigger a buying decision in your customer?  Are you using that knowledge to create time-based segmentation?

Because in creating an effective and efficient lead generation machine, timing matters.

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Does great customer service matter?

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“Of course! If I didn’t give my customers great service, then my customers would leave for a competitor” (which we know is is not a good outcome)

True, but let me phrase the question differently: What does it take to keep your customers coming back?

Before you answer, did you ask? Yes, customers typically love great service, but here’s the most important thing to remember:

Customers became your customers for a reason (or several). If you do a great job at a bunch of things, but not that (or those) thing(s), you will lose your customer.

Yes, it’s that simple.

Let me give you an example: I used to have DSL Internet service in my home (which gives you an idea of how long ago this was), and was more than a bit suspicious of cable-Internet. When I signed up, the DSL was the fastest connection available. And, my DSL provider was fantastic (shockingly) at customer service. Every time I called, I got an actual person. I wasn’t transferred around, the person who answered my call did the research and talked to colleagues for me. He/she was nice, friendly and often offered credits for past poor service.

But….I needed a fast connection (when I signed up, they were the fastest available). And in the months preceding my change, my DSL provider’s speeds had slowed dramatically and a connection that hadn’t dropped in six years (you read that correctly!) was suddenly dropping several times every day.

The best efforts of several customer service reps, technicians, and even the people they sent to my home (for free!) could not resolve the issue.

They offered me credit; they offered me free add-on services; they made so many enticing offers that I was tempted to live with the unreliable, slow service. But in the end, I switched. I needed fast service.

My new provider has horrible customer service. An actual person never answers the phone, and when I get a person they are always rude and unhelpful, it usually takes five, six or seven people just to get a simple answer. But my connection is fast and almost never drops (three times in five years).

If you don’t believe me, take a look at two very well known examples of poor customer service. Whenever people bring up bad customer service stories, the examples they rely on are typically cable television companies and airlines. In my area, that means Comcast and United (I pick on them a lot). Think about it: Do you fly one airline all the time? If so, are you getting great customer service? If not, why do you keep going back? (If I had to guess, it’s schedule convenience, fares or frequent flier points — not customer service!)

This may not be how your business works, but if your business depends on repeat customers, you have no choice but to ask: “Why did my customers buy from me in the first place, and what will keep them coming back?”

Then invest your customer retention budget right there.

So, yes, if customer service matters to your customer, make it great. But always be sure you know — and are serving — your customer’s needs.

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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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