I talk to interesting people in the SaaS and customer success space every week.
This week, I was lucky to spend time with Greg Daines.
Greg, CEO of ChurnRX, has diligently collected data on B2B customer retention for the past several years.
He’s on a self-declared “mission from God” to expose the truth about customer retention.
The insights he’s uncovering will make you question everything you thought was sacred.
I’ll share a few examples from his work which are all available on his LinkedIn feed:
1. NPS doesn’t predict retention
In his research, the customer lifetime for the lowest detractors is nearly identical to that of the strongest promoters.
What we should all be watching out for are the non-responders. Their lifetime is less than half that of those who do respond.
See for yourself:
NPS doesn’t predict retention.
If the results are positive, even better, but there is a marked difference in retention between companies that measure customer results and those that don’t. Up to 6x longer retention.
2. Discounts are bad for the business
Not only do they reduce average contract value (ACV), a key metric for any SaaS business, Greg’s data show that customers who receive upfront discounts and free implementation churn at a higher rate than those who do not.
They have less skin in the game than their counterparts who pay rack rates and purchase implementation services.
3. Down-selling drives customer lifetime value
Many companies consider down-sells and customer cancellations the same, lost ARR. While this is technically accurate and not ideal for the business, down sells and cancellations are two wildly different scenarios.
When a customer cancels, they are gone for good. No more references, no more fees, no more nothing.
But when they down-sell, they are right-sizing their investment to stay longer.
The difference in the half-life of customers who have down-sold vs. those who never have down-sold or upsold is 24 months vs. 13 months. Nearly 100% better!
We must measure and manage customer churn and down-sells as two independent strategies.
Down-selling drives retention.
4. Selling is the ultimate antidote to churn
Customers who buy more stay longer. Not just a little bit longer. A lot longer.
Greg’s data show that the half-life of customers with expansion purchases jumps from 24 to 73 months. Almost 3x!
Wow.
Other commercial expansions can also work if you don’t have add-on products to sell. This includes convincing customers to move from monthly to annual payments or one-year to multi-year renewals.
Expansion selling drives long-term retention.
Across all of these trends and insights are two core truths:
Finding customers who fit and care makes a huge difference in retention. Customers who care seek success for themselves and find ways to make your product valuable in their day-to-day lives. They retain despite poor support experiences and the opinions they express on an NPS survey.Focusing on commercial expansion drives retention and causes us to resolve issues (product features, bugs, support/service problems) that would prevent customers from expanding.
As customer success leaders looking to become stronger business leaders, we would be wise to avoid conventional wisdom and opt instead for data-driven insights that lead to cost-effective strategies tailored to our company’s unique go-to-market, product, and target customers.
Keep an eye out for the full report from Greg, and reach out to him on LinkedIn for a copy. We’ll also be recording a Gain Grow Retain podcast with him in a few weeks.
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💡 Weekly Favorites
Here are some of my favorite podcasts, blogs, and videos from the week:
A fun throw-back article on the impacts of the 2008-2009 financial crisis on the SaaS industry. A walk down memory lane to a similar/worse time in economic history. Juggling and Bicycles – an episode of Seth Godin’s Akimbo podcast about solving problems from a different angle. This pod made me think about where customer success is headed and how it’s time to think differently about how we drive net revenue retention at scale in subscription businesses. It’s not just automating what we’ve always done. It’s about focusing on different activities that drive customer results.
Enjoy, and I’ll see you next week.
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