The economic downturn has seen many SaaS marketing leaders pivoting from the “growth at all costs” mentality that has dominated the tech sector for the past decade and shifting their focus to how sales and marketing can support onboarding and retention.
“In periods of economic uncertainty, companies cannot rely on new customers alone, and maybe not at all,” writes Vijay Sundaram, Chief Strategy Officer at Zoho, for TechCrunch. He believes a more dependable growth strategy for businesses during a market downturn is to manage existing customers and focus on broadening the products and services they use over time. That is as true for enterprise-sized companies like Zoho as it is for small to mid-size start-ups - particularly those in the SaaS sector, many of whom are experiencing the impact of a downturn for the first time.
“B2B SaaS has a lurking problem similar to that of subscription ecommerce: churn and downgrades,” writes Patrick Campbell for VentureBeat. The Chief Strategy Officer at Paddle and CEO and co-founder of ProfitWell analyzed more than 23,000 subscription and software-as-a-service (SaaS) companies to see what the data reveals about the state of the current market. “Although growth is occurring — indicating that new sales are consistent — customer churn is accelerating and is beginning to flood the market. Also, those customers that stay are looking to save unnecessary business costs wherever they can, downgrading their subscriptions or canceling them altogether.”
It’s clear, then, that B2B SaaS businesses - especially those that, to date, have been reliant on VC funding that has now largely dried up - must focus on building and deploying targeted retention strategies or risk stagnating growth due to a lack of new customers and high churn. Research reported on by HBR found that increasing customer retention rates by just 5% could increase profits anywhere from 25% to 95%, which is why Paddle declared in a recent report that “SaaS businesses that retain the most customers will come out of the downturn in the healthiest shape."
SaaS businesses must be clear on the USP of their product and be able to communicate that to their customers - both current and future - and eliminate any marketing activities or messaging that do not reflect why their product is a “need to have”. “Double down on the clear, verifiable ROI of your core product. Now is not the time to celebrate the extra bells and whistles,” writes Ryan Neu, Founder and CEO of Vendr, for Forbes. “Core needs get approved in a downturn; conveniences do not.”
Roger Lee, a general partner at Battery Ventures, agrees. The most powerful software products are ones that customers rely on to perform a critical business function and use daily, like a core system of record,” writes Lee, also for Forbes. “These are sticky products users won’t want to give up, even during times of cost-cutting.”
A holistic understanding of customer behavior is crucial to any successful retention strategy, which is why centralizing first-party data and making it accessible to everyone involved in the execution of that strategy is critical. “If a company knows all the products and vendors a customer is using, it can position itself in multiple ways to save the customer money and bring more value to the table,” says Sundaram.
Historically, harnessing this data has been difficult for businesses, with Sundaram noting that first-party data is often siloed, stored across multiple departments and systems that aren’t talking to one another. “Businesses should look into syncing their databases, automating processes and providing proper access to all relevant information on active accounts, no matter where in the organization it lives. Building rich customer profiles and establishing a culture of information sharing need to [become] core functions.”
The emergence of customer data platforms (CDPs) that harness the power of APIs to bring once-disparate data together in one place, means that connecting this data is no longer the complex task it once was, and indeed, could be a quick win for marketing leaders looking to build a data-led retention strategy that drives real results.
Centralizing first-party data makes it easier to track and score the engagement metrics that matter most to businesses and intervene when these metrics drop.
Importantly, these interventions must be “repeatable”, says You Mon Tsang of ChurnZero, such as a re-engagement campaign that is triggered when a customer’s engagement drops below a pre-defined level. “While finding individualized solutions can make a difference, you may find that there are similarities across what cohorts need,” he says. “In this case, finding and implementing repeatable solutions can make a lot of sense.”
If engagement continues to drop, ask for feedback in a survey, pop-up, or via your customer service team to find out why their product usage has dropped off, and offer some help. With this information, you can ensure they get the right kind of support, whether it’s content on how to use a specific feature or sales intervention to help negotiate payment terms, and mitigate the risk of churn.
While it might seem counterintuitive, it’s just as important to focus on those customers with high engagement scores who are less likely to churn and more likely to bring in high MRR or ARR when developing a retention strategy. Consider this: A low-MRR, high-touch customer who churns is going to hurt your business a lot less than a high-MRR, low-touch customer.
As Harvard Business School Professor Sunil Gupta shares in his paper Managing Churn to Maximize Profits, focusing on higher-spending customers, even if they aren’t as likely to leave, can increase the total profit a company can reap. In an experiment conducted for the paper, Gupta applied a new algorithm to manage churn — one that identified: the high-spending customers who were likely to churn (even if that likelihood was lower), and filtered for the customers that were more likely to respond to a retention offer. With this information, they were able to theoretically increase profits by 180 percent.
“Value realization” campaigns are an effective way to reinforce the value your product is delivering highly-engaged users at key moments throughout the customer lifecycle — a pop-up to celebrate a milestone, for example, an end-of-year email highlighting how much time they’ve saved or revenue they’ve earned using your product. Spotify’s annual Spotify Wrapped is an example of the power of value realization campaigns.
Like re-engagement campaigns, value realization campaigns should be scalable, repeatable plays triggered by activities to create moments of delight, while showing users that their product is one they can’t live without.
SaaS marketing leaders that use data to build successful, scaleable retention strategies will put their businesses in the best position to not only weather the economic downturn, but come out of it in a better, more profitable position than they were before.
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