Solutions for customer success in an economic downturn
One of the biggest trends in software development has been the rise of Software as a Service (SaaS). With SaaS, vendors and customers follow a pay-as-you-go subscription model, which eliminates the large upfront payment and aligns their incentives more easily: vendors get more recurring revenue while customers are freed from having to host and maintain their own applications.
However, since subscriptions can be cancelled at any time, keeping customers happy and ensuring their needs are met throughout the relationship becomes a vital focus of the SaaS model. In an economic downturn like the one we are facing, the standard playbooks might not be enough and customer success teams will have to try new approaches to keep customers happy.
The first step to a sound strategy is measurement. The first tier of metrics is the top-line financial and customer satisfaction scores. Typically, these are easier to measure and track, and most founders have an idea of which direction they are going. They include:
- Logo Retention - A simple count of how many of your customers that were up for a renewal are resubscribing every year. Anything above 80% is good.
- Net Retention - Takes into account expansions and downgrades. This is how much a cohort of companies pays in a given time period compared to the previous one. The average net retention is around 106%, while great companies have a net retention of at least 120%.
- Customer Satisfaction score (CSAT): CSAT scores are usually determined via surveys through email, phone or product itself. The formula for the overall score is (% of Promoters - % of Detractors). CSAT or NPS scores give a mix of overall customer satisfaction and even young startups can benefit from running frequent surveys, especially when the product is evolving rapidly. The numbers vary, but an NPS around 50 is good.
The logo and net retention are important high level metrics, but they are trailing indicators of customer success. There are more granular ways to think about your customer base. Split the company’s customers into the following buckets:
- Expected to Win
- Lost/On Fire
At this point, the second-order question we need to answer involves breaking down the cohort of customers who are at risk of churn. Is there an issue with:
- Our product?
- The use case not being a fit for a customer?
- Our processes around customer success?
- The way we communicate?
- Our brand itself?
- A customer itself is outside of our control?
How do you put customers into these buckets? This is where the next tier of customer success metrics come into play:
Quantitative measurement is vital. Typically, there is a threshold beyond which customers find value and stay with the company. It is important to determine which usage metric to track and what the threshold is since such metrics are leading indicators of customer success and a critical step in finding product-market fit.
This can be as simple as the number of transactions or certain user actions within a certain time frame. Slack famously had a threshold of 2,000 messages in the early days. Fortunately, there are a number of products on the market that can help you measure usage and engagement, like Gainsight or Pendo.
Typically, there’s a champion somewhere within each of your customer organisations who likes your product and its value proposition, and has championed adoption. One of the most common reasons for churn is that your champion left the company and you didn’t build a relationship with the next person in line, so they only hear from you when renewals come up. That doesn’t typically bode well for success.
On-boarding speed and customer support:
Customer on-boarding is often the first experience that a customer has with the solution (besides a demo or a trial) and it is important to avoid delays. In addition, having an efficient and responsive support organisation can overcome a lot of customer complaints and concerns, turning at-risk customers into happy ones.
Customer references and community:
Engaged and passionate customers can have a huge impact on brand, growth, and retention. As part of surveys or check-ins, it is important to determine if customers are willing to be ambassadors and advocate on your behalf. For startups that have built robust communities, customer participation is crucial for the community to thrive. Happy customers engage in these activities often - while the lack of enthusiasm can be an early warning signal.
The COVID-19 situation
COVID-19 presents unique challenges to customer success teams. Almost every company is impacted, some positively and some negatively. Customer Success teams who are struggling will have to try new approaches to support customers through difficult times.
The primary goal here is to share the burden and limit churn. Avoid being too strict with contracts while customers are in trouble but also reaffirm the value of your product by not giving it away for free.
One option is to give short term relief to customers in the form of delayed payments or free months to help in lean times. If your pricing is tied to usage, this will naturally happen, but empathy at a time like this can build a loyal customer base.
Adapt the messaging and value proposition of the product to highlight benefits in the current situation. Some solutions are well suited to the distributed and remote environments and if the product can provide value there, customers are more likely to stay and expand. The Go-to-Market will also need to evolve since customers and prospects are trying to preserve cash. Free trials and a more product-led GTM can help build the pipeline and sustain growth.
Finally, it is important to keep the customer success teams motivated in such times when even the best efforts might not bear fruit. Flexibility with Service Level Agreements (SLAs) can help avoid the burnout in the organisation. Customer success and support are vital functions for any business. Prioritising customer needs, measuring and tracking the relevant metrics and adapting to the changing environment can make the difference between thriving and failure.
Arun Penmetsa is a Partner at Storm Ventures.