For B2B SaaS companies, negative churn is the holy grail. In order to decrease churn your organization needs to view each renewal like a sale; something that needs to be worked and closed.
Rapid growth for SaaS businesses is important, not just to scale, but also to demonstrate traction to investors. However, B2B SaaS companies invest a massive amount of money in customer acquisition. Yet often companies spend far less on renewals and customer success. The renewal is where the profit lies. Smart companies invest in Customer Success for this reason.
“Acceptable” churn for a SaaS company is 5-7% annually (more on that here). Many companies are happy and ok with a 5% monthly churn rate, even though that means they are losing about 46% of their customers every year. Which is not only a huge lost opportunity for revenue, but also a wasted investment of dollars spent on acquisition. A lot is written about SaaS churn rates and how to decrease them with better user experience and training. There is much less focus on the mundane, day-to-day business of renewals for B2B SaaS products – even though the steps aren’t that hard. Here are five steps to help ensure your users renew:
1) Have a process
The worst thing you can do is call a customer and let them know a renewal is due next month when they haven’t heard from you since they bought the product. Map out a process outlining when customers will be contacted and what will be covered. As a very rough example:
- Day after the sale, Sales introduces the customer to their Customer Success Manager (CSM).
- Two weeks after the sale, the CSM reviews the customer’s usage of the product and calls with a check-up.
- Two months after the sale, the CSM continues to review the customer’s usage of the product and reaches out proactively if necessary.
- Six months after the sale, the CSM continues to review the customer’s usage of the product and reaches out proactively if necessary.
- Three months before the renewal – CSM reviews the account for opportunities to increase licenses or move client to higher level of license. At this stage, begin seeding information (like case studies, use cases etc) that outline the benefits without explicitly discussing the upsell.
- Two months before renewal: the dedicated CSM reaches out to initiate the discussion around the renewal and reminds the client of the renewal date.
- One month before the renewal: the CSM arranges a meeting with the customer about the renewal.
- Two weeks before the renewal: the deal should be closed at this stage. If it isn’t, the leadership team is notified (as part of a weekly review).
- Variable: Product backend automatically alerts CSM’s if a customer’s login or usage falls below a certain threshold.
2) Limit Sales’ involvement in the process
Salespeople are important – they bring money in the door. Most salespeople who are really good at closing business, are really bad at managing the renewal process. The skill set required to keep an existing customer happy is different from the skill set that’s required to close net new business. Of course, there are some exceptions to this rule. However, you can’t design scalable process around those outliers. Each customer should be passed from Sales to Customer Success after the sale is closed.
3) Build the process into your CRM
Most CRMs are terrible at tracking renewals because they just weren’t built to do it. That means you need to create mandatory fields in your CRM to ensure your organization knows when customers are due to renew.
Renewable Product (Yes/No):
If possible, add a field to each product indicating if it is renewable or non-renewable. For example annual licenses are renewable. Configuration fees are not.
Add a custom date field to Opportunities that shows when a license is set to renew.
Create a drop-down for renewal opportunities that better reflects the stages of a renewal (in contrast to the traditional sales stages the CRM provides off the shelf).
4) Build reports
Once the fields above are added, create automatic reports showing what renewals are upcoming and if they are being attended to. Ensure these reports are reviewed in weekly meetings and the leadership team has eyes on which ones are at risk.
5) Reward renewals with commissions
A lot of organizations are hesitant to provide commissions on renewals. “Well, they were already a customer, all Steve did was get the renewal”. This type of thinking is flawed and leads to churn. A SaaS renewal needs to be worked like any other sale. It isn’t easy and renewals aren’t automatic. CSMs deserve a commission, especially when they are able to upsell the customer to a higher tier of license or convince them to buy more licenses.
Renewals at B2B organizations can’t be taken for granted. The amount invested in acquiring each customer means there is too much at stake. Renewals need to be treated with the same respect and gravity as sales. That is the reality of the SaaS business model.
How are you tracking and ensuring that renewals are successful at your organization? Let me know in the comments section below.