I have spent the past five years working with B2B SaaS companies and one thing I have come away with is that our industry has a problem. We need to stop looking at churn as people opting out of something we already sold them and instead see each renewal as something that needs to be worked and closed, like a sale.
Rapid growth for SaaS businesses is important, not just to scale, but also to demonstrate traction to investors. But as an industry, we are sometimes too insensitive to the massive amount of money invested in customer acquisition. Why is so much less is being spent on renewals and customer success? It is striking, because the renewal is where the profit lies.
“Acceptable” churn for a SaaS company is 5-7% annually (more on that here). But 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. That 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.
The 5 Steps for Successful Renewals:
- 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. Instead, your organization needs to spend time and map out a process. In the beginning a half page of bullet points outlining when customerswill be contacted and whatwill be covered is better than nothing. As a very rough example:
- Day after sale, Sales introduces customer to Customer Success Manager (CSM)
- 2 weeks after the sale, the CSM reviews the customer’s usage of the product and calls with a check-up
- 2 months etc
- 6 months etc
- 3 months before renewal – CSM reviews account for opportunities to increase licenses or move client to higher level of license. Begins seeding information (like case studies, use cases etc) that outline the benefits without explicitly discussing the upsell
- 2 months before renewal: Discussion about renewal begins, reminder of the renewal date
- 1 month: Specific meeting about the renewal
- 2 weeks: Deal should be closed. If it isn’t, leadership team is notified (as part of a weekly review)
- Variable: Product backend automatically alerts CSM’s if a customer’s logins or usage falls below a certain threshold
- Limit Sales’ involvement in the process: Sales people are important, they are what brings the money in the door. But in most cases, if they are really good at closing business, they are really bad at managing the renewal process. The daily care and feeding of an existing customer is just not in the DNA of natural-born hunters. There are great farmers that are exceptions, but they are rare (yes, I understand I’ll get some hate mail over this one).
- Build the process into your CRM: Most CRMs are terrible for 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 for renewals.
- 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.
- Renewal Date: Add a custom date field to Opportunities that shows when a license is set to renew.
- Renewal Stage: 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).
- 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.
- 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”. Wrong. A SaaS renewal needs to be worked like any other sale. It isn’t easy and renewals aren’t automatic. CSM’s 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, especially for B2B organizations, can’t be taken for granted. The amount invested in acquiring each customer just 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.