Are you in a business that depends on returning customers? Or a business that sells a subscription service? If you are, then you already know intuitively that bringing your customers back — or ensuring they renew — is the lifeline of your business.
Knowing that, are you spending disproportionately on new customer acquisition and leaving renewals to a customer service team that lacks the incentive to maximize return/renewal revenue?
Many of my clients are in the technology industry, which is in the midst of making an industrywide shift from one-time product sales to subscription based services (the trend to so-called cloud computing is leading the way). In the old model, it was fair to assume that once a customer purchased a product, they would most likely use it and then buy smaller add-ons, such as upgrades or service contracts. In that model, most of the revenue came from the initial purchase, so most of the marketing and sales effort went into new customer acquisition.
But as the model has shifted, the investment has not kept pace. My clients see symptoms such as customer service teams that are expected to renew their customers but have little or no incentive to do so or sales reps that have no incentives tied to long-term customer success. The result? Churn (customer turnover) rates as high as 33% are common.
So how do you keep one-third of your revenue from walking out the door every year?
The most common response I get when I ask this question is, “Good customer service.” But what does that mean? It’s usually measured by anything from product performance, to support center response/resolution rate, or to customer satisfaction survey scores. This is all good, and these are desirable results. But they are not (necessarily) what keeps your customers coming back.
To succeed in a repeat customer or subscription renewal business, you need to do two things very differently:
- 1. Redefine your business strategy and goals to align with this desired result.
- 2. Create metrics that both demonstrate success and allow consistent incentives to be
provided to those teams responsible for that success.
Aligning Your Business Strategy
You have, I presume, a very successful sales and marketing strategy and process for acquiring new customers. Do you have a parallel sales and marketing process for bringing customers back? This won’t be the same approach as customer acquisition, but it will take advantage of the existing relationship — and everything you know about your customer and how they value your products.
The information you have from your ongoing customer relationships will determine how to set strategy and process for renewal/return sales and marketing. To define that strategy, you must answer questions such as
- What customers are most important to you? Why?
- How do you determine the value of a customer to you? Are you considering all the aspects that matter?
- How important are you to your customers? Why?
- What criteria do they use to evaluate your relationship and determine whether they return/renew?
- How predictable are return customers or renewals? What predicts them?
If you have sources of data — and you likely do — that hold information about customer behavior, usage patterns, specific activities, interactions with the various parts of your organization, etc., then you have an opportunity to mine that data, test (or defy) conventional wisdom, and learn very specifically what actions (or lack of action) can give you a reliable signal about your customers’ intentions.
Which leads to the second part of building an effective strategy: investing in the right people, systems and processes.
Once you know how to value your customers — what actually signals a return or renewing customer and what signals a departing customer — you can then institutionalize this in processes and systems, and communicate it to your people so concerted, prioritized action can be taken to maximize your ongoing revenue stream.
Creating Metrics and Driving Results
How you measure the success of your renewal/returning customer sales and marketing processes will depend on your specific business and what results you want to achieve. But with the data about how to value your customers and predict behavior, you can start by creating metrics that measure things such as
- Increases in renewal/return rates year-over-year (or reduction in churn).
- Increases in value of your customers to you.
- Increases in value of you to your customers.
- Success of programs that persuade customers to take the actions that predict renewal/return.
- Success of programs that convert predicted nonrenewers to predicted renewers even before it comes time to renew.
A variety of other metrics can apply, depending on how your organization is structured and how your customers come back to you.
An important point to keep in mind is that a repeat business or subscription based business model is fundamentally different from a single product sale model. The differences go much deeper than how you bill. The investment levels are different, the management of the customer relationship is different, the way you offer and likely distribute your product is different…the list can go on and on.
Those of you in telco (telecommunications) and banking (and similar businesses) will know how to do this intuitively; these businesses depend on repeat customers.
For those of you who are in industries trying to make the shift to a recurring revenue model, don’t underestimate the fundamental changes in strategy and process that are needed. Looking at how you make sure your customers are coming back again and again is a very good start.
In my practice, we have found that understanding the true depth and value of the customer relationship can make the creation of a recurring revenue business much smoother and more successful.
Do you run a recurring revenue business? Or are you trying to convert to one? Share your thoughts on the challenges and how you address them!