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How Retention Drives Growth

Managing the Customer Lifecycle and limiting churn is more important than ever. As sales cycles and new business growth slow down, the value is in your existing customer base. Investing in Customer Retention will benefit you not only in the short term and during tough times, but also in the long term.

Retention will drive long-term growth and value

Customer Retention drives growth (and value). Adding expansion and upselling to the equation will make this even clearer, but let’s stick to retention and churn for this post.

A simple example illustrates this well. In only 5 years, a company with 5% churn will be close to ~1.5x the size of a company with 15% churn. At 5% churn compared to 15%, growth will also be significantly higher, and the valuation multiples higher.

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Adding new customers and driving new business is certainly key for long-term performance, but a significant piece of the value will be found in driving Customer Success and Customer Retention.

Understand and learn from churn

Churn is natural in any software business. You will always have customers that leave you. However, analyzing and understanding churn, and taking the right actions, is key to control churn and to run a successful business.

Depending on your business, churn can be categorized and analyzed in many ways. A business will also have both “natural churn”, which is difficult to avoid, and churn that can be avoided. Natural churn will consist of customers that should not have been customers in the first place, customers that go under or are acquired, and customers that do not pay the bills.

After many years in Customer Success, our team’s most important learnings relate to the avoidable churn, churn that you can control and limit through Customer Success:

  1. Churn due to bad onboarding and poor adoption
  2. Churn due to change of decision maker
  3. Churn due to failure to communicate ROI
  4. Churn due to product issues

These four themes cover most of the churn you will see in a software business. In order to understand this churn, and the best actions to improve retention, it is important to start at the other end: Success. Identify the Customers that have championed your product. Why did they become successful? What drove adoption? Why did they expand? What action did you take? By doing this, we have identified the most important and common actions to avoid churn.

Reasons, warning signals, and actions to limit churn:

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By understanding your churn, and taking the right actions, you can limit churn and drive the growth of your company.

One final dimension, that we cannot stress enough, is the importance of building relationships with your customers. Good relationships are the single most important driver across all businesses, not excluding SaaS. Your customers will work with you, give you another chance, and involve you in their decision making if you have a strong relationship.

Relationships are a function of trust and time. If you spend a lot of time working with your customers you build strong ties. If you are trustworthy and follow up on your word then your customer is going to trust you. Regardless of your product, pricing, or any external factor that might affect your clients, you can always work on strengthening the relationship you have with the users of your product.

Learn more about Planhat’s Customer Lifecycle features.

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