This past year has been one of reduced funding and spending for many SaaS entrepreneurs. In 2024 focus on retaining your best customers.
Many of you have had to do more with much less, due to lagging markets, low funding and reductions in force in the industry. A recent article by Crunchbase shared how October 2023 funding was 18 percent less compared to October 2022, just one of many statistics in this area.
But, new sales can be expensive. They require resources, and in an already lean time, this can mean not putting resources towards another group–existing customers.
The biggest lesson from SaaS companies in 2023–retention is key to long-term success. In a recent survey by Customer Success Collective, 70 percent of participants from B2B and B2C companies noted economic impact on their churn rates, with the average churn rate being cited as 7.6 percent. How does this compare to “good” churn rates?
According to Recurly research, this should be closer to 6.5 percent for a healthy business. Existing customers provide several things a prospect cannot fully do–revenue, data, expansion, and sentiment about their actual use. They are part of a value exchange with your company–bringing value in and taking value out–and if they are happy you have guaranteed revenue for a fixed period.
Another lesson learnt from 2023 is that you may need to adjust key performance indicators mid-year. Many SaaS leaders set stretch goals in 2022 for the year ahead when prospects were brighter and funding was still available. But as 2023 has told us, with the IPO drought, limited VC funding, and many companies reducing costs, your KPIs may need a review. If 40 percent new logo growth is not feasible, what is? Expansion growth can be a good option.
So what are some key strategies to mitigate risk in 2024? Here are my top five strategies to reduce risk in 2024 for SaaS companies:
1. Ensure your product roadmap matches your retention goals.
This may seem confusing, as many product roadmaps focus on new features and future plans. But in a tough economic climate, consider which features will have the highest impact on retention, and drive your focus towards them. One recent experience of this was a company halting new feature releases to refine and improve the existing product features, thereby improving customer sentiment and speed to implement it. This is easier said than done, as many product leaders may not be excited about this prospect–so share their impact on renewals in hard dollars, and let the money guide them.
2. Improve your customer engagement strategies.
Do you have low click rates on your launch communications? Do you hear crickets when offering a quarterly business review to customers? Consider where your touch points are lacking and how you can change course to better meet your customer’s needs. Also, consider where your customer success team can drive expansion such as leads or direct revenue generation–which is sure to get your CFO’s attention.
3. Focus on the outcomes that matter today.
Annual goals discussions should be a part of your customer journey long-term. But beyond understanding goals, understanding how they change is key. I recently had a change of a key customer stakeholder, and the new person did not care what had happened five years ago, they cared about how this year compared to last year. So the team had to adjust metrics to match and track what the customer tracks now. If you are in customer success, you also know that goals can change mid-year, so be sure to cheque in on them before you present a review.
4. Invest in documentation.
Knowledge management is paramount, whether you are a company with two customers or 20,000. Understanding the customer, their journey, their setup, and more is a given. But what about the knowledge left with the recent RIFs you conducted? If you lose people, you should not lose what they know or did–using even the simplest tools can help ensure you keep track of what is happening with each customer. Trust me, no customer likes a messy handoff.
5. Understand your customer’s health and the trends.
It can be done in a worksheet or a fancy customer relationship management platform, but designing a health score with key components such as net promoter score, customer success manager sentiment, customer engagement, accounting defaults, key user adoption and more can drive your long-term understanding of what is needed for them. Health scores are getting scrutinised by the customer success community of late, so it is important to socialise them broadly and teach your organisation what a dip in health can mean for retention. And, understand health trends–if engagement is down for a while, it may be time to escalate a customer.
We all hope for improved financing and trends for 2024. But, should we hope for a rapid change in the funding landscape? Funding often comes with over-hiring, quickly scaling, overspending, and building product features for the future. If 2023 taught us anything, it’s to protect what we have first, and then focus on what we need to do.