I recently presented my work to a group of CEOs of software companies. Most were selling to businesses (B2B) and using subscription pricing ( software-as-a-service, or SaaS). When I finished, one hand shot up before the rest.
“Robbie, I really liked THE MEMBERSHIP ECONOMY but I had a hard time with your section about onboarding of new subscribers. You just made it sound too easy.”
If you know me, you know that I have many flaws, but I do not underestimate the challenges of building a flourishing subscription business. The payoff is huge, but the investment is real. I have never been accused of making things sound too easy. So I was surprised to hear his complaint.
He went on to say that I didn’t talk about what to do when the B2B customer is “dysfunctional”. He pointed out that his salespeople often would sell to a purchasing department that sat in a different building (or in a different region) from the people who were actually supposed to use the software. And because the two groups inside the same company didn’t have good communication, the software wouldn’t be implemented as expected.
Now, in the old world, this would be the customer’s problem. If I sell you something outright, and you don’t use it, that’s your problem, not mine. But if I sign you up for a subscription, which you can cancel, and if I only get paid based on the number of people who use it and the number of months before cancellation, it is in my best interest to do everything in my power to get the greatest number of people engaged with the product and ultimately to make that product usage part of their regular routine.
My mentor Alan Weiss has said that you should never assume the customer is damaged (or dysfunctional). In this case, there may be a reason that the procurement team is buying a product even though it’s not clear it will ever be used. Perhaps the procurement team needs to demonstrate that they are providing resources for certain departments. Or that they are replacing a more expensive solution with one that costs less. They may not be evaluated on implementation. In fact, they might even be punished if the costs increase–something likely to happen if too many people start using the product.
That’s the thing about SaaS–it’s easier to make the sale because the cost of subscribing is much lower than the cost of buying the software outright (getting a perpetual enterprise license). But it’s also easier to get out of the relationship. Switching costs are lower.
So if switching costs are lower, you need to make sure that the customer never wants to switch. To do that, you need to work backward to understand how your best customers became your best customers, and how that journey differs from the customers who never gained traction with your products.
Here are 6 ways you can increase the likelihood of retention and even expansion of your newest customers.
- Know the attributes of your best customers, and qualify your prospects on these attributes. One client I worked with analyzed the differences between their customers who stayed for multiple years and those who canceled at the first point of renewal and found that customers who had strong (large, powerful) IT departments were less likely to engage. The IT execs did not want the new “low maintenance” offering to drive down their influence, so they didn’t encourage or support it.
- Make sure that your sales team is compensated on retention as well as acquisition–perhaps by aligning commission to an 18 month milestone.
- Put a little friction into the selling process, perhaps requiring some of the targeted product users to be interviewed to ensure fit.
- Develop an onboarding process that is designed to drive the behaviors needed to drive retention and expansion. Many onboarding processes are designed just to make sure that the software works and is available, but stops short of marketing to end users to encourage usage and to make the transition easy. Consider the ideal post-sales “sales process” to build support among key constituents that weren’t included the first time.
- Track usage and determine which “first day” activities are most likely to signal engagement and retention, and optimize for those. For example, is there a setup process that most users undertake before committing to using the software?
- Don’t wait until 30 days before renewal to start working on retention. If you see usage tapering off or you see evidence of “failure to launch” altogether, stage an intervention immediately. Customer success should be paying attention all year round!
Most B2B SaaS organizations spend a lot of time on acquisition of new customers, with new logos to add to their website, and big names to brag about. But the secret to a successful SaaS model is customers who engage and expand over time. It’s so much easier to retain and grow a happy customer than to go out and find a new one!