Part 3: Customer Renewals
Shiny new logos tend to take center stage in sales, but it's easy to overlook something just as crucial––renewals. While chasing shiny new prospects is reserved for those sellers who handle a lot of rejection and are willing to wait out deal cycles sometimes longer than six months, retaining existing customers holds as much value.
Renewals represent recurring revenue, loyal advocates, and customer insights into our industry that reps can turn around and teach to new prospects. But how do we ensure our customers choose us repeatedly and predictably?
The answer lies in building a robust strategy to guard against churn and proactively making renewals more predictable.
Renew Customers With Confidence With These Building Blocks
1. Craft a Seamless Renewal Process: Imagine our renewal process as a frictionless journey with clear communication, repeatable and structured activities that add value, and automation where it makes sense. Don't veer too much away, if at all, from the process in place for new business or expansion sales. The goal is to create a positive experience.
2. Onboard with Purpose: Set the stage for long-term success with a well-designed onboarding program. After customers articulate their goals and milestones, guide them toward value realization, equip them with resources (people and tools), and establish open communication channels.
3. Engage Consistently: Proactive engagement throughout the customer lifecycle fosters trust and loyalty. Regularly solicit feedback, address concerns promptly, and keep them informed about product updates and industry trends.
4. Accelerate Time-to-Value: The faster customers see the tangible benefits of our offering, the less likely they are to churn. Streamline implementation, provide dedicated support, and share success stories to showcase ROI.
5. Capture ROI & Business Outcomes: Refrain from assuming customers remember the value we deliver. Quantify and showcase our positive impact on their business through metrics, case studies, and testimonials. Ask them to serve as a reference.
6. Assess Renewal Risk Proactively: Identify potential churners early on––at least six months out from the next renewal. Analyze usage data, support interactions, and customer sentiment to anticipate challenges and devise targeted retention strategies. Reel in our C-suite leaders to help. Executive presence goes a long way in diffusing customer frustrations.
7. Build Solid Forecasting Foundations: Accurate renewal forecasting comes from proactive planning. Track key metrics like renewal rates, customer health scores, likelihood to renew scores, and market trends to gain insightful predictions. Only forecast a renewal at 100% once the deal moves to the final stages in our process.
8. Churn Prevention: Preventing churn is more cost-effective than recovering from it. Address customer pain points proactively, offer competitive renewal terms, and continuously seek feedback to improve our offering.
By investing in these elements, we can cultivate a thriving renewal ecosystem. Remember, renewals aren't just about transactions; they're about building long-lasting customer relationships, and that's the foundation of sustainable sales success.
Bonus Tip: Empower our sales teams with renewal best practices through regular training and incentives. Celebrate renewal wins alongside new customer acquisitions since existing customers are just as critical to our bottom line.
Customer Renewal Benchmarks
Unfortunately, there's no single "good" benchmark for customer renewals or churn rates as it varies greatly depending on several factors:
1. Industry: Different industries have inherently different churn rates. For example, the average annual churn rate for SaaS companies is around 5-7%, while for media subscriptions, it might be higher at 15-20%. Benchmarking against our specific industry is crucial.
2. Company Stage: Early-stage startups might have a higher acceptable churn rate (10-15%) as they find product-market fit, while established companies can aim for lower rates (3-5%).
3. Business Model: Subscription-based businesses typically focus on churn rate, while others might track renewal rates or customer lifetime value.
4. Customer Segment: Renewal rates for high-value enterprise customers might differ significantly from companies in the SMB or mid-market segments (or individual consumers if we have a DTC business model).
5. Specific Goals: Ultimately, "good" depends on our expected outcomes. A higher churn rate might be acceptable if we're happy with our current growth rate––and if we sell into the SMB segment. But if we aim for aggressive expansion, lower churn is crucial.
Instead of relying on generic benchmarks, focus on:
- Internal Benchmarks: Track our historical churn and renewal rates to see if we're improving.
- Competitor Benchmarks: Research churn and renewal rates of similar companies in our industry.
- Customer Segmentation: Analyze churn and renewal rates for different customer segments to identify areas for improvement.
- Industry Reports: Look for industry-specific reports with churn and renewal benchmarks.
Remember, benchmarks are just starting points. Use them to understand the landscape, then focus on continuously improving our customer retention strategies for sustainable success.
