How to Prove the ROI of Customer Success—Scare Them with Numbers
When the team at CustomerGauge and I conducted our most recent benchmarks survey, we didn’t quite know what to expect from the results. Sure, we have an idea of trends we’ve seen in the CX and NPS industry over the year, but sometimes “seeing is believing”—so to speak.
Out of the many findings from CustomerGauge’s 2018 NPS & CX Benchmarks Report, one of the most striking identified a strategic gap across 15 industries: 44% of respondents didn’t know their customer retention rates (or 1 in 3 companies).
For those in senior management, that number was 32%, further suggesting that internal communication is not taking place around retention rates at these companies. All of these companies were looking at Net Promoter Score® in some way, but the retention metric was being neglected.
I know need to tell you, but why not: It is absolutely imperative that businesses be aware of their customer retention rates, for financial reasons and for planning the company’s future. This information is required for planning future growth, as without customer retention, there isn’t an stability, or sustainability, for the company.
So, why are so many companies missing the mark when it comes to churn and retention? Myself and my co-authors looked at the research and talked to a number of experts to find out, and found some key information gaps that seem to spell danger for some companies. But the takeaway for me, at least, was clear: customer success still isn’t getting the props it deserves.
Understanding the Financial Impact of Churn
In his article, Welcome to Churn Nation, The 9th Biggest Country in the World You’ve Never Heard of — But Are Living In, Adam Dorrell discusses the magnitude of the economy’s churn problem:
“CustomerGauge made some estimates of just how large Churn Nation is. By taking the Fortune 500 companies (approx. revenue $12trn, with $1bn profit) and assuming a lowest possible scenario of 15% churn, we can size the problem: $1.8trn.” -Adam Dorrell
Looking at the retention rate numbers across industries in the 2018 NPS & CX Benchmarks Report, 15% churn might even be kind. According to the report, the highest average retention rate across 15 different industries was 84% — denoting an average of 16% churn.
To talk about the financial realities of customer retention and customer churn, it’s helpful to define what a retained customer is, and what a churned customer is. This can be different depending on the business, as with non-contractual business settings, where clients come and go often, for example, but a simple definition is better than none at all. A good starting point I recommend is a churned customer is a customer with no purchases in the last 12 months. A retained customer is someone who has made a purchase in the last 12 months.
Note: This definition works in some situation — but not all. It’s important to build a definition that works within your industry and business model (B2C vs. B2B).
Now that a definition has been built — how can you understand the financial impact of churn and retention? For retention, there are a lot of quotes thrown around about the general concept of selling to your existing customer base. One that we’ve seen time and time again stick true (generally) is this: It’s 10% cheaper to sell to an existing customer. What does that actually mean?
This is called “return on retention” — that is, the sum of the retention rate plus the up- and cross-sales rate. This provided insight into how much more on top of the base retention revenue companies were benefiting from existing customer relationships.
You might spend a lot on new customer acquisition when it would be better spent on retention methods. You might not be maximizing the potential of up-selling and referral marketing, because you don’t know who the customers to target are.
As for churn, there are two factors to consider: the amount of customers leaving you vs. the amount of revenue leaving you. I discuss Customer Retention Rate (CRR) and Revenue Retention Rate (RRR) in another post, but the sentiment can come down to this: How many customers vs. what customers are leaving you are both important questions, but with different financial impacts. In addition to the mentioned post, I also go in depth on these two metrics in another eBook, aptly named Retention Management to Combat Churn.
Communication Equals Growth —Transparency
In Salesforce’s State of Service report, 78% of customer service teams said “they view every employee as an agent of customer service.” If everyone in the company feels personally responsible for the customer experience, that changes people’s perception and sense of responsibility.
CustomerGauge interviewed Salesforce, Microsoft, Affirm, Micro Focus and Colliers International in their latest report. Many told a similar tale of how Net Promoter® buy-in and success centered around internal transparency.
If all employees aren’t clued into company expectations about Net Promoter, churn or customer retention, it’s harder for goals to get accomplished. More pressure is put on those aware of the situation, so the right work can’t be done by the frontline, or managers, to make things more effective. Frontline employees, after all, deal the most with customers, and managers are in the best position to take action on customer needs, and report those needs higher up in the company. Executives, therefore, have the responsibility of communicating their vision down the line to ensure good customer retention. They can also communicate to customers what actions have been taken.
Internal communication is important for all the reasons previously stated. And it all helps with retention; executives who communicated about handling strategic issues, and communicated actions, saw retention rates increase by 2.1% and 2.5% this year. Those that didn’t communicate only had a retention rate increase of 0.1%.
Tackling a Problem Like Churn with Customer Success
To steal a cheesy primetime slogan: “Knowing is half the battle.” When it comes to tackling churn, the same phrase holds true.
Many B2B businesses have some form of Customer Success Managers to maintain customer relationships. Part of a Customer Success Manager’s job is identifying the health of those customer relationships. This is done through a combination of tactics, including surveys, Quarterly Business Reviews, and check-ins. Think of these as the toolset of foresight — being able to predict a churn event before it happens.
These methods are also helpful for the other side of the coin: determining potential opportunities for retention growth — i.e., referrals, up-sales and cross-sales.
However, even from operational, real-time perspective, investing in a robust Customer Success program can have a huge impact improving retention and reducing churn.
In his blog post, Why Customer Churn is Inevitable if You’re Not Closing the Loop at Every Level, Ian Luck describes how closed loop practices (i.e., timely and success follow-up on both dissatisfied and satisfied customers) can reduce churn by a minimum of 2.3% per year. For those math illiterate like myself, the financial example he provided helped put this into perspective:
But does a 2.3% reduction of churn a year really impact bottom line revenue in a significant way? The short answer is yes. Say you’re a $500m company with a 20% churn rate per year. Keeping revenue growth completely flat, if you reduce churn by 2.3% every year over a 5-year period, you’re adding $234 million back to your bottom line over that entire period. — Ian Luck
The Bottom Line
I hope this quick overview of the survey findings help build a strong business case for either jumpstarting or improving your customer success program. Would love to know how you are tackling customer success at your company and—for lack of a less buzzy, dirty term—“growth hacking your customer relationships”.
*Content altered from original article published on CustomerGauge.com