“[H]aving created a successful company by making a superior product, management continues to be oriented toward the product rather than the people who consume it. It develops the philosophy that continued growth is a matter of continued product innovation and improvement.”Marketing Myopia by Theodore Levitt
In the enduring work by Theodore Levitt titled “Marketing Myopia,” Levitt made the case that marketers focused too much on products and features and not enough on the value customers gained. Instead, he urged businesses to consider their products through the customers’ eyes.
For today’s high-volume B2B SaaS companies, keeping the customer front-and-center is more important than ever. Why? Because it’s never been easier to start and launch a new business. And with this proliferation of new businesses, competitors are only a few clicks away. Customers, therefore, have more choice — and more power — than ever before.
So it’s worth reminding ourselves to think in terms of value to the customer. This applies not just to marketing but to every aspect of the business. All departments have an impact on customer happiness and, as a result, retention.
While I would argue customer retention problems are one of the most important issues for a high-growth company to address, it’s more difficult to change than many CEOs expect.
You Can’t Throw People at Customer Retention Problems
When businesses decide to dedicate resources to improving retention metrics, the first move is often to hire a VP of Customer Success or Chief Customer Officer to “own” the problem. By appointing someone to be held responsible for the problem, CEOs and board members believe they’re finally going to move the retention metric in a transformative, positive direction. But you know what? It rarely works that way.
For one, a VP of Customer Success often attempts to solve the problem through better customer relationships. This often means a bigger CSM team to manage them. High-volume businesses cannot reasonably maintain a company-wide high-touch Customer Success model for long. These businesses need to find ways to improve the customer experience en masse, rather than providing tailored help. Otherwise, they’ll find the cost of retaining existing customers too high for a sustainable business model.
Yes, you can improve customer retention problems through Customer Success initiatives and herculean efforts of CSMs. Yes, you can level people up via operational tools like Customer Success platforms that may, for example, allow a CSM to serve double the number of customers than they did before. But these are not enough to truly resolve the problems your customers are experiencing and are unlikely to have the impact on retention the CEO or Board were hoping for.
Retention Touches Every Department
More than that, customer retention spans departmental boundaries, and few executives are truly that cross-functional. Not only does this executive need coordinated access to and between customer data systems that span the company, they also need a cross-functional understanding of all areas of the business and how they relate to customer value creation.
Finding someone who can understand all areas of the business and drive change is rare. When only one person’s neck is on the line for improving retention numbers, alignment proves challenging. This challenge is only exacerbated when it’s fourth or fifth in a list of other priorities. That person lacks the deep insight needed to understand other departments’ impact on retention and the influence required to compel them to change. As I’ve seen, these people often lack the appropriate language, tools, and perspective to influence the other teams to take action on behalf of the customers who are leaving.
Why Are Customer Retention Problems So Hard to Figure Out?
Poor Customer Understanding
The only way to resolve customer retention problems is to know your customers inside and out. If you don’t understand why they bought from you in the first place, how they’re engaging with your product, and where they derive value, you’ll never understand why they leave.
When you have thousands of customers, getting to know them means gathering the right data, understanding customer lifecycles, segmenting your customer base, and measuring value. None of these are simple to achieve. Although off-boarding surveys or interviews with CSM’s are a laudable first step to understanding the problem, disillusioned customers on their way out the door are rarely going to give you the clean qualitative data you need to drive meaningful change. Much like a lost prospect will rarely tell the salesperson who was leading a deal the real reason why they didn’t buy, your retention team is unlikely to get honest direct feedback from a customer who is headed to a competitor.
Customer “Happiness” Is Measured by Proxy
At the end of the day, all of our efforts to prevent churn are focused on understanding the customer and how they derive value from your product. However, customer “happiness” or “value” is always measured by proxy. (At least until Elon fits all your customers with Neuralinks and you can measure their neurons firing “delight” in real-time.) Proxy measurements like customer feedback surveys, support ticket volume, and product usage statistics each tell part of the larger story. But they are inherently biased because they can never tell us exactly what is going on. In other words, there will be “noise in the signal” for those other fellow data nerds out there.
An example of this I saw with a client was high usage of a particular alerting feature. It turns out that it wasn’t super valuable for the customers who were constantly configuring alerts; it was that a bad UX workflow made inevitable reconfigurations inevitable. What looks like “Wow, they are getting so much engagement from our alerting page configuration!” was actually “This alerting workflow makes me want to kill the PM who designed this!”
A skillset that can distinguish between the two is rare. But without it, it can lead to consistent misdiagnosis of the root cause of your churn issues.
Poor Customer Data Systems
To truly measure customer retention and overall happiness, companies must create a 360-degree view of the customer that spans commercial systems (e.g. CRM, subscription management system) to product data and the customer service helpdesk. Anyone who’s run a business before understands just how difficult this can be.
On top of the complexity of connecting disparate systems and aggregating important customer data, someone needs to dedicate the time to understanding and analyzing the data properly. Only after all of that can they begin to align the team around fixing the real problems. Without this data, you’ll find your debates about what the “real” problems that need fixing are dominated by a lot of HIPPOs (Highest Paid Person’s Opinions). And great woe to the PM or CSM who gets in front of a charging HIPPO without good data.
Customers Come in Many Shapes & Sizes
Consider also that B2B SaaS businesses often deal with multiple buying personas. The executive (i.e. buyer) persona may have a very different set of criteria than the day-to-day user. Stats like product usage and support tickets say little about their mindset and whether they see your product’s ROI.
On a more macro level, your business will also serve different customer types. When analyzing retention, properly segmenting your customers is crucial. Without accurate customer segments, you’ll have no way of identifying problems that may only impact one group. To assume your customers share the same goals, problems, and challenges undercuts your ability to deliver value to them.
Timing Matters More Than You Think
At the end of any sports event, you’re left with a score. If you happen to miss a game, the score doesn’t give you much to go on. Was it an exciting game? Was it a nailbiter to the finish? Did anyone have a breakout performance? It’s impossible to say based on the final score alone.
Customer retention rates are much the same. If at the end of a quarter, you review Net Revenue Retention and find it’s decreased compared to last quarter, all you know is you have a problem. Based on the number alone, it’s impossible to diagnose what caused the decrease.
This difficulty is compounded by the fact that, if your business runs on a year-long subscription cycle, you likely won’t know when your customer stopped finding value in your product. The customer may cancel in month twelve of a contract, but they may have stopped finding value in your product after six….seven…eight months. When you’re playing the long game, you can’t wait until the final seconds to make up lost points and it becomes even harder to identify mistakes made in the first quarter.
In future articles, we’ll dive into how to address these challenges head-on and positively impact retention metrics. For now, if your business is experiencing customer retention problems, take heart that you’re not alone. This is a complex, nuanced problem.
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