Hooray, they renewed in full!
I’ve been around the Success world officially since 2009, and I’ve heard the story again and again that we all have: customers who renew are the best.
And you know that you are. Cheers to another year+ subscription to our awesomeness!
Is this really the best claim that Success teams should be singing from the mountaintops? We should measure customers who don’t leave? That the customers that we had before are still customers today? That’s a pretty awful story.
Where’s the excitement?! Where’s the story arc?!
Okay, more practically, how can we do a better job of illustrating the investment of Success resources time to demonstrate the impact to the business?
Yes, our customers will still be our customers if all goes well, but let’s change that narrative to include the work that those teams have performed.
Shifting the Narrative around Renewals
As companies and customers everywhere move into a subscription-based model, telling the right story around renewals becomes critical as we continue to claim valuable contributions within renewals or success organizations.
In plain(-ish) English, teams need to be able to identify how their contributions to the un-measurable happiness of their customers actually contributed to the bottom line. It’s only how we justify our existence, for goodness’ sake.
We all know the stories about value gained from happy customers (renewing, growing customers) and value lost from those who are dissatisfied (customers who leave). We tell those stories broadly as we report our successes and challenges.
For leaders, the story must also include the cost to retain customers, or the return on human capital invested, because that’s truly the biggest lever we can pull.
Here’s a Story…
While the amount of time and size of renewal vary greatly depending on business, segment, etc., they all essentially share the same arc.
At the time when the contract is created, we start by assuming the positive. Customers will renew their subscriptions, right? I’m looking at you, Spotify. But seriously, we always start with a zero-dollar forecasted attrition for the future renewal. They should renew because we are awesome, right?
As the contract winds its course, your company interacts with your customers — hopefully — and each of those interaction points can tell you something about your relationship with them. Said another way, if you took a minute to capture the customers mood or sentiment for each of those actions, over time you might be able to see a trend or trends forming. We might think of negative trends as risk.
So, if we’re doing it right, we assess risks in one way or another and capture that in the forecast (i.e. the amount corresponding to customers who no longer want to remain our customer). The forecast, usually converted into dollars that we might lose, tells us what we might lose in the future, unless we act on it.
The challenge of today’s analysis is that we don’t capture the maximum amount of potential attrition over time.
The story most often told about renewing customers is that they’re still around. While that’s great for your business as an ongoing concern, it ignores the story arc: Along the way to grandma’s cabin, Red Riding Hood encountered risk, used some smarts of her own, and mitigated it.
The story we should be telling is the comparison of the maximum amount of forecasted attrition and the outcome.
Apologies in advance if I get a bit geeky here, but stick with me. Or just jump to the end for the takeaway. Either way, pardon my font.
For example, if we forecast $100k of attrition because the customer told their account rep they were going to drop one of our products or services, we might record that forecasted against the renewal outcome. Then, based on risk and then engage the troops to save that risk, if we ultimately lose $40K, everyone puts that result on the attrition pile and we hang our heads a little lower.
But we should talk about that as a $60K win, not a $40K loss.
To illustrate the point graphically, let’s look at a renewal over the contract life (K). At the end of the contract, we’ve either generated more value (V) from a customer who bought more seats or products, or we’ve taken some attrition (A) from a customer who reduced or cancelled a contract. That’s typically how we talk about and sum up our results.
Renewing In Full:
Another common but entirely lackluster story is those customers who “renew in full”. Along the customer lifecycle, we might forecast risk (R) based on customer usage, customer sentiment, or some other reason (economic headwinds, anyone?), but at the end of the day, the customer renews in full, meaning they re-upped for another contract term. That’s terrific, right?
What we might want to explore instead is where that Risk came from, and how much we saw along the way. Knowing the maximum amount of risk is critical to knowing whether or not your renew-in-full is you dodging a bullet or just a comfortable or satisfied customer renewing a contract that they favor.
Losing Value:
Next we should consider the lost value from an attrition. If you compare the right side of Fig 1 above and Fig 3 here, they are radically different stories.
In Figure 1-B, that customer lost value (or interest in your products) over time. Maybe a competitor came to market with a better option for them. Maybe they had a bad experience with a feature that didn’t work like they expected. Whatever the reason, we didn’t see or forecast the risk until it was likely too late to act on it, and we lost customer value.
By contrast, there’s a success story in Figure 3. At one point, we forecasted losing twice the value that we actually lost, and mitigated some risk (M) in the process. So the total Risk, less the Mitigated risk, leaves us with Attrition. Said another way, we mitigated some much larger risk to retain a customer longer term with a value proposition higher than expected.
The Shift
We could certainly stop there and cry in our cappuccino about the lost value, which is what we normally do.
But if we shift our point of reference to consider the maximum amount of risk/loss we expected as compared to the attrition, then we can do crazy things like reward those responsible.
Furthermore, we know what kind of human capital investment we made to manage or save that account, which we now can add to the basis of comparison.
In this example, if we knew a given customer was going to cancel their renewal at the end of their contract for a $100k loss, perhaps we dedicated 0.1 of a Customer Success FTE to the problem. (English: we have one CSM with 10 of these problems, and this is one of her accounts.)
Now, fully loaded, that’s a $20k investment in solving the customer’s issues or pain points, which netted us $60k in return. Ultimately, we’d love to tell only the value-accruing stories, but real investments in creating an ongoing, satisfied customer base are the real stories.
Moreover, this is where so much great work happens that goes ultimately unrecognized.
Let’s recognize that work, value creation, and addition to the bottom line, instead of simply assuming that customers will renew.
Tactically speaking
Some of this might seem complicated to put into practice. In reality, it’s three pretty straight-forward elements.
First, you’ll need to record risk identified at a customer. That means that every interaction should have some kind of forecast implication tollgate. If there’s risk, log it so that you can track it.
Second, if you had some simple logic in the mechanism used to track the renewal outcome that stored the lesser of the forecasted outcome or the actual amount, you’d have a basis for comparison upon renewal event conclusion.
Third, you need to track the human capital investment as well, either in direct investment or as part of a covered portfolio with discrete activities for that account.
Then the comparison of this maximum-forecasted risk to actual outcome is simple math.
Longer Term Implications
Ensuring that investment in risk mitigation helps retain customers generally means that your customer base will grow.
It means that customers will right-size their investment with you over time and remain your customers. This wins many games.
This also means that, instead of spending to acquire customers, you can leverage the goodwill and trust you’ve built by pulling some risk out of the equation (on either side) and created a stronger footing for both you and your customer.
You can learn what they like (renew) and don’t (show you as risk), and you can use those as inputs to your product or process development cycles.
Now you just have to build even better products or processes.
No pressure. Now get to work!
*This post originally appeared on the Rule Six Consulting blog
-------
Keith McAfee values Integrity, Ingenuity, Compassion, and Family.
As a creative builder with years of experience, he specializes in engaged people leadership, resilient problem solving, building customer relationships, efficiently managing requirements and delivery, intelligent process improvement, informed execution strategy, and dynamic CX/UX-centered research.
As the Founder of Rule Six Consulting, Keith is passionate about using data for good, real talk about better business, and great, funky music.
