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One of the studies reveals that poor customer experience drives churn for 72% of customers. Another McKinsey study reports that 60% of B2B SaaS subscriptions fail to meet expectations, potentially reflecting product-market fit issues. Suppose that's the case; why are companies spending so much on sales acquisition and marketing resources instead of spending more on product fit and creating the best customer experience?
One reason is that companies have followed the same notion in the last couple of years, assuming that if everybody is doing it, we should do so. The second reason is that it's easier to justify your poor logo retention. At the same time, your acquisition growth rate looks impressive, even though the company operates with a substantial P&L loss, reporting 110% NRR. The third reason is that while the acquisition is a three-dimensional function grinder, customer retention is an art that requires almost all the company's functions to work in concert. One of the fundamental metrics that nearly everyone knows about is logo retention. I won't explain the definition or calculation for that metric as this is pretty straightforward, but I'll say this.
Logo retention refers to the ability of a company to retain its volume of customers (or "logos" or "contracts") over a specified period, typically measured annually. It is a critical metric for SaaS companies, reflecting customer satisfaction, product adoption success, and the effectiveness of customer relationship management strategies; that's what most people think. Let's focus on the critical mistakes and how to address them in the conclusion with a recommendation section.
Here are the mistakes in handling your customers that lead to the erosion of your install base; these are the most common issues but not the only ones that lead to your troubles while entering the board meeting trying to explain what is wrong with your logo retention. Of course, all of that requires analysis, but the reality is that most of it can be solved within the next quarter. Most of these problems are structural, often covered by temporary workarounds that lead to a downward spiral that is hard to stop.
Customer onboarding. If your sales process makes the onboarding first stop after the contract signature, the pressure is already with your onboarding team. Poor onboarding experiences can lead to confusion and frustration, preventing customers from fully engaging with and realizing the value of the software. Effective onboarding is critical to ensure customers understand how to use the product to achieve their goals. Manual inputs, one-off requests, etc., lead to a perception that your team doesn't know what they are doing.
Lack of ongoing support and engagement. After the initial sale and hypercare during the onboarding, the customers may feel neglected if they don't receive continuous support, engagement, and value from the service provider. If you engage randomly or manage support tickets only, that's a recipe for disaster.
Failure to identify adoption issues early. Companies may not have mechanisms to track how customers use the product or identify those not fully utilizing it. Let's be honest. It's hard to solve, but many organizations don't try to build that while remaining in the dark.
Poor product-market fit. If the product does not meet the evolving needs of its target market or fails to address specific customer pain points effectively, customers are likely to churn. Some founders stick to their initial idea of the product vision despite the clear indication of what the market tells them. After 5 years of trying and not succeeding, it's time to do something about that.
Lack of customization and flexibility. SaaS products that offer limited customization options may not fit each customer's unique needs. That's where your inflexible product design, product delivery, or pricing comes into play. It's not each component separately but all together. Broader problems need to be compartmentalized by the customer willing to take part in your big platform to solve part of the problem.
Sold to value perception. Customers may churn if they perceive that the service they saw or were presented during the prospecting process does not align with the value they receive. That's feedback to the marketing and sales acquisition teams discussing the solution that doesn't exist.
Technical issues. Frequent technical problems, software bugs, and downtime can erode trust in the service, leading to customer churn. Unreliable performance and swift issue resolution are critical to retaining customers. Of course, this includes poor communication about upcoming updates, when issues will be fixed, or communication about the product roadmap that will be included in the future requested changes.
Emerging flexible alternatives. The presence of more flexible or more cost-effective options in the market can lead to churn, especially if competitors offer features or services that better meet the changing customers' needs. None of the businesses define their expectations and set them in stone. It's changing as their quarterly objectives change. Having a tool in a space with a feature and pricing selection flexibility on the competitor side will make you lose customers.
Neglecting implementing feedback. Failing to listen to and act on customer feedback can lead to dissatisfaction. Customers who feel their input is ignored are less likely to feel valued and more likely to seek alternatives. Organizations fail to deliver what they promised or respond with the timeline of essential fixes to the customers. Many products don't include an option to share that, or customers don't know what to do when they encounter a bug issue or have a suggestion regarding product improvement.
Conclusion: everything in your post-sales organization is connected to your logo retention. This is the number one metric in your backend effort, if not the most critical metric in your business. Despite its simplicity, this metric reflects your product market fit, your reflection of the customers about the indispensability of their business, and tells you a lot about the relationship with your customers. This is one metric you will be asked about during every meeting about the health of your business, QBR, or evaluation of the company. You might be asked indirectly about various forms of retention, but in general, everything starts here with logo retention. If you can't retain your key customers, you will unlikely be able to perform with the NDR/NRR metric, which will be a very natural next step in the conversation about the SaaS business. You won't be able to justify your acquisition efforts, CAC, overall spending, etc. You run a hazardous business if you don't address this metric.
Getting this right starts with the way your product solves the critical problem. Even if you make an initial sale, you still need to prove that your product does something that customers must possess to perform in their business so they can continue staying with you. That's tricky as this involves multi-layered conversations inside your customers' teams and external exposure to competitors. Second, the experience you create for the customer involves your team understanding where your customers are on their journey with your point of view while developing your product. The art is to keep these two elements in line, creating a product and features that always consider the retention impact and giving your customer success team the ability to be a good partner. Here are a couple of things that you should keep in mind while working on this metric with your team:
Adoption metrics: you need to come up with terms with your product team, getting these metrics nailed down to understand the tipping point of your customers, indicating them being less engaged due to the seasonality versus abandonment of your solution.
Refine your renewal process: Every relationship goes through peaks and valleys, so try to reflect that in your renewal process so that your customers feel like you are there where they need you. It might be too late if you reach out to them 30 days before the renewal.
Focus on ICP. Ensure that your ICP is being followed within your acquisition teams. They need to understand that the ideal customer profile is not some random set of criteria but the result of a thoughtful process helping organizations improve their ability to penetrate these accounts with your product at the larger relationship stage.
Engage CS or Onboarding teams early in the process. These things are hard but worth it. Your CS team can be engaged in various ways in the acquisition process so that your future customers know who they will work with in the future; the CS team can demonstrate their competencies in front of their future customers.
Activate Marketing. Although the majority of the effort is on the acquisition side, your product marketing must be involved in communicating effectively what is ahead on the product roadmap, how your organization consumes the feedback received, and what improvements are going forward with your product. This doesn't stop here, but that's a good beginning.
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