Nov 29 2011

This January is ServiceVantage’s 10th anniversary and in the 10 weeks leading up to our anniversary, we will be posting top ten lists of things we have learned and experienced over the years working with more than 30 technology firms across many industries.

The 2nd topic in this series:  The Top 10 Things We Have Learned about Client Retention

Client retention is a critical component to any organization, but this reality is especially acute for technology firms who either have a subscription based revenue model or during an economy where new sales growth is harder to come by.  That being said, our experience has been that most organizations do not take a truly strategic and proactive view to this business challenge.  Over the years, we have learned a lot about client retention.  We have picked the most critical elements in this week’s Top 10 installment:

1 –Losing an executive champion opens the door for competitive bids at renewal time.

The executive champion after all, is the one who supported the purchase of your solution, but when they are replaced for one reason or another, know that there is a very high likelihood that the new executive will want to make his/her mark.  What this generally means is that they will scrutinize the status quo and the more critical your solution is to their group, the more likely they will want to see competitive bids before agreeing to renew.

2 –Many software companies are surprised when clients renew or leave.

In our experience, far too many companies do not have a good understanding of your client’s success (or failure) of using your solution long after the sales is closed.   Many companies we deal with really only have a grasp on a small  percentage of their client-base and are often surprised when a client renews or doesn’t renew.  We have written on this topic a few times, specifically about our methodologies, so it won’t be repeated here, but technology companies need to adopt a client lifecycle approach that removes the element of surprise.

3 – Understanding the true retention rate.

How are you tracking retention rates?  Many companies look at total number of clients at the beginning and end of any given year to determine their retention rate.  Although this is a good measure – what is arguably a more important  measure is to understand at what year did they not renew.   The reality is this.  Many clients will renew in year two more as a reflex then as a choice.  Unless you have failed them miserably, they likely haven’t take the time in the first 12 months to look at alternative solutions and if they feel they need to , will do so during the 2nd 12 month term, making the 3rd 12 month term less likely.

A measure you need to be tracking is the retention rate per subsequent renewal years.  For example, it would be of great strategic interest to know that only 60% of client renew going into a 3rd 12 month term.  This is a statistic that would be hidden if you only tracked the retention rate within any given year.

4 –Having high client retention, frankly, is hard work.

Clients will not renew out of the goodness of their heart.  Their business must be earned and re-earned continuously over any given term.  Ensuring retention should be an all-consuming goal of your organization.  It takes work.

5- A disconnect between the purchaser and the user community spells trouble. 

User adoption becomes very challenging when the user community had a software/solution thrust upon them instead of being involved in the decision making process, especially if there was an incumbent solution.  This type of scenario results in lack luster and inconsistent adoption rates.   Companies rarely, if ever, renew a solution that is not being properly used.  Wherever necessary, you need to bridge the void between purchaser and user when a divide exists.

6 – The bad news – SaaS solutions are easy to deploy.

Why is this bad news?  If they are easy to deploy, they are also easy to remove.  In many cases, the risk is very low for companies to switch SaaS providers.  Retention is always a risk, when leaving you is painless – relative to the on-premise model.

7 – Client retention is strengthened when your solution is connected into a larger eco-system of solutions.

If your solution can integrate, communicate or otherwise “hook into” other key tools that your client needs such as financials, CRM, project management tools, etc., it will be far more difficult to pull the plug because it now has an impact to the larger ecosystem that is of critical importance to your clients.  This makes your solution far more valuable (read: more likely to retain) than it was when it was an isolated point solution.

8 – Complimentary service offerings positively impact client retention. 

Offering complementary services that will help to ensure that your software/solution is entrenched in your client’s business process and workflow will go a long way to cementing user adoption and overall usage. If you don’t have a mature, complementary service offering – you may want to start.

9 – Sales rarely take an active involvement in client retention.

Not because they don’t want to, but because they will have a very short career if they are not meeting the new revenue growth targets set by your company.  The challenge is that even though Sales is often responsible for all revenue they cannot (and I would argue, should not) spend the amount of time and effort on client retention (read: protecting existing revenue).  This is yet another reason why you need a client lifecycle approach that complements the Sales team and gives them the confidence to pursue new business because they know the company is pursuing client retention and revenue protection.

10– Clients will not renew if they think they have chosen a market loser.

As we discussed in our previous blog posting:, many people will not take the risk to renew with a company that is perceived as a “market loser”.  Your Marketing and PR teams need to communicate you market wins to counter any perceived “market loser” symptoms.  I go back to my RIM example.  RIM, a great company, that has great products, but will lose clients not because their products or solutions, but because they are perceived (wrongly so) as a “market loser”.   No one, (with the exception of Leaf fans – kidding), want to be associated with a perceived loser.

So take a hard look at your organization through the lens of each of our Top 10 items, and adjust accordingly.

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