How to improve B2B customer retention rates
Retention has long been a focus for B2B product marketers. In a subscription business focused on ARR, customer retention is a key metric. Further, many B2B companies operate in finite markets that target a specific industry, account size, or other niche. A customer retention problem effectively reduces the market size and growth becomes unsustainable.
Most companies closely monitor customer retention metrics. There are also early warnings such as decreased usage levels, increased support tickets, complaints in online communities, and the like. While the dip in retention is obvious, diagnosing the root-cause and finding the solution are more challenging.
Finding the cause
Retention problems can occur even in companies with a strong solution and operations. Identifying the source(s) of the problem can be nuanced. Look for:
Targeting and fit
Customer retention problems can indicate a mismatch with the target customers. Sales may be reaching and signing up customers that simply aren’t the right fit. While you may be successful with great messaging and an effective sales team, these accounts will eventually churn if the product doesn’t align to their business or needs.
Lower retention may be linked to a change in the competitive landscape. New entrants or new strategies from existing competitors can erode customer loyalty, especially in SaaS businesses. Churning customers may not show signs of active dissatisfaction with their current solution. But, in a standard due diligence process at renewal time or through competitor marketing and sales, they become vulnerable to a strong competitor.
Packaging and pricing
Feature packaging/bundling and pricing play a major role in perceived value. Pricing metrics that are intuitive and equitable lead to more loyal customers. Conversely, when the product cost seems out of sync with the value the customer receives, they’ll begin to evaluate competitor options. Similarly, feature packaging can lead customers to churn if they don’t align to market needs. For example, forcing customers to pay a premium for the “Best” package to obtain one key feature may maximize revenue in the short-term, but creates frustration that can lead to a lost customer.
In some B2B segments, external factors contribute to churn. For example, new regulations can force businesses to find a new solution to comply. Another example is the pandemic shutdown in 2020, which abruptly accelerated the need for solutions to support remote/online business.
Data to diagnose and prevent retention problems
To determine which factor (or combination of factors) in your business is creating customer retention problems, here are some suggestions.
Internal data sources
- Examine the demographics of churned accounts. The basics of industry, company size and customer lifecycle can highlight drivers of churn. Higher churn among a particular industry or size of company indicates a mismatch for that segment. Another example is customer lifecycle: Accounts that churn when they reach a particular size may indicate they’ve outgrown the product.
- Speak with Account Executives and Support: These team members interact directly with customers. They can offer insights on specific pain points and contributing factors that correlate to a lost customer. Keep in mind that their insights may be anecdotal and have (unintentional) bias toward recent experiences or especially memorable instances. Even so, their feedback can help you triangulate on the various factors shaping churn and retention.
- Net Promoter (NPS) results: If available, analyze NPS data for churned customers. In addition to the 0-10 rating, the “why do you give that rating” responses may indicate specific product or operational problems. Note that the bulk of NPS data comes from users who may not make or influence purchase decisions. If possible isolate and analyze NPS data for customer contacts with more influence in the buying process.
External data sources
Primary market research has a role in preventing, as well as diagnosing and addressing, retention problems. In Isurus’ work for B2B software firms and other B2B clients, we apply a range of market research studies to help improve customer retention.
- Lost customer debriefs. When retention rates dip, it is always a good idea to ask lost customers for feedback about their decision. The value of this data often comes down to the specific questions asked and the research methodology. For more complex/larger purchases or when the reasons for churn seem nuanced, Isurus recommends an in-depth interview approach instead of a survey. We also recommend the interviews be conducted and analyzed by someone who will listen effectively and bring an objective perspective.
- Ongoing customer health monitoring. Measuring the health of the customer base at regular intervals acts as an early-warning signal for potential retention issues. An actionable customer health survey is more than the NPS metric. It should also assess perceived value relative to cost, confidence the solution will continue to meet the business’s needs, and the extent to which the customer account uses the full feature-set available to them in the product. Measure the health of the customer base needs across a representative set of accounts, and not just the advisory board or other small subset of customers.
- Segmentation. Identifying and targeting the right-fit customer segments can prevent retention problems. We see many instances where effective marketing and sales leads to signing up customers that end up churning. They simply aren’t the right fit for the product. Faced with aggressive revenue growth targets, it is tempting to sell the product to anyone who wants to buy it. Identifying the optimal segments not only helps with longer term retention, but can also avoid the higher costs of serving customers who aren’t a good fit.
- Packaging and pricing research. In addition to supporting revenue and profitability objectives, effectively packaged and priced products also support stronger retention. Market research can identify optimal pricing metrics and price points. It also provides insights on which metrics are non-starters, or need more education/marketing support to be accepted. Market research can guide the development of feature bundles that align with customer needs and provide value. All of these factors support higher customer retention rates.
Effective B2B customer retention management requires looking at multiple facets of the business: Strategy, product management and marketing, sales, and operations. Gain control of retention by integrating customer insights, from market/product strategy through to customer support. To learn more about using primary research to build stronger retention, contact firstname.lastname@example.org.