The Impact of a Customer Contact Strategy on Churn Rates

A frequent topic for TSIA members concerns contact strategies with customers and the implications on renewal rates, churn rate, and SaaS/XaaS revenues.

When companies fail to deploy effective customer contact strategies or deploy them in an ineffective manner, they leave themselves vulnerable for revenue leakage, higher churn rates, and generally experience poorly optimized renewal revenue outcomes.

The Challenges of Implementing a Customer Contact Strategy

You may be wondering if you should invest in a strategy to constantly contact your customers and promote the value of your product or service. To that I would say, “Hmmm, let me think…YES!”

So, why do so many Customer Success organizations strive for, yet struggle with, the ability to articulate an ROI based in dollars for the existence of their Customer Success organization?  Why do traditional Renewal organizations struggle with implementing contact strategies before the renewal process initiates 120 or 90 days before expiration?

The answer is pretty straight forward; the cost to contact your customers must demonstrate a return on revenue generated, and companies struggle with articulating that value proposition.

Our data shows you can articulate the value of your customer contact strategy. Here’s how.

The Relationship Between Customer Contact and Churn Rates

Fact: we live in a world in which Sales organizations reward dollar transactions over relationships, and this raises the bar for proof of value. Under the sales/transaction paradigm, the correlated standard of proof is very straight forward: Did I sell a deal? At what cost?

This narrowly focused definition of ROI is simple and immediate. It places stress on Customer Success or SaaS/XaaS Renewal organizations when the result of an action or a strategy may not be realized for 2, 3, or more quarters into the future.

It’s not good enough in today’s environment to simply demonstrate customer satisfaction, we must also demonstrate a correlated impact that is tied to financial results. Even when the cost of acquisition is well known— for example, how it costs 8X or more to sell a new deal than retain an existing customer—the quest for resource investment can be daunting when there are ambiguous cause and effect correlations for Customer Success and extended renewal motions.

According to recent TSIA benchmark data, there is a strong correlation between customer churn and contact strategies.

We asked benchmark survey respondents, “What is the percentage of customers that churned last year (Customer Churn Rate)?”
Source: TSIA Benchmark H2 2019

The data is clear. When Companies contact their customers on a monthly, or even a quarterly basis to promote the value of the product or service, customers churn at a rate of 6 points lower than when there is no consistent contact strategy.

Further, if we analyze the data associated with cancelation reasons, we find that TSIA members (industry peer group) report that on average, 22% of their customers cancel when they either do not perceive value of the subscription or service, or they are not willing to pay for the value of the subscription or service. This is a significant opportunity with material revenue implications to technology companies. So, how can you improve customer retention through customer contact and communication strategies?

Strategies for Communicating Value with Customers

TSIA members suggest that they are working through the same dynamics described above, and are deploying a variety of strategies depending on the segment of the business, as follows:

• Enterprise Segments: May be served by periodic reports delivered electronically and supported with deep quarterly business reviews. The key is to move from SLA performance defense to valued outcome offense. Prepackaging reports and or value-based presentations that can be scaled yet targeted to specific customers is key here.
• Mid-market and SMB Segments: May receive communications via email or phone and sequenced by pro-active CS or CRM systems. The highest volume segment may be entirely enabled through technology with automated preconditioned communications released on time schedules. Understanding dominant value proposition levers for the base along with delivering outstanding usability/readability experience is key to this motion.

One of my personal favorites is my OnStar communications for my car. I get an email monthly telling me about my tire pressure and oil life, and all kinds of green, yellow indicators, etc. Just the fact that I get these notices demonstrates value, and every time I think about cancelling, I weigh the fact that I may lose these communications vs. the small amount of money I spend.

Tips for Getting Started With Customer Contact Processes

Now that you know you need to have a customer contact strategy and why it’s important, here are some tips to help you get started.

1. Segment the renewal opportunity and establish purpose-built capabilities by segment. These strategies should be documented and embedded in process and technology capabilities.
2. To extend scope, utilize common reports and communication strategies that are system-built, and possibly system generated and delivered.
3. Train customer success/service reps and renewal specialists to identify and promote the value propositions customers desire and insert these conversations at every contact opportunity.
4. Establish ability to measure segment level KPIs at the Adoption and Renewal phases of the customer life cycle and build the ability to correlate business practice performance with financial results.

These proven tips are based on industry-backed data, which TSIA collects, analyzes, and transforms into verified action plans to help technology and services organizations improve and grow.

For more help with your customer contact strategy and other recommendations for increasing revenue through Services touchpoints, contact TSIA to learn more about how membership in our Service Revenue Generation research and advisory program can help you achieve your goals.

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