Customer experience is becoming an increasingly critical aspect of retaining customers and boosting revenue. As most business leaders know, it costs more to obtain a new customer than it does to retain an existing one. To reap the rewards of CX and expand current relationships, follow these three steps.
As businesses continue to poke their heads out from behind COVID-19’s long shadow, they’ve got money on their minds. Of course, growing revenue has always been a top priority, but after two long years of economic disruption and skyrocketing inflation, the competition for customers’ eyeballs is tougher than ever.
It makes sense, then, that almost 90% of business leaders say they’re leveraging customer experience (or CX) to power business growth. Even the greenest business leaders know that it’s cheaper to keep a current customer than it is to obtain a new one — up to 25 times cheaper, by Harvard Business Review’s estimations. But more than that, keeping your current customers happy is the best way to maintain a recurring revenue stream. Per Semrush, current customers are not only 50% more likely to try your new products, but they’re also more apt to spend more money per transaction.
And, when done well, CX works: Among the CEOs leading the most profitable companies, the IBM Institute for Business Value found that 60% listed delivering better CX as a top priority. What’s more, there is a strong correlation between financial outperformance and listing improving CX as a formal business priority. These results really speak for themselves. So, why aren’t all businesses that claim to value CX reaping the rewards?
Often, it comes down to two fundamental mistakes: failing to differentiate between new and existing customers and framing buyer conversations incorrectly. The first one might seem like business 101, but it’s worth repeating: Existing customers and new customers are fundamentally different groups. As a result, they require unique sales and customer success approaches. Delivering messaging to existing customers that’s best suited for prospects can actually lower the likelihood that those customers will stick around for the long haul.
However, even if an organization knows to use different messaging for different customers, it’s not out of the woods yet. After all, between 60% and 80% of customers who describe themselves as satisfied never return for repeat business. How could this be? Often, it’s because your sales team is using the wrong framing in their conversations. In the case of existing customers, for example, your team might be tempted to lead with a new product message to entice customers to buy more things, but an existing customer doesn’t want to hear about you. Instead, they want to see what value your relationship has brought them.
C-suite leaders must find better ways to link their initial business cases to the results they’ve actually achieved. This is what creates a jumping-off point for relationship expansion. Here are three strategies you can implement to keep and grow revenue with current customers:
- Distinguish renewal from expansion.
Just like current versus new customer messaging, you can’t take a one-size-fits-all approach with your renewal and expansion messaging. In your renewal messaging, for instance, you need to reinforce the status quo. After all, the goal of a customer renewal conversation isn’t to disrupt — it’s to get them to buy the same thing repeatedly. Therefore, you’d be better off reinforcing how strong the customer’s status quo is rather than trying to introduce new unmet needs into the discussion, which could lead them straight into the arms of your competitors.
This contrasts with expansion messaging, which requires a mixed strategy. You still need some messaging elements that support the status quo so you don’t lose the customer to the competition. But by definition, expansion requires some degree of change from the customer. As a result, you’ll need to plant a small seed of doubt in the current approach so the customer is more receptive to trying something new.
- Look at the big picture.
Savvy CEOs know they can’t hang their hats on a single metric and experience runaway success. Rather, they need to understand all the metrics, how they got to the metrics, and what the metrics mean when examined in the larger context. Only then will they be able to see where the problems lie. With your commercial team, for example, you should explicitly break out retention metrics versus expansion metrics. A lot of CEOs and heads of sales are tracking net retention, but net retention can be misleading when examined in isolation.
To illustrate, imagine your existing customers spent $100 last year, and your net retention is 105%. That means those current customers are now spending $105 with you. In theory, that’s good. Fast-growing technology businesses often have retention rates in the 120s and 130s. However, that number can be misleading unless you look at how you got to that 130. Was it because everyone renewed and bought 30% more? If the churn rate was 20%, the business actually lost a pretty sizable chunk of customers. Thankfully for you, the remaining customers brought in a lot more money.
That’s precisely why you need to look at net retention and churn, as well as distinguish between pure retention and pure growth. It leads to completely different future strategies. You might find that some customers dropped off altogether, while others spent a lot more money with your company. And that might change your customer profile. It could tell you that you have a lot of opportunities with a particular segment, for instance, or that your customer success was pretty abysmal and you need to shore up your renewals alone. How you achieve your net retention figure defines your next step.
Another favorite metric among CEOs is annual recurring revenue (known as ARR). Again, when you put too much stock in ARR, it can lead you down the wrong path. After all, there are several reasons your ARR might have grown — whether it’s because your current customers have purchased more or because you brought on a lot of new customers. If you’re just looking at ARR without examining how you got there, you could be investing in the wrong areas. Really understanding the metrics and how you got to them helps you determine where you need to allocate your budget.
- Get the right bodies in the right seats.
Do you think about your customer relationships through a post-sale lens? More importantly, do you have someone on your team responsible for the value and revenue that goes with customer expansion? Surprisingly few CEOs have thought about these questions. Consider, for instance, that only 22% of Fortune 100 companies had a chief customer officer in 2014. Worldwide, there are still only about 500 COOs.
Beyond the C-suite, you need to hire individuals dedicated to customer success, a discipline that’s taken off in the past decade, thanks in part to SaaS companies. Effectively, these customer success managers will act as the post-sale owners of your client relationships.
Although the discipline might have grown out of customer support, customer success goes far beyond answering phones and helping customers on a one-off basis — and that’s by design. Existing customers don’t want to have to repeat their story five different times to five different people. They want a customer success manager to own their account, ensure they’re getting the value they expected, and orchestrate everyone else involved.
Additionally, though customer success is a commercial function, customer success professionals aren’t salespeople. Instead, they facilitate the right commercial conversations. Done right, customer success managers are often so close to customers that they know what truly drives value. As a result, they’re often the first to identify expansion opportunities and are in the best position to talk to customers about renewals.
Finally, customer success managers differ from customer service reps and salespeople because their goals are set up differently. In customer service, for example, goals center around the number of resolved tickets, while your sales team focuses on meeting quotas. A customer success manager’s primary goal, on the other hand, is to ensure the client receives value from the relationship.
Investing in your customer experiences and relationships is one of the smartest things you can do for your business, but understanding this fact doesn’t guarantee success. Follow these three steps to take better care of the customers you already have and watch as your business blooms.
Written by Doug Hutton.
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