Churn Reduction Fails Without Sales Onboard
Editor’s Note: This article first appeared on the StatusQuota blog here.
Customer success teams are vital for keeping churn low. But if the sales team isn’t involved in improving customer retention, your company is doomed to fail.
A customer-centered culture cannot and should not be isolated to one team. Everyone in the business must be aligned with delivering an amazing experience. If one department takes their eye off the ball, the company will suffer.
Yet oftentimes sales teams are out of sync with customer success efforts. They have sales reps hitting quota by bringing on customers that are not suited for the company’s product. This solution mismatch creates big headaches for customer success managers who are left holding the bag.
Tell me if this story sounds familiar: Hours are sunk into extended customer onboarding. User adoption never picks up. CSMs hear disenchantment creeping into the customer’s voice as time drags on. And when the contract comes round for renewal, your “customer champion” has disappeared and you can bet they’re not going to be coming back.
This state of affairs is way too common in SaaS-land. But there’s no need to despair (yet). There are tactics you can use to better align your sales effort with retention strategy.
Let’s walk through a few of the strategies you can use to create a retention-focused sales team.
Make Customer Retention a Part of Sales Compensation Plans
Incentives drive behavior. That’s why a sales compensation plan is such an important tool. The comp plan is more than just a description of payment terms. It is a statement of company values, telling a salesperson all the things she must do in order to “earn” her keep.
There is no single “perfect” sales comp plan. As a company grows, its focus and priorities will change. And the comp plan must adapt as well.
HubSpot’s very first sales compensation plan was dead simple: each salesperson received an upfront payment of $2 for every dollar of MRR they brought on. So a salesperson bringing on a $750 / month contract would receive $1,500 as their commission.
But HubSpot wasn’t naive – they knew churn would be a potential issue. So they also instituted a four-month clawback provision. That meant if an account canceled its contract within the first four months, the salesperson would repay the commission. Only after four full months on the platform would a salesperson keep the entire payout.
This program was wildly successful, driving HubSpot’s customer count from 100 to 1,000 within 6 months.
But customer churn skyrocketed and was causing a whole new set of headaches. Salespeople weren’t setting good expectations for customers. They were hungry to close deals and weren’t overly concerned about ensuring a good customer-solution fit. Unsurprisingly, the greatest churn happened in month 5, right after the clawback provision had expired.
Comp Plan Innovation: Set Sales Commission Based on Customer Churn
So this led to the first comp plan innovation: varying the sales commission based on average customer churn. Mark stack ranked each of his salespeople by their customer churn rates. Doing so revealed a 10X difference between the best and worst churn performers on the sales team. So then he implemented a new compensation scheme:
The top quartile with the lowest churn saw their commission doubled to $4 per dollar MRR sold. The 2nd quartile saw a big bump as well, earning $3 per dollar MRR sold. 3rd quartile sales reps held steady at $2. But the bottom quartile saw their commission cut in half to $1 per dollar MRR sold.
This was a massive statement for everyone on the team. It transformed the perception of customer retention for each of the sales reps.
The four-month clawback rule made churn a stick to avoid. And to avoid it, salespeople were gaming the system. Now finding accounts that wouldn’t churn was a highly sought reward. This also introduced a degree of competition into the whole process. Salespeople could compare each other based on account churn and revel in the success of moving into a higher pay bucket as account quality improved (people really like comparing themselves to each other).
This program was massively successful. It led to a 70% reduction of churn in just six months.
The lesson here is clear. Tying sales compensation to customer retention goals and instituting accountability processes to reinforce desired actions can quickly address the “bad behavior” leading to customer churn.
Let’s switch gears now and examine another tactic for getting sales aligned with customer retention.
Creating Customer ROI Models
Customers don’t buy products. They purchase solutions to problems. If they are being sold on a bunch of features that sound awesome but don’t resolve an underlying pain, they will walk away eventually.
When salespeople bring on clients without a well-defined value proposition at the time of purchase, the customer success team is forced to fight with one hand tied behind its back. Onboarding and adoption are much harder if you don’t really understand what success looks like for the customer.
That’s why a customer ROI model is so vital. An ROI model is a simple calculation that ties activity and actions in your software platform to outcomes the customer wants and values. ROI models enable vendors and their customers to get aligned with business goals and tie product usage to measurable value creation.
Here’s what this looks like in practice.
Conversica offers an AI chat automation solution that enables organizations to dramatically scale up their outreach efforts. This creates value for clients in a couple ways:
- Reduces manpower required to manage sales and customer support inquiries
- Guarantees follow-up on certain communications ie. no more salespeople letting leads “slip through the cracks”
It would be easy to include these value propositions as part of a sales script and forget about them after the deal closes. But there’s a much bigger opportunity here.
Instead, you can tie these two value propositions to existing cost and revenue benchmarks. To do so you need to gather operating benchmarks from the company as part of the sales process. These details can include:
- Average # of hours salespeople spend following up on leads
- Average time spent by call center worker responding to support requests
- Base salary of a salesperson
- Base salary of call center worker
- Average engagement rate on sales leads
- Average size of a sales contract
Once the sales team has gathered these metrics, the customer success team can use them to build an ROI model which calculates dollar cost savings and projected incremental revenue associated with using the service.
You can see how Conversica highlights these ROI-focused, outcome-based results in their case studies:
With this kind of information available, it becomes much easier to drive adoption and growth with a customer’s organization. You are focusing on value created for them, not just activity that is happening on your platform.
What’s more, these metrics are impactful as proof points to empower a customer champion who needs to fight for the budget to keep your solution in place.
Getting sales team aligned with customer success is vital for sustainable growth.
Without providing incentives to bring on sticky customers, your sales reps are more likely to sign accounts with big churn risks.
And if the sales team isn’t helping to build a clear customer ROI model, customer success will struggle to drive adoption for want of a clear link between activities and desired outcomes.
Making everyone care about the customer is the not-so-secret weapon in building an amazing SaaS company.
The importance of customer lifetime value (CLV) can’t be overstated. If you want to increase your CLV, then you should start by investing in customer success.
Onboarding can be a powerful tool that helps you deliver value, provide support and improve ease of use for your customers. Appcues’ Jonathan Kim explains how to successfully implement intentional onboarding within your organization.