How Sales Impacts SaaS Customer Retention

SaaS customer retention is everything. Everything. If you are bootstrapping or running lean, it’s the only way to have a healthy, profitable company. And if you are raising money or want to be acquired, it’s the basis for the entire valuation of your company.

SaaS customer retention is big. Really big.

There is no getting around it or sweeping it under the rug.

And it’s something that is impacted by every aspect of the organization.

It’s the product, duh.

It’s what marketing says and does to get a lead.

It’s how sales transforms that lead into a viable prospect—what the sales person promises and the expectations they set.

It’s how customer success onboards and manages the relationship.

It’s how support is quickly and accurately delivered (or not).

It’s operations and how they create customer-friendly processes, like simple, understandable billing.

It’s all this and much more.

But let’s talk just about the sales role in customer retention for just a minute (particularly as it applies to SaaS products that are a 60day + sales cycle and 30K+ average contract value). Because while it is all of the above functions, and more, sales is the most on the front line of selling to the right customers and side stepping the wrong ones.

I’ve seen sales teams pulling in lots and lots of signed contracts (yay!) only to realize down the line that there was a snowball’s chance of retaining those customers (so very bad!).

Depending on your customer onboarding period and your renewal cycle, this type of retention problem can be hard to spot at when the customer contract comes in. It only becomes clear once those customers are slow to adopt, don’t renew, or start to cancel early.

To avoid this, you do have to skin your knees a bit. It’s hard to know who you don’t want to sell to unless you have sold a few of those types of accounts. And likewise, it’s hard to know who you are most likely to retain without some retention traction under your belt.

But you can make good attempts at closing the right customers, even before you have your skinned knees and some positive traction.

What’s most important is a very clear definition of the right, and wrong, customers. And the right, and wrong, types of contracts too.

Without a clear definition of what types of customers and contracts are most likely to be retained, it’s hard to avoid the wrong ones. Sales leadership needs to document, and educate the sales team constantly on these four things:

• Ideal buyer profile: What types of customers the company is most likely to retain (industries, org size, employee count, department, etc), and why. The why is important.
• Who to avoid: Perhaps more importantly, what types of customers the company is least likely to retain. Often, this comes down to attributes, like a buyer who can’t articulate how or why they want to use your product. That is an example of a big red flag for churn.
• The right expectations for what your company and product can do: Guidelines for expectation setting. No over promising (that’s a sure way to lose a customer) or sugar coating. Creating an educated customer, without slowing down the velocity of the deal, is a required alchemy for the modern sales team. What happens during onboarding? What areas of the business can your solution impact? What are the expected results and outcomes of implementation? These things need to be covered during the sales process.
• The right contract terms: Guidelines for how contract terms can impact retention. A customer who gets a free implementation? They have no skin in the game, and it is easier for them to walk away early. That customer is going to be harder to retain, particularly if they have certain characteristics. A customer who has an out clause at 90-days? Harder to retain.

Ideally, sales sells only to buyers who have a business problem or need that can clearly be solved with your solution, who have realistic expectations and who have the capacity to purchase.

Seems so simple and obvious, doesn’t it? But in reality, it doesn’t always play out like that. When you have a bad-fit account banging down your door to be a customer, it’s really, really hard to turn away from that. Whether or not you do is a strategic business decision.

Close the customer and you’ve got another win on the board and some revenue in the door. On the flip side, you also have the potential drain on company resources desperately trying to retain them and the risk to your company’s market valuation if you can’t keep them around. Ultimately it comes down to weighing the pros and cons of short-term customer count and revenue versus long-term company health and valuation.

Decisions to close a bad-fit customer should be made jointly.

So the decision to close those bad-fit buyers who want to become customers probably shouldn’t be made by sales leadership alone, unless sales has a KPI for customer retention. Customer retention takes a village. The leaders who are responsible and accountable for keeping your customer churn low should make those decisions together. I personally think that low customer churn (aka high customer/revenue retention) should be a joint KPI held by product, sales and customer success teams.

The key for sales to positively impact retention? Education, reinforcement and consistency.

Regardless of how those “bad customer fit” decisions get made, the way sales can positively impact customer retention is by being really clear about who to sell to and who to avoid, setting the right expectations, and negotiating good, fair contracts. Sales leadership should be reinforcing these concepts consistently and continuously through education and skill building. It’s easy to take your eye off of one of these elements and start to see the churn increase before you know it.

Want the quick version? Check out my video inspired by this article.

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