Creating a Customer-Obsessed Growth Engine

The Importance of Net Revenue Retention (NRR)

Net revenue retention (NRR) is a key metric that measures a company's ability to retain and grow revenue from its existing customer base over time. It is calculated by taking the revenue from existing customers in the current period, including any expansions, contractions, or churns, and dividing it by the revenue from those same customers in the prior period.

NRR is a critical metric for SaaS companies because it reflects the long-term health and sustainability of their business model. A high NRR rate indicates that customers are not only staying with the company but also increasing their spending, which is a strong signal of customer satisfaction and product-market fit.

Benchmarks and Trends:

• According to recent industry data, the median NRR rate for SaaS companies is around 90-95%, with top-performing companies achieving rates above 120%.
• However, NRR rates have been trending downward across the board, even for top-quartile companies, due to various macro factors such as economic uncertainty and increased competition.
• Companies with an NRR above 120% can theoretically grow indefinitely without acquiring new customers, as their existing customer base generates enough revenue growth to sustain the business.

A strong NRR rate is essential for SaaS companies to achieve sustainable growth and profitability. It is a key indicator of customer loyalty, product stickiness, and the overall health of the customer relationship. Companies should focus on implementing strategies to mitigate churn and drive expansion within their existing customer base to optimize their NRR.

Churn Reduction vs. Expansion for Boosting NRR

There are two key levers SaaS companies can pull to improve their net revenue retention (NRR): mitigating the risk of gross churn, and growing their existing customer contracts and annual contract values (ACVs). Both levers are crucial, but let's focus on churn reduction.

Gross churn encompasses not only complete logo churn (when a customer leaves entirely), but also contraction or down-sell scenarios where the customer reduces their contracted services or usage. Minimizing gross churn is critical because replacing those lost dollars is far more expensive than retaining and expanding an existing customer.

While expansion opportunities like cross-sells and upsells are important growth drivers, they become exponentially harder if a company is simultaneously bleeding customers through excessive churn. A proactive, preventative approach to churn mitigation that embeds risk reduction into all customer touchpoints pays major dividends for NRR.

The Cost of Churn

Churn represents a significant financial drain on SaaS businesses. When a customer churns, the company loses future recurring revenue from that account. Additionally, there are substantial sunk costs associated with acquiring that customer through sales and marketing spend that become unrecoverable losses. Industry benchmarks suggest it costs 5-25X more to acquire a new customer compared to retaining an existing one.

Beyond the direct financial impact, churn also carries qualitative damage. Detractors tend to be vocal in the market, acting as negative referrers and potentially tarnishing the company's brand reputation. Their criticisms and complaints get amplified through review sites and social media. In contrast, promoters who stick around don't tend to be as outspoken about their positive experiences. This asymmetric dynamic means churn can have an outsize effect in diminishing a company's market presence and growth potential.

Furthermore, high churn rates create organizational instability and morale challenges. Customer success teams get demotivated by constantly losing accounts. Sales teams become discouraged about future renewals. And product teams struggle to maintain strategic focus when constantly reacting to churn firefights rather than proactively building for future growth.

In summary, the costs of churn go far beyond just lost revenue. SaaS companies must take a comprehensive view of the financial, repetitional, cultural, and operational impacts when building anti-churn strategies. Mitigating risk upfront pays substantial dividends.

Internal Plays for Churn Mitigation

Businesses must have robust internal processes to identify and mitigate churn risks proactively. This includes leveraging customer insights to understand the attributes of sticky customers, running regular account reviews with executive involvement, building a customer-centric culture with feedback loops, aligning incentives across the organization, and conducting thorough churn retrospectives.

By deeply analyzing their customer base, companies can pinpoint the key drivers of stickiness, such as company size, industry, contract value, product usage patterns, and more. Armed with these insights, they can optimize strategies from new business to customer success to drive adoption of the stickiest behaviors.

Regular account reviews bring cross-functional teams together to discuss at-risk accounts, brainstorm tactics for saving and growing them, and ensure accountability. These reviews also provide visibility for customer success managers with executives.

Fostering a customer-centric culture requires radical transparency around customer feedback from NPS surveys, user interviews, customer advisory boards, and other sources. This feedback should directly inform product roadmaps and company priorities.

Aligning incentives through compensation plans that include customer success metrics like NRR ensures everyone from executives to individual contributors is motivated to prioritize customer outcomes.

Finally, conducting rigorous retrospectives on churned accounts, including interviews with former customers, allows companies to learn from churn events and update playbooks accordingly to prevent future occurrences.

Leverage—and Action!—Customer Insights

Businesses must continuously revisit their working assumptions about which attributes yield the stickiest customers, both in terms of explicit traits such as company size and resourcing, industry, contract size, etc. as well as more implicit usage and adoption information. It is imperative to have a strong command of the company-specific "sticky drivers."

Leaders must study their retention curves and optimize both their new business and customer success strategies accordingly. If small customers regularly churn (or put undue resource strain on your team), consider instituting a minimum deal size. Once you have enough data to unlock your business' unique sticky drivers, your onboarding and broader customer success playbook need to be maniacally focused on driving customers toward those milestones and behaviors.

At Sailthru, we identified adoption of our personalization technology as the stickiest driver of them all. Once we identified the striking difference between customers using this technology and the have-nots, we changed our time-to-value calculation to when customers sent their first communications using that personalization technology, and we wouldn't consider an implementation complete until that happened. Yes, the metric looked much worse, but we were okay with that given this behavior had positive long-term benefits.

Run Account Reviews with Executive Team Involvement

A quarterly Account Review is a powerful accountability framework for the entire business. CSMs review a segment of customers one by one, presenting accounts that are either at-risk or ripe with expansion potential. The CSM provides a brief account history, key challenges, and specific requests for support from other teams.

The Account Review ensures all stakeholders align on action items to save or grow the customer. It brings together the CSM team, CS leadership, technical support heads, and the executive team. Executives can make on-the-spot decisions, brainstorm tactics, and prioritize requests.

Account Reviews serve as a visibility platform for CSMs with leadership. They drive cross-functional collaboration and demonstrate the company's customer-centric culture. While CS leadership should review accounts weekly, this quarterly cadence allows for broader involvement.

Build Customer-Centric Culture

Customer success is a team effort, requiring visibility into customer needs across the entire organization. Fostering a customer-centric culture with radical transparency around customer feedback is crucial. Make all NPS data, including verbatim comments, accessible company-wide. This feedback should heavily influence product roadmaps, and the comments can identify relevant candidates for beta tests.

However, don't rely solely on NPS surveys, which often have low response rates. Host customer talk forums where executives interview clients in a panel format to gather live feedback. For technical teams, invite customer stakeholders to meet with the product sprint teams supporting the products they use.

For companies post-product-market fit, customer advisory boards of 12-15 client executives provide invaluable insights. These boards convene a few times per year, offering direct feedback on the competitive landscape, product roadmap, customer service, and more. Embrace radical transparency by openly discussing company challenges with advisory board participants. Assign homework before meetings to ensure participants gather input from key stakeholders within their organizations.

Diversifying customer feedback channels and making that input transparent across the company drives a customer-first mindset. When employees from all functions understand customer needs, they can align efforts to deliver exceptional experiences.

Align Incentives to Customer Outcomes

Customer success must be a company-wide priority, not just the responsibility of the customer success team. One powerful way to drive this alignment is by tying compensation plans across the organization to customer outcomes and retention metrics.

At the executive level, consider incorporating net revenue retention (NRR) or customer satisfaction targets into the bonus plans for the entire leadership team, not just the customer success leader. When company leadership has skin in the game, you'll be amazed at how quickly a customer-centric mindset permeates decision-making across all functions.

This principle of aligned incentives should extend beyond the executive team. For example, sales managers are typically compensated based on bookings attainment. By adding a kicker for hitting churn reduction targets, sales managers will be incentivized to invest time in retaining at-risk customers. Similarly, customer success managers (CSMs) should have a portion of their variable compensation tied to NRR, encouraging them to mitigate churn risks while also driving upsell and expansion opportunities.

Even individual contributors in functions like product, engineering, and support can have a portion of their bonuses tied to customer metrics. This reinforces that customer success is everyone's responsibility and ensures the entire organization is rallying behind delivering an exceptional customer experience.

Aligning compensation plans to customer outcomes is a powerful way to foster a customer-centric culture throughout your company. As the old adage goes, "What gets measured gets managed." By making customer success a shared priority across all roles and levels, you'll be well-positioned to maximize net revenue retention and drive sustainable growth.

Conduct Churn Retrospectives

Churn is an inevitable part of any business, but it's crucial to learn from it. Companies should conduct thorough churn retrospectives when customers leave, particularly in cases where the churned customers were not identified as risks during regular account reviews. These retrospectives should summarize the history of the partnership and outline measures that could have been taken to prevent churn.

Sunlight is the best disinfectant, as the saying goes. It's important to learn about churn first-hand, both through internal interviews and external conversations with the churned customers themselves. Customer success leadership is well-equipped to conduct exit interviews with departing customers, ideally once the customer has fully wound down their engagement to ensure maximum transparency and detail.

Additionally, conducting anonymous post-churn interviews with an external third party, such as a consultant or investor, can often yield particularly valuable insights. These external perspectives can help identify blind spots or areas for improvement that may not be as apparent from within the organization.

The key is to thoroughly analyze why churn happened, identify any missteps or missed opportunities, and then operationalize those learnings into the company's customer success playbook. By taking a proactive approach to understanding churn, businesses can continuously refine their processes and strategies to better mitigate future risks.

Customer-Facing Churn Plays

While internal processes and cultural alignment are critical foundations for churn mitigation, customer-facing tactics ultimately determine success. These plays should be meticulously woven into the entire customer lifecycle.

Ensure a Seamless Onboarding Experience

First impressions matter. A well-designed onboarding lays the groundwork for long-term stickiness by accelerating time to value realization. Coordination between sales and customer success is paramount to avoid surprises; technical requirements and a realistic onboarding plan should be socialized pre-sale. Once underway, implementation should laser focus on driving adoption of the solution's core value drivers rather than simply replicating the previous vendor's setup. Low-friction tools like templated project plans and regular customer checkpoints grease the skids.

Devise Customer Value Plans

Rather than reacting to customer needs, a proactive value plan coaches them towards targeted outcomes. Developed jointly, these living artifacts align both parties on 2-3 key objectives per quarter and associated tactics to achieve them. Value plans keep customers focused, facilitate data-driven ROI discussions, and build a library of proven plays. Consistent status meetings reinforce the plan while also creating natural escalation paths when roadblocks arise.

Ensure Meaningful QBRs

Quarterly business reviews should be treated as indispensable ceremonies, never skipped and always including senior customer leadership. Impactful QBRs go beyond status updates to demonstrate quantifiable value realization, benchmark performance, make recommendations, and transparently share the product roadmap. Crucially, they provide an open forum to get a candid renewal gut-check well before the negotiation window.

Ensure a Seamless Onboarding Experience, Focusing on Accelerating Time to Value

With time to value strongly tied to overall customer satisfaction and lifetime value, a seamless onboarding process is critical. To prevent a Groundhog Day effect for customers, businesses should always conduct an internal kickoff/sales to CS transition session prior to any customer-facing meeting, wherein there is a thorough review of customer goals and prior pain points. Ideally, implementation should be a key topic in pre-sales discussions to avoid surprises following the signature, e.g. sales teams should socialize onboarding plans and technical requirements before a deal closes so that the customer can allocate resources accordingly.

It is easy for implementation teams to fall into a "lift and shift" trap wherein they are mostly focused on translating the customer's workflow with the incumbent partner to a new platform. Instead, success should be dictated by customers' adoption of the new platform's sticky drivers (consider the Sailthru personalization algorithm example referenced earlier). To make product adoption easier, businesses often need to build technology to guide those outcomes; if you have a critical mass of customers coming from a particular incumbent, perhaps you build an "Incumbent X connector kit" that easily integrates the old data and transforms it into the ideal setup for the new platform.

Communication is also of paramount importance during the onboarding period. A customer-facing project plan is an important artifact for spelling out progress and for highlighting potential risks to project completion. While Professional Services Automation (PSA) tools are powerful, they are best suited for operations with some scale. Earlier-stage companies can easily build project plans with tools such as Google Docs or Monday.com. Beyond reviewing this project plan on a regular basis, implementation team leaders should plan for formalized midway-through-implementation touchpoint meetings with the customer's executive sponsors as well as for a formal feedback loop once the customer has exited onboarding.

Customer Value Plans

A good rule of thumb is that your customer status meetings should never entail conversations about the weather. Every interaction should be rooted in a customer value plan that is agreed to at the onset of the partnership and refreshed in each quarterly business review. Value plans are designed to ensure the customer extracts value from their investment—but they also drive focus.

All too often customers' eyes are bigger than their stomachs in the buying process and the "boil the ocean" effect kicks in. With value plans, CSMs can push customers to focus on no more than three strategies or tactics at a time; these tactics should be agreed upon in the quarterly business review and should be the focal point for status meetings for the 90 days that follow. If the customer is slow to adopt the agreed-upon plan, it is appropriate (and important!) to escalate the roadblocks to the customer's executive sponsor. If the customer implements those three tactics faster than expected, you can certainly accelerate work on the next three.

Value plans actually become easier as companies scale, as they become richer with customer examples. Ideally, businesses should have a strategy playbook that outlines the 3–5 most important outcomes for that customer set (can vary by industry served, but should not be ad hoc per customer), and then maintain a repository of recommended tactics to achieve those outcomes (with supporting customer case studies and ROI metrics).

Perhaps most importantly, celebrate value. Provide regular updates to client stakeholders in between formal check-ins, whether that be in the form of automated reporting or even just a quick note. A customer may debate attribution in your ROI assessment, but it is better to put some number in front of them than nothing at all, as doing so will at least spark a conversation!

Ensure Quarterly Business Reviews Are Meaningful with Executive Attendance

Quarterly business reviews (QBRs) are a critical touchpoint for ensuring the partnership is meeting the customer's expectations and driving ongoing value. To maximize their effectiveness, it's essential to have a senior executive sponsor from the customer side in attendance.

QBRs should be more than just another meeting. They provide an opportunity to review the customer's performance data, benchmark their results against other customers, share tactical recommendations for optimization and feature adoption, and preview the product roadmap along with recent releases.

One key objective is to get a candid assessment of the customer's renewal intentions, even if the renewal date is still months away. Asking them directly if they intend to renew can surface potential risks early and allow for proactive mitigation efforts.

Customer success managers (CSMs) should insist on rescheduling QBRs if the customer's senior sponsor is unable to attend. Their presence is crucial for driving meaningful value exchange and ensuring alignment at the executive level.

After the QBR, any materials reviewed should be shared with the customer's executive sponsor, even if they were not in attendance. If a CSM feels uncomfortable sending the deck directly to a C-level executive who missed the meeting, they should enlist the support of their own manager or executive sponsor to facilitate the sharing.

Consistent executive attendance at QBRs is not about vanity metrics or checking boxes. It's about fostering a genuine dialogue, addressing concerns, and collaborating on strategies to maximize the customer's success with the product or service.

Establish Executive Sponsorship for Top Customers

Stakeholder turnover is a frequent driver of churn, which is why building relationships at multiple levels within a customer account is crucial. A "high and wide" approach, aiming to establish connections three levels high in the organizational hierarchy and across three different functional areas, can mitigate this risk.

Executive sponsorship programs play a key role in fostering these high-level relationships. While customer success managers (CSMs) are invaluable in managing day-to-day interactions, they may struggle to gain traction with C-suite executives. An executive sponsorship program can bridge this gap by assigning a member of your executive team to serve as the primary point of contact for your most strategic customers.

The best executive sponsorship programs are tailored, consistent, and focused. If a customer has intricate technical requirements, consider aligning a product or engineering executive as their sponsor. Consistency is also critical – executive sponsors should attend quarterly business reviews and other key meetings to maintain continuity.

Ideally, the same executive sponsor should remain assigned to an account for an extended period, fostering a deep understanding of the customer's needs and challenges. While other executives may occasionally engage with the account, a single primary sponsor provides a clear point of escalation and accountability.

Given the time commitment involved, executive sponsorship programs should be focused on your highest-value accounts. If 80% of your revenue comes from the top 20% of customers, concentrate your efforts on building robust executive relationships within this cohort. Prioritize accounts not just by contract value, but also by strategic importance and growth potential.

By establishing executive-level relationships with your most critical customers, you can stay ahead of potential churn risks, gain insights into their evolving needs, and position your company as a trusted strategic partner – all of which can pay dividends in boosting net revenue retention.

Leverage Customer Enablement Programs

"Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime" (or the duration of a software partnership). Perhaps more important than a proactive customer success program is exhaustive customer enablement. It is most often the case that customers who attend training programs (or who watch them online) are stickier and happier, so it is worth investing in those programs early and often, even if you are directing customers to low-production quality videos initially.

Focus your training programs not only on unlocking the sticky driver components of your platform but also on support ticket deflection. Study your most frequent support ticket topics and build content around them (e.g. knowledge base articles/FAQs and videos); in addition to making the information discovery process easier for customers, these tactics also boost margin in the longer run. Leverage other customers to deliver this content via real case studies and hands-on examples.

The goal is to drive self-sufficiency and adoption by empowering customers with the knowledge and skills to fully utilize your product's capabilities. Invest in comprehensive training that covers both the fundamentals and advanced features, tailored to different user roles and proficiency levels. Blend instructor-led sessions with on-demand resources like video tutorials, interactive guides, and community forums. Continuously update and expand your training offerings based on customer feedback and usage data.

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