There is only one boss. The customer. And he can fire everyone in the company from the chairman on down, simply by spending his money somewhere else” – Sam Walton
“Customer is King” seems like a myth days with so much bad service around, especially with big companies. And we see companies like Zappos and Rackspace have gone to the extent of making customer experience their competitive advantage.
Why is it so important to focus on customer experience, especially in SAAS?
Because the numbers say so.
It costs atleast 6-7 times as much to acquire a new customer compared to the cost of retaining an existing customer. Churn reduced by even a small percentage greatly increases a company’s profitability over a period of time.
For a bootstrapped startup, the main objective should be to get to operational break-even as soon as possible.
Let us take a look at the effects that churn has on the revenue of a company.
- Average Revenue Per User (ARPU): $150
- Add 10 new paying customers / month; with a 5% increase Month on Month (M-o-M)
- $25k Fixed Monthly Expense; with 3% increase M-o-M
- $200 Customer Acquisition Cost
- 5% monthly churn (quite high for B2B).
- 0.5% monthly churn (low end for B2B).
You can try out different variations for your own startup numbers here.
Looking at the graphs above, is this what you expected? Probably not.
Just by focusing on customer retention, you can start raking in profits in just 2 years instead of 4 without optimizing anything else.
To retain customers, we need to understand why they leave us in the first place, so we can put better measures in place to retain them.
Dr. Michael LeBoeuf, in his book “How to Win Customers and Keep Them for Life“ reports the following reasons why businesses lose customers and I believe it is applicable to most businesses.
Here are a couple of experiments we ran around customer experience and believe you should try them too.
Account buddy / Service Manager to test engagement
A/B test the response rates for emails with different types of text. It is important to test what makes your service sticky and what makes customers respond better. Example: You can designate someone as an account buddy in emails sent to customers. Test the response rates and see if you actually need to build your team to handhold your customers through the onboarding process.
Get your entire engineering & marketing to do customer support:
It makes sense for your entire team to do customer support not only because you are getting the entire team to understand the customer’s point of view but it also surprisingly improves the response rate. Everyone loves a quick & thoughtful reply, especially from the guys who are building it.
If you have a slightly bigger team, you may need to assign buddies amongst team members, initially to get going. And you will need a customer support champion to be the primary owner and allow your entire team to take turns in doing customer support.
Use a helpdesk system to track SLAs
Implement a helpdesk system. SLAs are relevant even as a startup. Creating a knowledge base for improved customer support should become a habit for the team and there is no better way to do than allowing your team members to take turns doing customer support.
After running these experiments, one thing we learnt was that fast, friendly and helpful responses was what made our customers happy. Even if you can’t give customers what they want every time, a feeling that someone on the other side of their problem cares a damn about it makes a difference.
Do you have a happy experience that you would like to share? We would love to hear about it.