Everyone I talk to wants to grow their business. Yet in the last ~20 years, I can’t recall a single growth conversation that included their renewal rate or the size of the market that remained, until I asked.
How big is your market?
It’s the question that often provokes people to look away and give a laser beam stare at a fluttering leaf on a distant elm tree as they think about what the number is and/or how they’ll figure it out.
For example… “So how many programmers, accountants, cities under 20,000 population, dog kennels, or whatever are there right now?”
In other words, how big is your market? If everyone who actually should be your customer was your customer, how many customers would you have?
If your customers buy $30,000 industrial drills, you’d better know how many companies use a tool like that, how many each of those companies would typically need, and how many companies still need that kind of drill. You’d also better know who in China is making a knockoff to clone the one they bought from Samsung, who already knocked it off.
The other troubling question affects some businesses and not others. That is, “What’s your renewal rate?” In other words, for a service you sell on a recurring basis (or a product that requires “refills”), what percentage of your customers buy their next purchase from you?
Lots of people know. Lots of people don’t. As you might imagine, I think you should know.
Imagine that you run a company that makes $200,000 a year. You’re in a recurring sale business model where your product or service requires “refilling” on a regular basis.
So, you want to have a conversation about growth. If you want to get to $600,000 by the end of 2025, a major impact item on getting to that number is “How many people want / need what you sell?”. The other is how many customers can you keep of the ones you get. Of course, we need to determine if your market will support that number, but there are always ways to deal with that – market expansion, reaching beyond the edges, looking for markets whose needs mimic your market’s needs, and many more.
It goes deeper than knowing the numbers. You need to know why they renew. Why they don’t. Growth depends on renewals in these businesses.
Are you part of the 92%?
Customer service is a good example of an area that can transform renewal rate. Most of us are in an alternate reality zone about how much our customers love us. The quote below speaks directly to that, even though customer service is only one place that causes you to lose renewals.
According to research by Bain & Company, when asked, 80 percent of companies say they deliver “superior” customer service.
The customers’ perception of the service level was very different.
Only 8 percent of customers felt the companies delivered “superior” customer service. – Joey Coleman, Never Lose A Customer Again
What do your customers think?
When leaving you is easy
Your highest chance of losing a customer is in the early going. The first 30, 60, 90 days.
Early on, they get their first exposure to your product, service, support, billing department, documentation, deployment team and so on. They haven’t yet developed a commitment to you. Your products & services haven’t become an integral part of what they do. As such, the friction to replace / discard your stuff is low.
At this point, the decision has low political cost, despite the embarrassment / reputation loss someone will take for approving the purchase. However, if their entire company is being on-boarded like they’ve never experienced before, the political cost increases substantially.
Given that knowledge, what can you do to make it incredibly easy (“frictionless”) to adopt your products / services in the first 30, 60, 90 days? What can you do in that timeframe to help new clients make your stuff such an integral part of their business that no one dares stop it?
That’s what good on-boarding does. It starts working on your renewal rate on day one, when most others think “sold = done”.
Most companies aren’t good at this.
There’s so much headroom available above the average that you have lots of room to play with. Competitors tend to not be exposed to these changes. Even if they find out about them, they frequently think they’re little more than frills and puffery.
Just what you want.