C-suite chat: Retention and growth

What if there was one change to your retention strategy that could accelerate growth and leave your competitors behind?

That’s what I learned from an interview with Jennifer Dearman, former Chief Customer Officer at Pendo and Udacity, and former leader of successful customer success teams at companies like RedHat, Kronos, and SAS. 

After writing about revenue retention, where I outlined the parts of a well-oiled retention engine, I still had a burning question:

What actually fuels the retention engine?

In other words, what key inputs drive a successful revenue retention strategy? So I asked Jennifer for an interview, given her deep background in customer success, a function often tasked with retaining customers, and she graciously accepted. I came away with fresh insights that not only affect retention but growth overall.

Let’s dive in!

As a fun way to learn more about you beyond your LinkedIn profile, what’s your favorite non-fiction book?

Jennifer: I’m currently reading Believe IT, by Jamie Kern Lima, and I recommend it to anyone who likes a good underdog story. Jamie tells the story of how she went from being told someone who looks like her could never sell makeup to selling her company, IT Cosmetics, to L’Oreal for over a billion dollars and becoming the first female CEO of a brand in L’Oreal’s 100-year portfolio history. I often see myself as an underdog, so I love reading about how others draw upon their strengths to overcome the steepest struggles in their lives.

Why does revenue retention matter?

Everyone knows retaining customers is essential for long-term survival, with an emphasis on the long-term. When you have a consistent customer base, it provides…

➡️ These are really good reasons to focus on retention but remember: retention is a company outcome, and customers don’t care about your retention rate. 

That’s an interesting statement. As most startups track corporate metrics like retention, what are they missing?

Tracking retention is important and necessary, but retention is a lagging indicator. It’s a result, and tracking it alone won’t help you retain more customers and grow your business. Instead of tracking only company outcomes like retention or product metrics like usage rates, I recommend measuring and tracking customer outcomes as well.

There’s a Deloitte study that found 90% of customers discussed their desired outcomes with their vendors, but more than 50% said they never achieved those outcomes. That same study showed that customers are 32% more likely to renew their contracts (which is code for retain) if their outcomes are delivered. Retention can lead to higher rates of expansion, upsell, and cross-sell, which could positively impact revenue by as much as 20%. 

So, while you’re tracking company outcomes like retention, expansion, product adoption, and advocacy, don’t forget about or overlook customer outcomes. If you do the latter, I guarantee the company outcomes will naturally follow. 

Another often overlooked benefit of focusing on customer outcomes is the impact it has internally.  Employees find it more motivating to see how their work directly impacts customers vs. just hearing about the usual company metrics in all-hands meetings. I have always made it a priority to highlight customer outcome stories as much as possible so the culture of the company becomes grounded in them.

That resonates a lot with me too. So, let’s bring the idea to life–what is a customer outcome?

Customer outcomes can be bucketed into 4 things. They either increase revenue, decrease cost, mitigate risk, or create a better customer experience. When you think about customer outcomes, think about how your product/service can impact one or more of those four outcomes in a meaningful and measurable way.

All the other metrics we usually track, like active users, repeat usage, and even customer satisfaction, are often used to predict renewal rates, and they are important metrics to measure and understand. But we’ve all seen customers churn even when their usage and satisfaction numbers were high, and the usual explanation is they can’t quantify the value of the investment.

That makes sense–customers want to know how you’ve improved their metrics, not your own. Can you share a real-life example of that?

At Udacity, a provider of online training content, it would have been easy to measure ourselves against the most obvious, easy-to-measure usage metrics like course hours watched, course completion rates, and nanodegree graduation rates. After all, shouldn’t customers care about how many of their employees actually completed the courses paid for by the company? This is what we thought customers cared about.

But they didn’t care about those typical product metrics. Instead, executives wanted to know which skills were being developed and how those skills were being applied on the job to increase revenue, decrease costs, mitigate risk, or improve the customer experience. Once we realized what really mattered to our customers and built a framework to measure these outcomes, it completely changed how we sold, onboarded, and supported our customers.

This shift in mindset to customer outcomes can be applied to any startup. For example, a project management startup might gravitate to measuring product metrics like time spent in app, projects started, and projects completed. But from my experience, retention (and growth) will be driven by other factors, such as whether the app helped the company save time, reduce execution risk, and speed up projects directly tied to generating revenue.

Those are great examples that can be applied to any startup. How can a startup measure and track customer outcomes?

I recommend having a 3-part framework in place to understand, act on, and report customer outcomes at every major stage of the customer journey, including pre-sales, onboarding, engagement, outcome attainment, renewal, and expansion. 

  1. Align internally on the right customer outcomes: Product and Marketing should be aligned on the same meaningful and measurable customer outcomes so you’re attracting customers that need your product. Internal alignment (inclusive of Sales and Customer Success) also ensures that everyone’s working as one team and focused on the right customer goals.
  2. Create customer success plans centered on achieving customer outcomes: Hold customers and your Customer Success teams accountable for choosing outcomes and following through on achieving those outcomes. A mutually agreed-upon success plan often serves as a strong tool to drive follow-through by ensuring cross-functional alignment with client-side stakeholders.
  3. Find ways to measure and report customer outcomes: Develop strong customer partnerships where they trust you enough to share their data in some low-risk format. Help them see how to use that data to build an ROI story that addresses the original outcomes they expressed in Step 1.

Implementing a simple framework like this can have so many benefits. Not the least of which is developing a treasure chest of quantifiable customer proof points that your competitors can’t copy. It shows how focusing on customer outcomes can have powerful side effects on growth overall.

What would you suggest to any B2B startup that sees the value in operationalizing customer outcomes but is struggling to make it a reality?

Driving organizational change is hard, especially in later stages of the growth cycle. But that’s why it’s worth pursuing. Because customer outcome-oriented thinking can have lasting effects on growth and can’t easily be copied. 

If startups are struggling to create a customer outcome-oriented operating model, I have a few tips to increase their chances of success. 1) Exec leaders must have a conviction for such an operating model from the top down and make it one of the highest priorities for the company. 2) Cross-functional teams across Product, Marketing, Customer Success, and Sales all need to be bought in and aligned. 3) Lastly, the initiative to operationalize customer outcomes must address a major growth or profitability barrier that is a high priority for the company.

Thank you for these truly unique insights. I greatly appreciate the time you spent speaking with me.