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Playbook for Retaining Customers in an Economic Downturn

As economic uncertainty deepens, a core strategic imperative is universal: customer retention should become founders' number one focus.

As economic uncertainty deepens, we’ve been working with each of our portfolio companies to prepare strategies to survive and thrive. While each company's situation is unique and requires a custom approach, a core strategic imperative is universal:

Customer retention should become founders’ number one focus.

Adding new customers and new product features is irrelevant if your current customer bucket springs major leaks.

We pulled together the following playbook to help you assess customer health and put in place strategies to retain (and perhaps expand!) customer accounts through the downturn. We hope this will help you emerge from this period with stronger customer relationships and, ultimately, a stronger business.

Before we dive into the playbook, we want to call out the fact that SaaS companies tend to fare better in recessions than other tech (or even non-tech) companies. A key driver of this is recurring revenue contracts, which provide superior predictability. With healthy net retention, recurring revenue businesses can grow even if they stop adding new customers. The chart below illustrates SaaS companies’ relative outperformance after the 2008 recession.

With this historical context in mind, we want to reiterate the importance of customer retention amid economic instability. So how can founders maximize net retention at this moment? What do you need to do differently than you were doing before? Let's dive in. 

Determining retention strategies for each customer

The Y-axis: Assessing the value you bring 

Determining customer retention strategy starts with pinpointing the value you provide to your customers. This value may shift as the market and your customers' needs change, so your entire organization (executive level, management, and frontline employees) need to be highly attuned to the value your product provides and how that may be changing.

Here are a few places to start if you don’t yet have a solid grasp on this: 

  • Drive to a fundamental product value creation metric and track it closely for each customer. This can flow into an overall customer health score that can be derived by correlating input metrics like your product value creation metric with retention and upsell over time.
  • When in doubt, utilization (e.g., daily active users / monthly active users) is often a good proxy for value creation. While creating a comprehensive customer health score is best practice, you can often get a quick and dirty look at product value creation by looking at utilization. Understand the granular user behavior (ideally by user persona) of your most satisfied customers and use that to benchmark what “great” looks like.
  • Ask them! Sit down with as many of your top customers as you can. In these conversations, try to deeply understand what they value from your product and what they cannot live without.

The X-Axis: Determining your customers’ business health 

This axis is likely new to most companies’ customer success function but becomes important to understand in a downturn. Understanding the impact of your customers' underlying business health on the expansion and retention of your contracts is important but generally poorly understood.

Here are a few places to start: 

  • Set up systems to track customers’ business health indicators. Look for public (e.g. reduction in forces announcements) and private data signals (e.g. declining user counts in your product) to determine where customers' businesses stand. 
  • Understand macro trends that may be positively or negatively impacting your customers. Companies that sell primarily into venture-backed businesses may be more likely to see pullback whereas companies that sell into more inflation-protected categories (e.g., real estate, energy, education, etc.) may be less impacted. Similarly, SMB customers may be at meaningfully higher risk than mid-market/enterprise customers who may have stronger balance sheets to weather a storm. Pro-tip: If you sell into venture-based companies, you can roughly estimate cash runway by looking at the company’s last fundraise date and amount. After this, look at headcount on LinkedIn and assume burn of $10-20K burn per employee per month. This is very rough and requires lots of qualitative judgment (and some venture-backed companies are profitable) so don’t rely solely on this metric. 
  • Ask them! Caveat: this only works in 1:1 conversations for customers you have established relationships with. Questions to ask: How is the current economic environment impacting your business metrics and your business strategy? What is top of mind for your executives? If you had to renew tomorrow, what is the likelihood you would renew and how is that impacted by the current market environment?

Bonus Z-Axis: Determining your highest and lowest value customers 

As resources become more constrained, one last dimension to consider is how profitable a customer is for your business. If they take up a lot of your team’s time but don’t provide significant value or expansion opportunities, it’s okay to deprioritize them. For the sake of simplicity, we’ll focus this playbook on the first two axes, but it’s worthwhile to overlay the net value creation dimension.

Playbooks for each customer type 

With a solid understanding of your product's value and your customers’ health metrics, you can start plotting your customers onto the grid. Now, let’s dive into the playbooks. 

Top left: Be their hero 

We’re going to spend most of our time on this segment since this is likely to be where many of your customers will fall as the downturn progresses.

Here’s what you want to focus on to retain this customer: 

  • Identify how your product can help them address their current key priorities. ROI matters more now than it did three months ago. Ask: what might our product do now that makes the product matter more now? Think about any learnings from the pandemic about how your product benefits your customer during a crisis and revive that messaging now. Feed these insights into the product team to inform the roadmap. 
  • Help them communicate the value of your product internally. Make it easy for your champion to share the benefits of your product with their colleagues. Send regular emails quantifying ROI that can be easily forwarded. This means tailoring messaging to the customer’s vertical or operational objective. Build an analytics dashboard that’s easy to log into. Host Executive Business Reviews, especially with your strategic customers, to build relationships and give them visibility into the value you bring.
  • Logo retention is key. Determine and prioritize the contractual levers you want to have in your toolkit. Think through the things you are comfortable flexing on vs. things you don't want to give away and prioritize accordingly. See below for a sample prioritized list of “gives”. You’ll note, “reduce prices in current contract” is included in the list below. This is a tough pill to swallow when you have a customer in the middle of a committed contract term, but when used judiciously it can be a very effective long term retention lever.

  • Renew as soon as you can, for as long as you can. Consider if there is anything you can do to secure early renewals. Perhaps you have a new product and can offer discounted access. Or you can help the customer capture a better price if they renew early. Early renewals and multi-year contracts are particularly helpful in times of uncertainty. 
  • Be a smart, yet empathetic negotiator. There are certainly “gets” that you should seek alongside the gives: extended contract term lengths, customer marketing activities, testing and/or purchasing incremental products, etc. But now is not the time to go overboard with negotiating for every last inch. For a small and growing company, now is a time when you can fortify your customer relationships and focus on value realization for your customers.
  • Try to scale decision-making. Everything can, and potentially should (depending on your size), be handled one-off in the early days of the downturn. But as you start to see common scenarios, you should align as a leadership team to be clear about how you want to systematically handle these situations. 
  • Ensure you have multiple stakeholders. It’s always valuable to have multiple advocates within your customers’ teams. It becomes more critical in a downturn in which org charts are more fluid. Make sure that if your champion leaves your customer tomorrow, you’d still have many advocates.

Top right: Reinforce the value 

Don’t neglect this segment! They may well drive the majority of the growth in the business for the foreseeable future. This is a great opportunity to focus on becoming a “board-level vendor”—AKA a vendor that is so critical to the business that it’s discussed in board meetings. 

For this segment, we recommend: 

  • Make these customers your champions. Since they are happy and not going through a crisis, don’t hesitate to reach out and ask them to be featured in case studies or do reference calls for you.
  • Foster your customer community. Customer communities work for you while you sleep. Building trusted relationships with your customers is nearly free and something that's critical to getting through tough times together, which could come later for this segment. Reach out directly to these customers and tell them how much you appreciate them. Proactively connect them with their peers. The payoff is priceless.
  • Go on offense. These customers are healthy and happy. Consider amping up your cross-sell strategy and using these learnings to inform your new customer marketing efforts. Your competitors might be distracted right now. How can you use that to your advantage?

Bottom right: Create the value, fast

Customers in this quadrant may not be struggling but they are not getting the most value out of your product, which still puts them at risk of churn. 

Here’s what we recommend: 

  • Implement targeted product adoption campaigns. Often, when our companies are small and growing, our product adoption efforts are quite broad. If you are trying to drive value quickly, you need to focus. Pick a department/team/persona, or pick a customer event/milestone, or a narrowly focused value-proposition, and try to drive adoption there. For example, during the start of the pandemic at Lattice, we encouraged customers to run a specific ‘crisis response’ survey in order to assess the state of their employees and action plan accordingly. We were far more effective through our focus on a specific need and template than if we had tried to broadly drive adoption of our survey platform.
  • Identify power users and create relationships with them. Depending on the nature of your product, your customer might be receiving overall lackluster value but still have pockets of power users. Quickly seek those people out and determine if they can help you expand your visibility and value.
  • Institute high-risk account planning. This is a great practice at all times, but now is a good time to start if you don’t already have a high-risk account planning motion. Account Plans are common in Enterprise but a) are infeasible in mid-market and b) are often focused on growth rather than risk-related retention efforts. Building a High-Risk Account Planning template that focuses on key adoption metrics, state of customer relationships / multi-threading, and mandates time-based objectives to remediate risk are a great way to align focus and resources internally and to drive accountability.

Lattice's high-risk account planning template.
Lattice's high-risk account planning template.
  • Discounted or free professional services. This customer might have failed to launch fully or is just not getting meaningful value from your product. Offering discounted or free professional services or re-implementation can be an effective tactic for reenergizing the relationship and getting renewed buy-in.
  • Leverage executive outreach. Having your CEO or other senior executives at your company reach out can be a good way to capture your customers’ attention. Don’t expect more than one in three executives to reply, but those who do engage are generally willing to work together or communicate what’s going on inside their business. Use that conversation to align on the ways your product will drive value for the customer and confirm who will be the DRI (directly responsible individual) on the customer side.

Bottom left: Walk away

A startup's only real asset compared to incumbents is focus. In a challenging market, where you choose to place that focus becomes even more critical to survival. In that light, you likely have customer segments that you shouldn’t prioritize going forward. Redirect efforts in this quadrant towards customers in the other three. 

If a meaningful portion of your existing customer base is in this quadrant, you don’t have product-market fit in the current market and you need a broader strategy reset. 

The prioritization decisions you make today will determine the health of your business through and beyond the downturn. As we gear up for prolonged uncertainty, we see this time as an opportunity for founders to strengthen customer relationships and emerge with stronger businesses.