How to improve customer retention by maximizing customer value

If pricing were a competitive advantage in B2B sales, Salesforce would have gone bankrupt by now. And if product quality alone were a decisive factor in B2B buying, several products should have closed shop a long time back.

Think about it—how does Salesforce justify its higher cost than HubSpot or a legion of other CRM software? And how on earth does Adobe still enjoy a 15% market share with solid revenue growth of 23%—despite all the flak it gets from many of its customers?

If you have been on the buying side of B2B software, you probably know that most B2B buying decisions are not based on price, product, or narratives. Sure, they all aid the buying process. But what makes the final cut is the product's perceived customer value, what the product does in the context of the customer's pain point, and the expected benefits.

World's leading SaaS companies like Salesforce and HubSpot know this for a fact. Their price and product offering is a reflection of the value that customers expect out of their software. This post will look at the vital role that customer value plays in B2B sales and customer retention. We will specifically discuss:

  • What is customer value?
  • Why is it important?
  • How can customer success maximize customer value?
  • Four steps to improve customer retention and LTV

What is customer value and why is it important?

One of the jargon people in the B2B SaaS world love to throw around is "ROI"—return on investment. And nothing comes closer to rationalizing ROI better than customer value.

Customer value is the returns that your buyers expect when they use your product. It's the total of all benefits they get out of your brand for the price they have paid. Here's an equation that represents customer value in mathematical terms:

Customer value = Product benefits – Product cost

There it is; the simplest way to understand customer value is to deduct your product cost from the benefits it offers. The result is what determines your product's perceived worth in the customers' minds.

When customers evaluate buying your product, they usually have one question going in the back of their head—"Why should I buy from you?" Often, the answer boils down to the value that the customers expect from your product. If you have a compelling answer to that question, your sales process is short and easy.

Most efficient salespeople hit their quotas not just because they have a great product or are smooth-talking conversationalists. More often than not, these sales professionals crush their quotas because they are good at communicating the customer value of their product to their prospects during the discovery stages.

Guide to an effective discovery call

But a brutal truth about customer value is that it can be subjective—buyers arrive at their own conclusions about what your product is worth in terms of the customer value they expect from it.

The challenge of customers justifying the value of your product doubles when they become paying subscribers. When customers start using your product, they benchmark it with the goals that they want to achieve through it. Therefore, customer value is an important concept to crack, especially for customer success teams, so that you can make a value-based selling and stop customer churn before it bleeds.

Maximizing customer value through a customer success program

Customer success plays a huge role in maximizing customer value through a hands-on, consultative approach. But because communicating the customer value starts from day one, it's essential to have a smooth account handoff between sales and customer success.

Fixing the account handoff process between sales and customer success

Poorly set up customer onboarding process is one of the leading causes of customer churn—along with bad customer fit and subpar customer service. And that's where the customer success team can step in and take the corrective measures to maximize the customer value.

Here is a three-step program that your customer success team can use to maximize customer value.

1. Get to know your customers’ objectives

The role of customer success is like a sidekick to their customers. Therefore, they should position themselves as a consultant within an arm's reach to help customers achieve their goals with your product.

Start by working out a plan of what success looks like for your customers. For example, if they have unrealistic goals—like wanting to 10X their profits within six months—it's the customer success' job to manage that expectation and negotiate it down to more attainable goals. Similarly, if a customer is underutilizing its full capability to maximize its potential, customer success needs to coach them accordingly.

Let the customers start small if they first need to see value in what your product can do for them. Then, once they see the ROI in your product, you can ramp up your upselling and cross-selling techniques to help them realize the customer value.

2. Offer product tutorials and hands-on guidance

Once you understand your customers' expectations from up close, show them the possibility of what your product can do for them. To do that, your customers will have to understand your product inside-out—unlike the high-level product demo that they might have had during the sales discovery call.

Schedule product tutorials and one-on-one deep-dive sessions if your bandwidth allows it. Identify the power users in your customer account responsible for running the product and give them a full low-down of your product's features and its real-world benefits.

The more familiar your customers are with your product, the better their chances of utilizing it to its total capacity to realize their goals.

3. Follow-up at regular intervals

After the initial hand-holding, let the customers explore the product's utility in the context of their business. Of course, customer success is a high-touch function, but that doesn't mean you should babysit your customers at all instances—unless they ask for help.

The sweet spot of letting them use the product at their own pace and offering a personalized customer experience is to check in on their progress with the product. So, create a healthy cadence of following up with each account regularly to see if they are doing okay without you or need help with anything.

4-step process to improve customer value and increase LTV

You can improve your customer retention and increase the lifetime value (LTV) if you can align your product offering with customer value. But it's easier said than done, especially in the current times when every niche in SaaS is inundated with dozens of look-alike products that promise to solve the same set of problems. Therefore, differentiating your product from your competition is incredibly difficult today. 

Here is a four-step process to improve your customer retention:

1. Understand your customers and their needs

Understanding your customers is fundamental to growing your business—be it about building a successful product, making it more innovative, or getting customers to spend more time and money with it.

We strongly advocate the practice of running well-planned user research, collecting voice of customer (VoC) data, and documenting other customer interactions to have a better understanding of the customers' pain points and motivations.

The essential guide to remote user research

Understanding your customers will give you great insights into what makes them continue using your product, how they are leveraging your product in the context of their goals, and more. Without such data points, you will probably be shooting in the dark, and your product roadmap would be based on a never-ending cycle of trial and error. It's a colossal waste of time and resources for both you and your customers.

On the other hand, getting to know your customers helps you remove the friction from their buyer journey and offer a stellar product experience. You can start with creating a template for customer feedback, Jobs To Be Done Questions, and more.

Indeed, you can never fully understand your customers because their goals and use cases keep evolving. And that's all the more reason for you to stay closer to your customers' problems so that you can retain them for longer and squeeze the most out of the customer LTV.

2. Improve product engagement and feature adoption

In economics, the law of diminishing returns states that once people consume a product, their level of satisfaction with that product goes down over a period of time. Compare this to the time when you are parched—you will gulp down a whole glass of water in a few seconds because it tastes great. But the second or third glasses of water don't feel as quenching as the first.

A lot of times, it's the same with your product's utility. When customers buy from you for the first time, they have a burning problem to solve. But once they douse that fire—they might see less value in your product and may eventually churn.

But how can you solve this? First, by talking to your customers frequently to find out the next big problem they want to solve.

Create a sticky product experience that aligns with your customers' goals. Be a partner in your customers' growth and nudge them to adopt your advanced features and higher plans to help them get to the next level.

In its recent survey, Pendo—a product experience platform—found that the average user retention for most products plateaus at 16% three months after a new user signs up. However, the best-in-class products retain 54% of their users over the same period. It's a finding you can't take lightly, given the considerable difference product experience makes in retaining your customers.

3. Identify churn signals in advance

Like we referenced earlier—churn has many culprits such as bad customer fit, bad product experience, poor account handoff between sales and customer success, and subpar customer service. But churn isn't like a light switch that customers flick out of the blue—it's a gradual process caused by one of the above factors, which eventually leads customers to slip through the cracks.

The best way to reduce churn is to prevent it from happening. Leveraging a conversation intelligence platform to capture essential customer conversations and analyzing those interactions is a good place to start.

Further, you can proactively set up alerts based to look for potential churn phrases uttered by your customer. Here's an example. You can use Avoma to track keywords like "leadership change," "change in plans," or "deprioritizing" across customer calls to identify churn indicators. 

And that can help you proactively take preventive measures such as devising an account-based action plan to make your product contextually more relevant.

Also, using a tool like Avoma can help you make customer intelligence a common denominator across the organization. Everyone ranging from sales reps, product managers, to marketers can use the platform to tap into the intelligence from customer success check-ins —although reducing churn is often a KPI attributed to the success team.

4. Improve retention with value multipliers

Jonathon Hensley, CEO at EMERGE and author of the book Alignment, recommends product companies to bake in value multipliers in their product—attributes that reinforce user benefits, outcomes, and virality. Value multipliers help improve the customer value of your product and features and make them irresistible, no-brainer incentives for your customers.

Think of annual contracts with heavy discounts, referral programs, viral loops that cause network effects. Let's look at a few examples to understand how each of these customer value multipliers enhances retention.

SaaS companies that have a higher percentage of annual contracts have a lower gross churn rate. In most cases, your annual contract value (ACV) can significantly improve your annual recurring revenue (ARR). Here's an example:

Suggested read: ACV vs. ARR

Long-term contracts are different from vendor lock-in strategy—which is exploitative and counterproductive in the long run.

Zoho Mail used to have an amazing referral program that they are currently working on revising. Not only did this reward customer retention and stretch the customer LTV, but it also fueled their new customer acquisitions.

Suggested read: B2B referral programs

Finally, in addition to offering great product experiences, brands like Slack and DropBox have inherent virality aspects embedded in their products, improving their existing customers' experience and making them reluctant to switch to other brands.

Also, when users voluntarily commit to a lot of data and time with a product, they find it difficult to switch to other platforms because of the emotional bias and dependency they develop with the product.

Finally, it all comes down to a value-added customer experience

In today's subscription economy, customer retention is the holy grail that determines the success of your business. Keeping your retention and LTV metrics healthy will help your business grow sustainably while opening new doors of possibilities for you.

To do that, your customer-facing teams must nail the art of effectively articulating the customer value about your product. In addition to the techniques mentioned above, keep an eye on all the customer interactions and leverage conversation intelligence to enhance customer value.