Pragmatic Venture Blueprint
Card 16 of 18
Renewing customers
Category
Growth Validation (4-1)
Author
Reuben Tozman
“Payfare stock plummets after disclosing DoorDash program won't be renewed” (recent headline)
While the idea of customer renewals is more aligned with a SaaS business, it applies to non SaaS businesses in the form of ‘share of wallet’. Simply stated, renewing a customer on an existing subscription is the lifeblood of every SaaS company. It simply means a customer has decided that the value of using the software was enough to pay for another term. And when it comes to unit economics it also means, there was no cost of acquiring that revenue as all the costs were in signing the customer up to begin with. In a non SaaS company the idea is the same. Making sure that a customer who has already spent money buying your product, buys it again and in so doing saves you the cost of finding the customer. In addition for non SaaS companies, there should always be a motion to understand how to get a customer who paid for your product to spend even more money with you either buying additional products or expanding their use of what they already have.
You’ve already worked out earlier programs that can evaluate customer health. Strategies for renewals should focus on the process for quickly moving happy customers to a renewal through low cost clerical processes such as auto renewals. Focus should also turn towards customers who have some questions around perceived value and helping to set milestones that are agreed to by all parties that would trigger a renewal. Take for example, software that helps business development teams generate more leads. There may be some customers that aren’t convinced that the software generated enough leads to warrant a renewal. You should work with that customer to understand exactly what is ‘enough’ and put some agreements in place for what happens if the software helps achieve ‘enough’ and what if it doesn’t. Perhaps a downsell might be in order to save some revenue.
Whatever the case may be, having return customers is the only way to make unit economics work. If every dollar that comes into the company has equal costs associated with bring in customers, a business is doomed to fail.
Additional resources