One of the beauties of the SaaS business model is that each incremental sale can yield several years’ worth of recurring revenue. Each new deal can generate 6 or 7 times that value over the life of a customer. The InsightSquared product team likes to joke that if we all stopped showing up to work, the sales team would still have plenty of software to sell. We won’t run out of software. But what if the sales team stopped showing up too? Our growth would surely stagnate, but customers could continue to get valuable insights from our reports and we could cover operating costs with recurring revenue.
If the customer service team disappeared, however, this place would grind to a halt in a matter of months.
No one would be helping customers set up their screens. Customer questions would go unanswered, and usage would plummet. Eventually, frustrated customers wouldn’t get enough value from the product and they would churn at a terrifying rate. Without recurring revenue to pay the bills, whatever’s left of the company would be toast.
Customer Service Protects Against Churn
The best subscription companies monitor and find ways to lower their churn rate. Customer service teams don’t own the churn metric—nor should they—but they play a critical role in determining it. Roughly two thirds of all churn is related to customer satisfaction and service. Solving customers’ problems, setting appropriate expectations, and educating them about the product will keep them coming back year after year. Sales wins a new customer based on a promise of some value delivered, and customer service helps make sure that promise is realized. A feature that’s never used might as well not exist, right?
When you have great customer service, customers are able to get the most from your product, so when the time comes to renew, it’s an easy decision.
Customer Service Wins You New Customers
I said our growth would stagnate without a sales team, but that doesn’t mean we’d never gain another customer. Satisfied customers are a prime source of referrals, and who’s making sure customers are satisfied? Again, it’s customer service to the rescue. The marketing department may run the referral program, but the opportunity to ask for a referral can often come on the heels of a great service experience. When does a customer feel better about a company than after a human-to-human interaction where she feels listened to and valued?
Referrals tend to convert at a fantastic rate—sometimes 6x better than non-referred leads—so if you’re trying to get more efficient in marketing, take a look at what your customer service department is doing.
Customer Service Drives Profits
Traditionally thought of as a cost center, customer service can actually move the needle on company profitability. Not only will it protect against churn and lower your customer acquisition costs, great service will boost your revenue too. For starters, happy customers stick around longer and therefore have a higher lifetime value. Studies have also shown that price sensitivity decreases when service levels improve. In other words, people will pay more if they know they’re getting better service. Did you know that a 1% increase in price can generate up to an 11% increase in profits?
Higher prices, longer relationships, cheaper customer acquisition. SaaS companies strive for all these things separately, and there’s one department that can help you with all of them.