2023 was hard, 2024 will be harder.
That's the sentiment in the room when I talk to CS leaders.
- Macro-environmental pressure will continue into 2024, making Net New ARR growth hard
- Profitability is still a top priority for companies and cost-cutting will continue to be a trend
- Customers will be more demanding of clear ROI for investments
In this climate, CS leaders need to be extra strategic to drive positive NRR.
One thing I've found very useful in the last 3 years of leading a team measured on NRR is to break down the components of NRR to understand the drivers and devise strategies that help improve each part of the number individually.
NRR is made of three main components:
- Cancellations
- Downgrades
- Upgrades and Cross-Sells
In this week's newsletter, I share one program you can use to drive positive results for each aspect of NRR in 2024.
1 - Cancellations
The main reason customers cancel is because they have not seen enough value from your product. So if you want to improve your churn rate in 2024, your best bet is to double down on value delivery and communication.
The strategy I recommend here is to roll out a Customer Outcomes Program, with:
- A defined set of Measurable Customer Outcomes (how to)
- Clear KPIs attached to each Customer Outcome, used as leading metrics of success that support NRR (you might decide to incentivise CSMs based on these)
- In-App Success Plans to help customers drive towards key outcomes
- Scale Programs to help CSMs drive towards the set outcomes
- Track the improvement of Customer Outcomes and the correlation between the score and renewals and NRR to measure the success of this initiative.
# 2 - Downgrades
Poor utilisation of licenses or features that are only available in higher tiers of your product is the main driver of downgrade requests. For example, if automation and reporting tools are the main differentiator between your top tier and your middle tier, but your customer has not implemented them, they will likely not value them when it comes to renewal.
With tight budgets continuing into '24, utilisation should be a key priority for CS leaders looking to prevent downgrades.
The strategy I recommend here is to roll out a Customer Usage Program, with:
- A data-driven Unified Usage Score that takes into account the utilisation of key features that drive outcomes for customers in different product tiers
- A Machine Learning Alert System that proactively notifies CSMs of poor usage or triggers digital actions for customers not activating and utilising key features of their current tier
- Use-case-specific content that connects customer goals and outcomes to strategies in the product.
- Track the improvement of the Unified Usage Score and the correlation between the score and the downgrade rate to measure the success of this initiative.
# 3 - Upsells and Cross-Sells
Growth is earned. If you want your customers to invest more in your product next year, it's important to demonstrate the value you delivered and to create a compelling strategy on how you can further improve their results.
The strategy I recommend here is to roll out an Enterprise Business Review Program:
- Document Customer Goals and Desired Outcomes (in-app if possible)
- Create an automated EBR with the core KPIs that speak to the desired outcomes
- Trigger an EBR event for every customer at the half-life of their current contract (ie. 6 months in, for a 12-month contract), ensuring every CSM delivers the EBR to customers with growth potential. Use your CS Platform to support this.
- Enable your team to deliver a great EBR experience
- Track Customer Success Qualified Leads that are created within 90 days of the delivery of an EBR to measure the success of the program
TL’DR
Every element of NRR is a lever you can pull to drive the number up. Attaching a strategy to each driver will help you actively move towards your NRR goal.
- If you want to improve cancellations, deliver measurable value.
- If you want to prevent downgrades, activate the core features that differentiate each tier.
- If you want to drive upgrades and cross-sells, demonstrate value and co-create growth strategies with your customer
Thank you for a phenomenal year of engagement and collaboration.