How to Provide Continuous Value to Your Customers

Recently I spent some time with a C-Level executive discussing how their packaging strategy can contribute to growth. Most of our discussion was centered around their recent transformation of their business to an “As-a-Service” revenue model and why this move is critical to enable the growth that will meet shareholder expectations.

Here are my 4 key takeaways from the conversation:

1. Improved retention rates are critical to a company's future growth.

A new sales engine can accelerate revenue in a short period of time, but if your overall growth rate is improving at a slower rate, it is because the answer lies in your lower retention rates. McKinsey shared statistics that showed if retention rates steadied above 90% then overall company growth rates are higher vs. a company whose retention rates are lower, even if their new sales targets are exceeded. The math behind this data lies in the cost of gaining a new customer: it costs 8 times more to acquire a new customer than it costs to retain a customer. The effort to sell, conduct credit checks, (wait while they get budget approvals), get set up in procurement/billing systems – all new business activities that have costs associated with them - outweigh the cost to renewing an existing customer. Improved retention rates are key to improving a slow growth trajectory.

2. Transforming your business to As-a-Service will help improve retention rates.

If you search for a definition of As-a-Service, you’ll find so many different types of businesses that are moving to or have moved to an As-a-Service business model: Energy, Marketing, Security, just to name a few outside the typical software industries. While vastly different in the services they provide, companies all have one thing in common: in an As-a-Service model, they provide continuous, measurable value to their customers. This translates to building offerings that are embedded in a customer’s workflow – not just through the cloud but also through professional services, analytics, embedding in 3rd party platforms, and frequency of delivery, just to name a few examples. As customers see more clearly the value you create for them, your retention rates can improve.

3. Your pricing philosophy must also transform to focus on retention.

To make the move towards As-a-Service pricing and packaging, you should move away from selling multiple add-ons incrementally. It might seem like a paradox to suggest that you shouldn’t charge incrementally for add-ons but still focus on growth, but McKinsey shared examples of large corporations who transformed their pricing models to fixed subscription instead of charging incrementally for added features and they saw accelerated retention rates in just a short two year period. To begin that transition you should start by simplifying your offerings and creating standard packages, and moving towards automatically renewing your subscription products as much as you can.

If you have a tremendous amount of value-add assets: more data, professional services, update frequency, improved technology, differentiated analytics that can be presented to the customer as “bundled solutions”, then the customer will undoubtedly see the value you create for them and be willing to pay the recurring subscription.

4. Transforming to As-a-Service is not just about moving to the cloud.

The transition to continuous customer value is relatively straightforward but when considering how that impacts other parts of your organization, there is less of a tangible, transparent journey. Companies that have done it successfully recognized transforming to As-a-Service is not just a technology play, nor is it just a pricing play; it is a transition in every area of our business from how you sell and market to a customer, to how you contract and invoice a customer to how you support a customer post-sale. It is an end-to-end journey to provide continuous value at every interaction.

You all have an important and critical role to play in this transition!

It is also not an overnight transformation and your journey needs to be clearly understood by the customer. But, after spending time watching companies transform to drive growth, I feel it is not a matter of “should” you transform to an As-a-Service model anymore, it is a matter of how quickly can you get there.