The economic impact of COVID-19 has ripped through the globe, leaving few companies unscathed. And while Scale’s research has shown that there was moderate impact to Q1 company performance, it’s uncertain what the future holds, both in terms of length and depth of impact as well as rate of recovery.
In modern subscription and utilization-based software businesses, you must constantly deliver value, lest you fall below the red line and get cut at time of renewal. If there is a silver lining to this crisis, it could be that much of the global shutdown has occurred in Q1, typically one of the lighter renewal periods for software businesses. But that doesn’t mean that software vendors shouldn’t be thinking about how they can get ahead of the curve and address customer churn issues before they arise.
One of the more interesting areas to watch is the consumer space, where large brands are dealing with customer retention using programs that address potential customer hardships. Enterprise SaaS cannot simply lift and implement these tactics, but there are lessons to be learned. Let’s take a look at some of these case studies.
Geico
The Program
Geico isn’t only known for the gecko. They recently rolled out a program to provide their customers a 15% credit against the cost of their auto or motorcycle policy. The credit is automatically applied to their next 6-month renewal. They also suspended cancellations for non-payment, another way to retain customers post-downturn.
Geico positions the program as recognition that their customers have been impacted. The unstated business rationale is that Geico has reaped the rewards of lower claim rates (because driving and, thus, accidents are down everywhere) and can allocate some of those savings to customer retention.
SaaS Renewal Application
This could be useful at companies where the customer base has been affected by COVID-19 but usage is expected to return post-crisis. Retaining an existing customer, even at the cost of a 15% rebate, is likely to be less expensive than acquiring a new customer. A quid-pro-quo offer of credit in exchange for renewal gets you out in front of customer requests for discounts by inserting an assumption of renewal into the discussion.
United Airlines
The Program
United Airlines (and other airlines as well) has started waiving change fees for any flight booked within the next few months (hello, Southwest!). While not a customer retention strategy per se, it does suggest some interesting ways to maximize cash flow while air travel has cratered to essentially nothing overnight.
SaaS Renewal Application
This tactic can be adapted by companies with utilization models where customers pre-buy credits, often with some type of expiration or perishability. (Think AWS Reserved Instances.) Offering customers a chance to pre-buy at a discount while also extending the expiration deadline is customer-friendly and, more importantly, a good way to take in cash. For startups, cash buys time and time is the most valuable currency in the venture-backed software community right now.
JPMorgan Chase
The Program
Chase (and other banks) have a variety of programs across their credit card, mortgage, and auto loan products to help those who have been impacted by COVID-19. The benefits include waiving late fees, reducing or eliminating fees, and allowing deferral of a certain number of payments.
SaaS Renewal Application
Recognizing that this situation is unprecedented and that everyone is in this together, software companies with monthly payment models may offer similar waivers or deferrals. If a customer isn’t able to pay, you won’t be collecting cash from them whether or not they churn. So it is preferable to forgive the non-payment now in order to maintain the relationship over the long term. Forgiveness won’t do anything in the short term for cash or even guarantee a renewal, but it will create goodwill that may avert churn down the line.
Peloton
The Program
Peloton introduced a subscription waiver program called We All Move Together. The company set aside $1 million to cover two months of membership fees for members facing Covid-related hardship. The catch? Customers must submit an application and Peloton gets to select who qualifies.
SaaS Renewal Application
If your customer base isn’t uniformly affected, building goodwill by allowing customers to self-identify can isolate those that think they need assistance. At the same time, it gives you the ability to decide which ones you are willing to help. However, be aware of the risk associated with this. To turn someone away is to create bad will and put not only their payment but their renewal at risk.
Marriott
The Program
Marriott (and other hotel chains and airlines) has offered extensions of their loyalty programs into 2022. Typically, travelers need to stay a certain number of nights to earn elite status, which grants them benefits like increased point earning, upgrades, and welcome gifts. However, the freeze on most business travel means members are unable to maintain their loyalty status levels. The blanket extension that Marriott offers is like a free renewal, bestowing the benefits that the traveler is used to without having to spend the nights in the hotel.
SaaS Renewal Application
Companies with per unit pricing are likely facing usage declines from COVID-19 impact (per user, per transaction, etc.). For the customer, less usage can mean they lose their volume pricing and can face higher ARPU even as, on their side, they’re facing revenue declines. Software companies can help by offering to keep customers at the same high water-mark tier — that is, to keep their “elite” status despite less usage. If their usage comes back, that’s fantastic. If not, you keep them at their old rate until they grow back into it. And gain the goodwill that such a move creates.
Carefully Consider How New Incentives Impact Cash
As with any type of customer program, there is a cascading set of considerations as you decide what to do:
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Cash. How will the program impact cash on your balance sheet, and ultimately your runway? Programs like United’s obviously stockpile cash whereas others that allow for deferred payments are great for the customer, but negatively impact cash for the vendor.
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Revenue and expenses. What impact will the program have on your P&L? Most effective retention programs will mean your revenue and expenses will need to be re-forecasted over the associated time frame. While this might not mean much from a cash perspective, it could have an impact on your growth.
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Administration. How burdensome will it be to administer the program? Are you going to have to re-sign contracts or amendments with every customer? Will you effectively be shifting renewals out for a few months away from Q4 when customers need to spend their budget into the new year when budgets might not have been approved? Or, what if the customer expects the discount to become their new price point post-downturn?
There aren’t easy and clean answers, but I think that enterprise software startups can look outside their markets for ideas on retaining customers in the time of COVID-19.