I want to share a little about myself before diving in: I’m a proud New Jersey native, a former D1 soccer player for the University of Michigan (Go Blue!), and my drive and passion for helping businesses succeed, grow, and — well, win — is strong.
I’d like to think that I brought that energy with me when I joined Help Scout in 2023 as its Chief Revenue Officer — and that maybe it’s even rubbed off on some of the team.
However, despite my competitive nature, I think I have a balanced approach to our new customer acquisition strategy. While I certainly like to move fast and focus on growth-oriented tactics of the marketing mix, the most efficient way to boost revenue is to focus on increasing your customer retention and doubling down on great customer experiences.
Let me explain what I mean.
Customer retention: What it is, why it matters, and how to grow it
My primary responsibility as Help Scout’s CRO is to keep our new customer acquisition numbers healthy. However, as a business leader, I am also responsible for the other key metrics that drive our business forward, like ensuring we have healthy customer retention.
Gross retention rate, or GRR, is essentially the amount of recurring revenue a company retains from its existing customers.
In many ways, it’s the definition of product market fit: If people repeatedly pay you for your product or service, then you’ve tapped into something really valuable to the market.
Why does customer retention matter so much?
Retaining customers means you’re doing something right. Unlike positive new customer acquisition numbers, which could be the product of good marketing or sales, having a good GRR means that the product or service itself continues to add real value to your customers’ businesses or lives.
As a customer-centric business, Help Scout tries to keep the needs of those who use our product at the center of everything we do. If they’re sticking around year over year, we know we’re on the right track!
The value of retention also boils down to simple math: Acquiring customers becomes a costly problem if they are moving on from your product too quickly.
For example, if it costs you $4,000 to acquire a new customer, the average annual contract value (ACV) is $2,000, and they only stick around for one year, you make $2,000 in revenue and -$2,000 in profit.
However, if that same customer stays for 5 years, you make $10,000 in revenue and $6,000 in profit — a big difference!
The point here is that while you can make all sorts of sales and marketing investments to grow your customer base, if you’re not retaining customers, it can become a leaky bucket.
The ins and outs of boosting retention
So now that we know it’s better to retain customers than to acquire new ones, the question you have to answer is: Why do customers stick around?
There are two primary reasons:
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The product delivers real value.
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The customer support they receive is exceptional.
Understanding real vs. perceived value
We’ve already talked about real value a bit, but we should also discuss the difference between real value and perceived value.
Real value is the worth (or tangible benefits) of a product or service. It is typically measurable through things like an increase in productivity, revenue, customer satisfaction, or the like.
Perceived value, on the other hand, is subjective. It’s all about what someone feels or thinks about a product. For example, an effective ad campaign, a social media post from an influencer that the customer trusts, or even just the way a product is packaged can influence its perceived value.
While perceived value can definitely help with new customer acquisition, it isn’t always helpful with retention. Someone may sign up for Help Scout because they liked a post on our blog, but if our product isn’t helpful to them, they’re not going to keep using the software.
It’s up to us to earn their trust and deliver that value.
The importance of exceptional service
Obviously, the best way to deliver real value is to make sure our product is meeting the needs of our customers, which is why we consistently seek out feedback and look for ways to improve. However, I think we all know that no matter how hard a company works to deliver a great product, there will always be times when they’ll fall short.
While no one loves those moments, they do come with opportunity. On the whole, customers are very forgiving, and, if handled well, moments of friction can actually lead to stronger customer relationships. This is why investing in high-quality customer service is always the right decision.
For example, Help Scout’s support team members are product experts. They know how to get the most out of every feature and are creative problem-solvers. From investigating bugs to helping new customers onboard to creating educational content, the team goes above and beyond to ensure that every customer feels important, heard, and seen.
If you can ensure that those two things — real value and excellent support — persist, your GRR will be great, and any sales and marketing investments you make will be productive.
In other words, you’ll win.
Word of mouth marketing: there’s no better acquisition source
While I’ve been touting the benefits of focusing on retention, the truth is that retention and acquisition are related, and we want both to be high. When it comes to acquisition, I can share numerous ways to attract new customers; however, the very best way has been the same for decades: word of mouth
This concept of word of mouth (WOM) marketing has been around forever, but in the early 1970s a psychologist named George Silverman put a name to it via an experiment. He created “teleconferenced peer influence groups” aimed at engaging physicians in discussions concerning new pharmaceutical products. Through these focus groups, Silverman noted that physicians with positive experiences regarding a particular drug could influence skeptical peers, including a dissatisfied group of ex-prescribers who had originally had negative experiences with the drug.
Even those who might have had a bad brand experience could have their minds changed by their influential peers.
Isn’t that wild?!
The digital age has only made the WOM marketing channel more relevant and impactful. Every single thing you can think about buying likely has reviews on G2, Yelp, Google, or you name it.
If you’re a revenue leader, this channel is critical. It allows you to bring down your sales and marketing costs because you don’t have to pay for the new business — it’s coming to you.
It won’t come to you, however, if the points we’ve discussed are not being met:
1. The product is delivering value.
2. The customer support is exceptional.
This second point should be underscored. As the differentiator in moments where a product might not be a perfect match or living up to its expectations, customer support is a critical part of GRR, which in turn is very important for WOM and acquisition.
After all, it makes total sense: Retained customers are happy customers, and happy customers tell their friends!
From cost center to revenue driver
It may surprise you to learn that over 30% of Help Scout’s revenue is driven through word of mouth. Our company’s people-first approach really resonates with our customers — in the service industry and in other verticals, too.
It’s even the reason that I joined the Help Scout board a few years ago and then later decided to come on full time as our CRO. The vision of our CEO and his co-founders drew me in. Nick, Jared, and Denny understand the importance of building a product that delivers real value, but they also understand that investment in customer support and experience are paramount to a business’ success.
When your customer support team is able to focus on getting customers the help they need — whether that’s through self-service, helpful learning resources, or positive human interactions — over just keeping tickets out of the queue, the customer experience with your company is improved which, in turn, has positive impacts on retention, acquisition, and, ultimately, revenue.
In other words, your customer service operations move from a cost center to a revenue driver, and — trust me — that win is something to be excited about.
