Recently, a CEO of a mid-sized B2B SaaS business told me:
“I have been asked to approve the budget to increase the customer success team to improve our retention rate. The problem is that we have been stuck at 72% retention for two years, yet the team still believes we can get to 83% by increasing the customer success team.”
This is not the first discussion I have had along these lines. Everyone understands what an improvement in retention can do to the numbers.
But when I asked the CEO what his real concern was, the underlying issue became clearer.
Initially, the company had managed to increase its retention rate from 67% to 72% over a three-year period. They had invested in customer success and, importantly, had identified and fixed a number of problems in their renewal processes.
But for the last two years, the needle has hardly moved. At the same time, their new revenue target depended heavily on improving retention. The CEO was therefore being asked to invest further in customer success on the assumption that the same lever would deliver another 11 percentage points of improvement.
That is where the question becomes more fundamental: Are we still dealing with an execution problem, or have we reached a structural retention ceiling?
I think of a structural retention ceiling as the point beyond which further improvement cannot be achieved simply by executing better. The underlying structure of the business limits how far retention can realistically go without changing the product, customer fit, pricing or value proposition.
This distinction matters because customer success can be very effective at fixing avoidable churn. It cannot eliminate churn that is inherent in the way customers use the product or the value they derive from it.
A useful way of thinking about churn is to split it into three broad categories:
- Involuntary churn: failed payments, company closures, acquisitions or other circumstances outside the normal customer relationship.
- Avoidable churn: poor onboarding, inadequate support, lack of training, weak renewal processes or poor customer engagement.
- Structural churn: customers no longer needing the product, limited product-market fit, a mismatch between the product and the customer’s operating model, or a value proposition that does not create sufficient ongoing value.
Only the second category is substantially addressable through customer success.
So the first question for the management team shouldn’t be “How much more should we spend on customer success?” but “How much of our current churn is actually avoidable?”
What happened in this particular case?
The company started by analysing its historical churn in more detail. It turned out that the renewal process itself had been a significant problem. Processes were fragmented, there was little automation and the steps customers had to go through to renew were unnecessarily complicated.
The company fixed these issues, leading to an increase in retention from 67% to 72%.
But then it stopped improving. The company had already addressed a meaningful part of its avoidable churn. Simply adding more customer success capacity was unlikely to reproduce the gains they had achieved previously.
So the management team shifted its attention to the third category: structural churn.
They found that many customers were actually getting the value they had originally purchased. The problem was that they did not need to use the software very often. Customers would log in, create what they needed for the foreseeable future and then have little reason to return. Some accounts would become inactive for 90 days or more.
The product was delivering value, but in relatively infrequent bursts. That changed the way the company thought about retention.
The question was no longer: “How do we get customers to renew?”
It became:
“How do we create more ongoing value so that customers have a reason to use the product regularly?”
That led to a much broader discussion about product development, customer workflows and the value proposition. The objective was to move from a product that solved an occasional need to one that created an ongoing reason to engage. That is a very different retention strategy.
There was another lesson from this analysis.
The company had been primarily focused on Gross Revenue Retention (GRR) but have never even captured Net Revenue Retention (NRR).
In this case, it turned out that the company’s NRR was below 90%. The company therefore started looking not only at reducing churn, but also at increasing expansion revenue through product development, packaging, cross-sell and upsell opportunities.
The lesson here is that customer service and customer success are effective at reducing avoidable churn, but they cannot eliminate structural churn. Moving annual retention from 73% to 83%, as shown in the example above, would reduce churn from 27% to 17%. That is a dramatic improvement that, in most B2B SaaS businesses, would typically require changes to the product experience, customer fit, pricing, or overall value proposition, not just better customer service.