7 Lessons from McKinsey on Recession-Proofing Your Customer Base Image

7 Lessons from McKinsey on Recession-Proofing Your Customer Base

By Nick Mehta

A lot’s changed since my last interview with McKinsey on Net Retention and Customer Success.

One thing that hasn’t: they remain an incredible source of wisdom, especially when SaaS is now collectively facing challenging times.

Recently, I spoke with one of McKinsey’s partners, Sid Tandon, about Customer Success’ role as a lifeline for SaaS in the economic downturn. We gleaned some pretty incredible advice from that chat. You can watch the full conversation below, though I’ve also summarized 7 key lessons we shared on how to recession-proof your customer base. Whether or not we ever officially hit a recession, we’ll get through this together!

1. The new valuations are closer to normal

While, yes, we are in a downturn, things aren’t quite as dire as the numbers might suggest.

Sid showed us how the new environment of valuation is much closer to where we were before the massive expansion of our monetary base by the Federal Reserve. While I know I’ll definitely miss the days of every company being valued at 100s of times ARR, for now, Sid’s insight into SaaS’s larger financial history is reassuring.

2. Rule of 40 and efficient growth reign supreme

I might sound like a broken record after sharing this takeaway from Saas Investors and SaaS CEOs as well, but it was reassuring to hear from McKinsey, too. We all knew that “growth at all costs” would not be sustainable forever. Sid showed us how the best companies balance growth and efficiency, delivering a “Rule of 40” score of 60 or more.

3. Net Revenue Retention is even more important now

Sid and I discussed how NRR is one of the critical factors for efficient growth. This is also aligned with my survey data from SaaS CEOs and investors, which ranked NRR as a prioritized metric in the recession. Everyone’s aligned: NRR is the way forward, making the investment in CS a pivotal survival strategy.

4. Internal alignment is key to driving NRR

While CS is undoubtedly key to driving NRR, Sid made an excellent point: NRR is a cross-functional company effort. For example, CS needs to work with Sales in order to drive expansion/upsells, and Product enables CS on updates and features. Leaving CS teams to drive NRR alone would miss critical opportunities for revenue growth.

5. Product-led growth has a huge role in driving NRR

Product-led growth may be an overused term in SaaS, but when prioritized correctly, it is essential to efficient growth. Sid and I chatted about enabling your customer to buy without much intervention from Sales. This is a crucial piece to internal alignment and ensuring your CS teams have the bandwidth to be successful.

6. CS is more important now than ever

In a recession, new sales will decline. Your existing customers will consolidate spending, scrutinize outcomes, and likely need even more of your help (since they are likely struggling too). In order to stay above the “cut line,” you’ll need to maximize revenue from your existing customers.

7. It’s time to mobilize

We’ve talked about the big picture strategies: investing in CS, ensuring internal alignment, and prioritizing efficient growth. But Sid and I shared a playbook with additional strategies to help our clients thrive as well:

Which leads me to my final point: SaaS community will be the most valuable asset. This past month, I’ve gathered so much insight from investors, CEOs, fellow LinkedIn connoisseurs, and now again from McKinsey. 

I’m so grateful to Sid for our discussion. All of my lessons, takeaways, and strategies are a product of communal CS experiences and priorities. As those shift with the downturn, we’ll have to rely on each other to share the best insights and techniques for persevering.

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