No managed services provider (MSP) or value-added reseller (VAR) business wants to experience customer attrition, but some degree of churn is inevitable. There are strategies, however, that can help you build sticky customer relationships, such as the Hardware as a Service (HaaS) model, and keep churn rate low.
How to Measure Churn Rate
You can use a simple formula to calculate churn rate:
X= users at the beginning of a period
y= users at the end of a period
This calculation gives you your rate of customer attrition — and multiplying the answer by 100 will give you the percentage of customers you lost monthly or annually.
Depending on the types of products and services you sell, average churn rates may vary, but customer attrition is a crucial metric to track — you want to see attrition rates decline, not rise, over time. Improving customer retention by 5 percent can increase profits by between 25 percent and 90 percent. A lower churn rate also helps you control sales and marketing costs. Studies show that it costs substantially more to acquire a new customer — one analysis suggests costs increase by a factor of six or seven times compared with the cost of retaining a customer.
Sticky Customer Relationships with HaaS Clients
The Hardware as a Service model leads to long-term customer relationships by design. With HaaS, you retain ownership of IT hardware, and your customers pay a monthly subscription fee to use it. During the term of the HaaS contract, often 24 or 36 months, you provide service and support as outlined in your service level agreement (SLA) with the customer. Each HaaS customer you sign should represent an improvement in churn rate, at least over the course of their contract, and if you do it right, beyond.
Unlike project work that’s once and done or even some managed services that you may tend to offer behind the scenes, Hardware as a Service provides regular opportunities for you to touch base with your customers. In addition to calls from the client when something goes wrong or then encounter issues with the system, you can remotely monitor the system to proactively address issues and provide regular reports to your clients to let them know how you are providing uptime and optimal performance.
Because you are choosing the system and maintain ownership, you have more control over the hardware the client uses, allowing you to stack the deck to produce favorable, customer-pleasing outcomes. Using your technical expertise and knowledge about your clients’ industries, you can choose hardware best suited to their use cases and their environment, such as IP 65 tablets for dust and water resistance or handheld computers with adequate power to run enterprise applications.
Contact with the client throughout the contract also gives you opportunities to discuss how new solutions could provide greater efficiency and cost-savings, address changes in industry standards, or scale as the company grows. This could set the stage for the next contract or even an upgrade during the current contract if the business’ needs change.
Transition from Service Provider to Trusted Business Advisor
MSPs and VARs who build their clients’ trust are much more likely to create sticky relationships. But building trust takes time. HaaS contracts give you months or years to demonstrate your value as a service provider. Your responsiveness to your clients’ concerns, your knowledge and skill, and your expertise and problem-solving abilities can convince your clients you are a valuable resource worth keeping. Clients without an in-house IT staff may even begin to consider you a remote part of their team.
HaaS may also demonstrate to your clients that you have their best interests in mind. Purchasing a new IT system outright carries significant risk due to the speed of technological advancements. Unless a system delivers rapid ROI, a tech system purchased via CAPEX could be obsolete before the company sees a return. HaaS reduces that risk and allows you to provide your clients with the up-to-date technology they need to be most competitive.
Although building a solid, profitable HaaS business take planning and overcoming challenges with financing, compensating your sales team, and service levels that both you and your clients agree upon, the benefits, including sticky customer relationships, could make HaaS offerings a smart addition to your portfolio.