This week I'm out at Cornerstone Convergence, which is talent management techology provider Cornerstone OnDemand's annual customer event. Cornerstone puts on one of the HR Tech industry's best (and most fun) events each year and it is one event I am sure to make time for each year. Aside, ask me about last year's Poison concert at Convergence - it was amazingly fun.
One of the data points that always comes up at these kind of events is customer retention rate, i.e., the percentage of customers that upon initial contract expiration, (typically after three years), decide to actually renew their contracts with the technology solution provider. At the Cornerstone event they mentioned a pretty high retention/renewal rate, somewhere north of 90%, (I can't remember the actual number and it doesn't really matter for the purposes of this post anyway).
And Cornerstone is not the only HR Tech solution provider that is able to boast such lofty customer retention rates, I would guess that every single time I have heard a vendor, any vendor, talk about customer retention rates their numbers are similar - they claim their existing customer renew at a rate of 90% or better. And since I have neither a reason to doubt any of the individual reports of extremely high customer retention rates, nor the existence of some kind of industry-wide handshake agreement where every vendor reports 90% and higher retention rates, let's assume that in fact this is the case, and that most customers do in fact, renew their software contracts at these levels.
So what does that mean, or stated differently, why is a 90%+ retention rate important for the HR/Talent leader? I can think of three reasons, (although three will be easier to remember, so let's stick with that number for now).
1. If you're actually in the market, (or soon will be), for a new ATS, LMS, HRIS, or any other kind of software that ends in an 'S', you'd better choose wisely, since these extremely high retention rates tell us that most likely you will be in a relationship with this new technology for quite some time. Take a little bit longer in your up front process, engage more folks in the technology evaluations, heck, maybe even earmark some more budget for bringing in some outside experts to help you navigate the selection process. Even in the modern age of SaaS technology, most enterprise software decisions tend to stay with us for a long, long time.
2. We consistently underestimate people's aversion to change, even when presented with better alternatives. It has been estimated that in some applicaitions that a replacement technology has to be demonstrated as providing 9 times more value and utility than the existing solution in order for most folks to be willing to make a change. We don't like changing things as mundane as toothpaste brands or where we order coffee in the morning, and most of your workforce probably doesn't want you to change their workplace tools all that often, even if the 'new' ones are better. It's just too much hassle for the average, busy worker and manager to learn some new learning or recruiting or compensation tool. Said differently, they may not really like the tools they have now, but at least they know how to use them.
3. The ability to consistently deliver on promised future product development promises probably needs to be ranked higher on any HR technology software selection criteria your organization uses when evaluating competing technologies. This is the classic 'It's on the roadmap' stuff that you will hear often in the sales cycle or even after you become a customer. One of the most important challenges for providers is to balance the need for new product and feature development with their simultaneous need to support customers, fix bugs, and stabilize existing applications. How the provider can live up to promised future capabilities, particularly ones that are critical for your organization, becomes more and more important the longer the customer/provider relationship lasts.
So take all that for what you think it's worth, I predict either if you agree or disagree, 90% or you (or more), will be back tomorrow for the next installment of this nonsense....