Churn sucks. Getting a handle on churn is critical to making sure that your business is successful.
Alright, let’s get the basics out of the way first. What is a churn?
In layman’s terms, churn is all your paying customers that decide to stop paying for your product/service. Now there could be a litany of reasons as to why they stopped paying for your product.
More often than not though, it boils down to the fact that the customer just did not see the value in the product and decided it was not worth the cost.
Why does Churn matter?
Nothing can sink your business faster than churn can. You recall one of those cartoons, where the boat is sinking and one of the dudes is using a bucket to remove the water out of the boat but there are so many holes in the boat that no matter how fast they remove the water out, ten times more keeps coming in.
So yea, a long winded answer. A leaky bucket would’ve been quicker and would’ve easily described the issue at hand 😅
Anyhow, the problem with churn is that it compounds over time. It lowers the value of the new revenue that your sales team is brining in, because all you need is a bad month or two on the new MRR front. And the business will have net negative growth because the revenue is leaking far quicker than it’s being brought in. You now need to bring more revenue in because you churn put you in a hole for the month that needs to be replenished first.
To understand churn or to be able to combat it. We first have to understand that there will always be some churn. It is practically unavoidable not to have some level of churn. Doesn’t matter whether your customers are SMB or Enterprise, if you have new customers coming in, you are going to be losing some customers as well. There is nothing much you can do about it. But, you can focus on areas that can reduce the level of churn you have. We will focus our energies there.
There could be a host of different reasons for the churn. I don’t want to dig into all of them because a hundred pages still won’t be enough, since churn varies and that too a lot from company to company.
Reasons for Customer Churn
Churn isn’t just money lost just because the customer stopped using your product, it also causes a strain on your customer success team as well as a negative sentiment in the market.
Hell, if you’re looking to bring on outside investment. I promise you, one of the top things that the investors will look at will also be your retention numbers and how they match up against the industry average.
Here are some reasons for customer churn:
I’ll list them from most common to least, based on my experience.
You’re onboarding customers that don’t have a good fit
Ever see a sales team selling to prospects that barely are qualified but since they want to hit quota, they will push the sale? Yeah, that’s bad practice. Selling to prospects that are not qualified will inevitably lead to churn.
Think of it this way. If you’re looking to buy a product and it does not fulfill your needs, you will stop using it right?
Customer is not able to achieve desired results
We’ve all been there. We bought something because we thought it will help us but turns out it doesn’t. Products are more complex now then ever before (insert 100 AI tools) and to add to that the competition is fierce.
So while the customers are now more educated in what is available in the market. They have a lot of tools to choose from and it takes a few tries to get right. And this goes all the way to the top of the funnel and that is, you as a business need to attract the “right type” of customer.
Too many bugs
Need I say more? If your product is buggy and breaks all the time, prospects will not be buying it. If they do end up buying it, you won’t be able to retain them as a long term customer.
Plus customers will lose faith in your product, and if the trust isn’t there…
Missing key features
If your product is missing key features, more likely than not the customer will eventually churn. Especially if those features are mission critical for the customer. This is where a customer success team can come in really handy. They work as a conduit between the product team and the customer.
Manage expectations, right from the get go wherever possible.
Price is too high
This one comes up quite a lot as well. Now more than ever, considering the economy that we have right now. Customers are more price sensitive and cautious.
If the price is too high for the customer, they most likely will look for an alternative. As we have already talked about it, the market is fierce right now. A lot of competitors offering similar products, so the customers have a ton of options.
They will and do switch to other vendors if something is outside of their price range and not affordable anymore. Again a good use case for the success team to kick in and combat that by showcasing value of the product.
Customers no longer need your product
They might be using it for a project or a certain period of time and as soon as the need for the product is gone. The customer will leave.
There really isn’t a lot that you can do as a company on this front, other than the fact that you try and make sure that you build the product in a way that the customers keep coming back to use it.
Since there weren’t enough articles out there detailing churn reasons, I thought I will go ahead and do that 😆.
But at least now we have a baseline and some context. So let’s talk solutions.
What can be done to prevent churn from happening?
Well, prevent altogether? Not a lot.
But, what can be done is to eliminate churn for the most part to low single digits.
Build a solid customer success team
By this, I don’t mean you spend hundreds of thousands of dollars trying to hire a team of pros to tackle this. No.
Start with a single rep or perhaps two and go from there. If you feel like you need to add more people into the team, go for it. I’m a huge believer in evolution over revolution. Always start small, tweak things and then go from there. You don’t have to test the depth of the water with both feet.
The general rule of thumb is that you have one rep for every $100K in MRR. That typically is the sweet spot for a mid-tier SaaS, but it will vary from company to company. So use that as a guiding principle or a marker.
I see this so often, whenever I speak with different VPs of Success or in a setting where Success “thought leaders” are present. All you hear is (for the most part) NPS, CSAT, health scores, feature adoption, NRR. It’s so exhausting, same thing recycled over and over and over again.
Customer success is not that difficult. It’s not only about these metrics, twisted and over represented in different ways. It’s about customer’s “success”. It’s right there in the word. And you measure success when the customers achieve their desired outcomes.
The customers decide how they measure it, not you. That is why it’s critical for every success rep to speak to the customers and their book of business and qualify them.
Figure out what exactly is the reason why they are using the product for, which features, what makes them stick, what will make them renew, any potential red flags or opportunities down the line.
Only when you know the answers to all the questions will you be able to help the customer in anyway shape or form. But it all starts with having a team that speaks to the customers and ensures that the customers are being successful.
A success teams job is to be proactive instead of being reactive. They ensure that problems don’t occur in the first place. This can be done with regular check ins, making sure that the customers are getting value out of your product on the day to day. And of course building a long lasting relationship with the customer.
Once you have a well oiled customer success team in place, you will see growth in the following:
- Increased revenue
- Higher engagement amongst customers
- Satisfied customers
- Higher retention
Just remember one thing. It’s unlikely that you will find the perfect success program that works for you with the first iteration. It takes time. A lot of tries and patience. Test various formats, different cadences, different playbooks to see what works the best for you.
Once you find that out. Do more of it and scale.
Have a robust CS tool in place
I have had folks ask me a question about finding a good cheap tool for managing their customer base. I tell them the same thing I’m about to write here.
You are talking about your customers, the lifeblood of your organization, you cannot cheap out on this. Any money that you will be spending on a tool will ultimately yield more money for the company.
There is no way or a scenario in which if done right will you come out a loser. Have a robust tool that offers what you need and then some. From NPS to customer health scores and interactions. Essentially anything and everything your customer success team needs to be able to do, should be possible with that tool.
Not having the right tool in place is like going hunting with a blunt blade. It just won’t work. You can endlessly train your reps but if you are not giving them the right resources, they will not succeed. The right customer success management platform is not a want, it’s a must have.
I recommend vitally.io, I have used them for years now and they work and work really well. It offers everything a customer success team could possibly need to build out a strong program.
Remember, one size does not fit all. There are plenty of tools out there that offer functionality that closely mimics that of Vitally. Pick one and run with it. It’s more important to have a tool than to not have one at all.
Your tech stack must never determine your strategy, it has to support it. Get a tool that can get you the 360 view of your customers with both quantitative and qualitative data which will help you make the right decisions to help prevent churn.
Build customized paths
Ok, this one is much harder to nail. Partially because it becomes very hard to scale when your customer base grows. Having said that, in the long term understanding that no two customers are the same is key.
One size does not fit all. Even 2 customers of roughly the same size, from the same industry, the same structure, can and do have different needs. You need to build customized journeys for different customers.
This is where having a CSM comes in really handy. Since they are managing a book of business, they can tweak their reach out and relationship building based on the use case of the customer. Some customers like hand holding or need it a lot and some don’t really need a lot of reach outs and touch points.
Tweak the strategy based on what the customers want and where they feel like they are getting the maximum value. But don’t chuck all customers in one basket and run a playbook accordingly. It for the most part will not work, because different customers while they might feel the same, have very different needs and wants.
You need to determine what success means for the customers and build a path in which they can they can achieve that success.
Prepare a SWOT analysis and speak to your company’s strength
I rarely see this being done at any company. Look, the market is very very competitive right now. There are so many competitors out there offering a product similar to the one you are selling. Your reps and the customers need to be well versed in terms of what the market offers and where you stand as a company.
SWOT analysis are perfect for that. It helps you identify the Strengths, Weaknesses, Opportunities and Threats. The premise behind this analysis is to better understand the competition out there and speak to your company’s strength.
The digital space in which we work right now, it’s absurd to think that the prospects or your customers are not looking at your competitors. Between the cold emails, the ads being run on various different platforms, your customers are aware of the competitors and chances are those competitors offer features that you do not have. And you know what that is OK.
Provided that you are speaking to your customers and playing to your strengths. I keep telling my team this, that the customers bought our product for a reason. It clearly offers enough value for them to enter their credit card details. We now need to ensure that we retain those customers by honing in on the point that they made the right choice.
You need to block out the noise for the customer. And there is no better way of doing that other than understanding what the market has to offer. Learn the space your are in, the opportunities, the threats so you can defend against them in a better way when and if the customers bring those points up.
Remember, sell what you have and have what you sell. If you are speaking to the customers and come off as well educated about the space in which you operate and talk to your company’s strengths, you very seldom will face major churn. I see too often reps not knowing anything about the competitors leave so much unsaid on the calls with the customers.
If you don’t know what your competition has and how you differ, you have already lost before you even get the chance to save the customer. Every call should be an opportunity to zoom in on to your company’s strength. Just remember this is your customer to lose.
Product stickiness and educating customers
I wanted to go ahead and lob two of these because I think they are very closely linked to each other. Yes product stickiness is critical to retention like peanut butter is to jelly. The reason for that is, the more “sticky” your product, it’s much harder for the customer to go ahead and move away from it. Think iPhone or any product that you like that you just cannot move away from. That right there is product stickiness.
The more teams and individuals that rely on your platform and build it into their regular daily operations, the lower the risk of churn. There’s two driving factors behind this. The first is simply penetration. The more embedded the product, the more it becomes part of the business.
But secondly, value. The same product used by more team members delivers significantly more value and ROI than a product used by a single team.
To generate product stickiness, customer success calls is key. The objective of which is not just to evaluate current usage but scope out how the product can bring increased value to other teams and challenges within a customer’s business.
The calls can really help if the customers missed out on discovering or capitalizing on a key feature that makes your product sticky. And this is where educating the customers comes in. You constantly have to make sure that you are educating your customers on how to get the most value out of your product.
Outside of developing a great product, you also need to educate your customers on how to use it. Otherwise, they will not be able to leverage it and get all of your product’s potential benefits.
When your customers are getting the most out of your product it greatly helps to reduce customer churn.
Customer churn not only increases CAC but also decreases the value the customers are getting out of your product. This is why it’s critical to get a handle on your retention, otherwise it will rot your revenue from within.
While all these strategies are well just strategies and lord there is no shortage of strategies out there on the web. The best thing to do is focus on scaling what works for you. Scale your inputs and services only after you’ve got a definitive proof that things are working accurately and repeatedly.
Look there is no silver bullet to managing churn. You need to take a good hard look at where you stand and really spend a lot of energy trying to get retention under control. Ask anyone with experience and they will tell you that it’s worth it.
Customer churn is costly. You’ll lose a big chunk of your annual revenue when a customer decides they no longer want to use your products and services. Then you’ll have to invest money and time in finding a new customer, which could take weeks or even months. It’s less stressful, and less expensive, to encourage your existing customers to stay with you.
So ensure you’re always proving to customers how much you value their loyalty. Whether you use one or all of the suggestions above for reducing churn, listen to what your customers have to say. Find out what challenges they’re facing, then be proactive in resolving them.