Magazine Article | October 1, 2019

The Balancing Act Of Managing Customer Churn

Source: Software Executive magazine

By Harrison Rose

A SaaS cofounder shares five practical tips for reaching the holy grail of growth.

No one likes a breakup. Eventually there will come a time when a customer pulls the plug. You want to reduce the rate at which customers leave and find new ways to get them to stick around. In the past, we have typically measured customer churn by quarters, but thanks to the SaaS explosion, users are only consuming what they need/want, and the software industry is shifting to monitoring monthly churn rates.

Software companies looking to grow must balance keeping existing customers and focusing time, energy, and resources on new customer acquisition. Swing your efforts too far to incoming customers, however, and you risk disenchantment in the ranks. So, what can reduce the churn burn?

GETTING FAMILIAR WITH CUSTOMER CHURN

Customer churn is a company’s ugly truth and is one of the most important metrics to evaluate. If your glass is half full, you may be charting retention rate instead, but it’s ultimately the same information. Regardless of how you choose to monitor your churn, the reality is the same. Reducing churn makes sense: fewer customers leaving means more consistent revenue while you take on new customers and get sales on an upward trajectory. Even more effective for the growth of a business, however, is to achieve the holy grail for all SaaS companies: negative churn.

Negative churn is a great thing for software businesses. Growth consultant Lincoln Murphy describes achieving negative churn as “when, for a given time period, expansion revenue more than offsets any revenue you lose from customer churn, downgrades, lower usage, etc.” So, even when you’re losing customers, you’re still making more money. To make this a consistent trend, you don’t want to lean too heavily on acquiring new customers. In short, you want to encourage your existing customers to spend more with you.

5 RULES FOR ACHIEVING NEGATIVE CHURN

RULE 1 Get Your Onboarding Right

You’ve sold your product — Yay! The customer is excited and has hopes of your software making life a little easier for them. One way to kill the excitement is to send a new customer a big “getting started” manual or a welcome email full of links to tutorial videos and troubleshooting pages. A huge wave of information dulls the shine of the product. Some people might not even get past this stage and churn before the next payment.

What’s the best way to avoid this? Keep it simple, and let your great product do the talking. Have an actionable welcome email that kickstarts the setup for the customer and guides them through the process step-by-step.

In Econsultancy’s Digital Trends 2018 report, 45 percent of companies cited content and experience management as their number one priority, with top-performing companies being 50 percent more likely than their peers to have “well-designed user journeys that facilitate clear communication and a seamless transaction.” This reaffirms what we already knew: Positive customer experience is key to customer retention.

RULE 2 Acknowledge The Competition

If and when a customer leaves you, there’s a good chance they’re still looking for the service your company provides. By this logic, there’s also a good chance that you were part of their initial search but lost to a competitor.

A great way to reduce this churn and improve your acquisition is to openly acknowledge your competition. Highlight to potential customers (and remind your existing ones) what sets you apart. Provide case studies that demonstrate why your solution is the best option for their needs. This is a fantastic way to reinforce why they chose your company from the start. This isn’t bad-mouthing your competitors; it’s sharing the benefits of your solution while being transparent with your target market.

RULE 3 Crystal Ball Thinking: Try To Preempt The Churn

Learn to spot the warning signs of a customer that’s on the way out of the door and catch them before they get their coat. The customers who are most likely to churn tend to be those who are not engaging with your product. Sometimes there’s very little you can do about this (may-be they no longer require your product). Often this pre-churn behavior is unconscious. A gentle nudge to reassure and re-engage the customer makes a big difference.

Targeted emails or in-app notifications to customers who’ve fallen off the radar can drive engagement or encourage them to seek help. If you don’t have built-in analytics, there are tools to help monitor usage and determine which customers need a nudge.

RULE 4 Get To Know Your Customer

Your customers’ success is yours, and they’ll be far more open to using your product as they scale. Forging and maintaining close relationships with customers so that they believe in your solution is crucial. Once your product is integral to your customers’ success, you’ll find yourself in the negative churn zone, where customer accounts are functioning like high-yield savings accounts that make money with little effort.

The name of the game is engagement, and that means talking with your customer from the first onboarding experience throughout their customer journey. You want customers to believe in your software, testify to the positive results, and be a champion for your brand. There’s very little you can do to increase your customers’ brand loyalty and usage if you’re not asking what they want. At Paddle, we like to check in with our customers regularly to “pulse check” their experience with us.

Don’t be afraid to approach your customers and ask them what they’d like to see on your platform. Then liaise with your product development team to make these changes. Not only do you get insight into what your customers want, it’s also a great experience for customers to see their suggestions come to fruition.

RULE 5 Listen To What Your Customers Say

We can’t stop all churn, but we can learn from it. If a customer has a negative experience, they’re far more likely to share their problems than a happy camper. You can really benefit from their candor to prevent the next customer from churning.

"Customer churn is a company's ugly truth and is one of the most important metrics for a growing business to evaluate."

Harrison Rose, Cofounder and chief customer officer, Paddle

You can collect feedback in a number of different ways, from using in-app bots, to sending surveys via email, to collecting personal feedback from account managers. Of course, it’s important when gathering this feedback to take into account the type of customer you’re losing. Losing a customer after one month of infrequent use of your software is very different from losing a loyal customer of several years. Needless to say, the bigger losses have the biggest lessons.

Once you have enough feedback, you can trace recurring patterns and formulate an action plan to seal up the cracks your existing customers are slipping through. The more robust your plan and the more thorough your support is for existing customers, the lower your churn rate.

It makes business sense to reduce churn and head toward the holy grail of negative churn, but it takes work to make it happen. Reducing churn using these tips means fewer customers leaving and more consistent revenue while you balance bringing on new customers and growing in an upward trajectory.