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Don’t react to Churn — Prevent it!

The key to preventing churn is taking a customer-focused view and orienting and simplifying all activities around it.

Churn

For software as a service (SaaS) companies, customer churn is a constant concern. You can have the best platform on the market and stellar customer service and still lose customers every month. Of course, there are always factors outside of your control. Maybe your customer is undergoing budget cuts and deems your product nonessential, or perhaps the internal champion for your platform decides to leave the company and enthusiasm for it wanes. Though such circumstances inevitably happen from time to time, customer churn usually stems from a much simpler issue: lack of usage.

We’ve all been guilty of rushing to subscribe to the latest software, using it obsessively for a couple of weeks and then forgetting about it within a few months. Usage naturally starts to taper down after applications have been in use for a while for B2B as well as B2B2C platforms. Not only is dwindling usage the primary cause of churn, but it’s also the best metric for predicting churn.

For example, if your platform is geared toward employees and HR managers, but the managerial team hasn’t been logging in lately or managers have only been using a few of the features, you shouldn’t be surprised when the contract is cancelled. Even if employees are using the platform regularly, they probably have much less influence than managers over whether the subscription gets renewed.

That’s why it’s important to track not only who is using your platform and when and where they are using it, but what their roles are and which features they are using. Are the right stakeholders using the right set of features? Do they know about all the features your platform offers? Asking these questions can help you get to the bottom of the most pressing question: Why do customers use your platform — or why have they stopped using it?

The Impact of Churn

Organizations spend plenty of time and money trying to reduce their chances of churn through email campaigns and loyalty programs that include discounts and other incentives. But reacting to churn is futile, particularly in the SaaS space, where customers pay in monthly or annual subscriptions and aren’t as financially tied to the software they purchase.

Once churn happens, it cannot be reversed, at least not right away. By the time most customers cancel their subscription, they have already moved on to a competitor or the next new platform. Industry analysts have debated what constitutes an acceptable churn rate for SaaS startups — the percentage of customers who stop using a software service within a certain time frame. But churn has reverberations that go beyond what this simple equation captures.

When churn happens, team morale and profitability take a hit, and costs of acquiring customers increase. Say you have 100 customers currently and expect to close out 25 new customers by the end of the month. If you lose a quarter of your customer base to churn in the meantime, you would need to double the number of new customers you acquire to keep up with your projected growth rate. Churn also impacts other metrics such as lifetime customer value — how much a customer is worth to your organization over time — and your overall valuation by investors.

How to Prevent Churn

Churn

There are a few key parameters that stand out in churn prevention. While most organizations attempt this in silos, the best of the lot are able to connect these cohesively. Preventing churn starts with tracking and understanding your platform usage at its most granular level and using these insights to drive meaningful engagement and management of customer touchpoints. Let’s look at these key aspects in a little more detail:

Analyzing usage

First, you need to understand who is using your platform as well as how and why they are using it. Then you need to be able to slice and dice this data by the roles of different users and correlate it with other details such as subscription tier, duration, and contract terms and conditions. If you have trial customers who tend to unsubscribe at the end of the month, what makes their behavior different from those who convert to paid customers? You also need to understand where users fall in the customer life cycle and how this impacts usage. Are they steady customers or still onboarding? Are they tired of using your platform or enthusiastic about it? Analyzing the behavior patterns of customers at different stages and subscription tiers can help you determine which patterns you want to drive.

Converting insights into action

The faster you can apply this intel to customers, the better. Understanding their behavioral patterns helps you determine the right actions to take. Having this insight also enables you to develop a configurable customer health score so you can track customer actions in real-time and react immediately. Automating these interactions with customers allows you to respond to them in the most efficient, personalized manner. Having a system that puts these insights at your fingertips and provides the data liquidity to take immediate action is key to helping you reach customers faster and in more targeted ways.

Managing customer touchpoints

The more insight you have into customer behavior and other usage patterns, the better you can navigate and personalize your touchpoints with customers. For example, if HR managers are not maximizing the most relevant features of your platform, you can orient conversations to how those features might benefit them the most or offer a demo. You can get a pulse and instant feedback to gauge their needs or test whether providing a pointed guide of your platform features will lead to greater usage and stickiness. You can target initiatives toward customers more likely to churn without bombarding loyal users.

Integrating insights across systems

Preventing churn is easier if you can collect and correlate behavioral and customer data seamlessly across multiple tools or within a single platform. Investing in an integrated platform that connects behavioral analytics and other data across your organization and incorporates them into customer success efforts not only reduces your dependence on multiple systems but also helps you set the right initiatives in motion fast.

Simplifying customer success

Customer success teams are evaluated mainly by upsell metrics and churn prevention. Tracking revenue metrics, usage, customer experience, support challenges, new features, and competition are all interrelated and typical of a day in the life of a CSM. It’s important to use tools that are simple, comprehensive and allow for easy automation.

Churn prevention is definitely possible, but it requires making an effort to break down silos in organizational structure as well as underlying systems.

This article is written by Prithwi Dasgupta, Founder & CEO – SmartKarrot. It originally appeared on Medium

Responses

  1. Avatar
    Lee Goodman

    Churn can definitely be a real issue if you aren’t understanding why it happens. I like using heatmap technology to know where users click and where they don’t. From here, it’s easier to see what needs to be optimized and you can also notify users of what they’ve missed out on.

  2. Avatar
    Richard Bevins

    I’ve never heard of churn before and I’m glad to read about it here. I guess understanding the usage data is where I need to start, from there I can hopefully see areas of my app that are badly designed or confusing. Perhaps a bug bounty would be a good idea, I could reward those who report bugs to me as I can’t possibly find them all by myself. Thanks for the info, SmartKarrot! I’m very new to all of this and your blog has been a great help.

  3. Avatar
    Dean T.

    Churn is always something I have to look out for with my business model of offering a trial for 14 days then asking for a payment. I’ve found that users who haven’t found most of what is on offer are most likely to cancel the trial. It’s important to reach out to these people and let them know what they’ve missed out on.

  4. Avatar
    Anna Hartman

    I think we’ve all experienced churn at some point. It can be difficult to manage but with right data as your disposal, it can be done. Keep your service simple, bring the most popular features to the forefront, ask people for feedback often and create incentives for coming back. The work is non-stop in this industry!

  5. Avatar
    Vincent Hubbard

    Churn is a huge problem and can lead to the downfall of a business if not handled properly. What you’ve detailed here is really impressive! 5 steps to get you back on track and ensure negative churn is a thing of the past. I hope I don’t have to deal with it any time soon.

  6. Avatar
    Matt Benson

    I’ve definitely been guilty of rushing to use the latest software only to use it once, I can’t pinpoint why and I doubt many others could either. This is a problem for us developers because it’s difficult to figure out why the churn exists. Thankfully, we have usage data available to us to help. You just have to understand the numbers in front of you.

  7. Avatar
    Antonio V

    Churn can be a difficult beast to tame. These are some great preventative tips that we should all be following along with. I’ve noticed that free trial users who abandon don’t even use the service much, whereas those who stay on the platform and start paying use it extensively. I still wonder what to do with these abandoning users, perhaps a special discount for returning?

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