SaaS companies tend to keep a close eye on churn, as it indicates a measure of failure: customers who try out their product and decide it isn’t worth continuing to pay for. However, as it turns out, there is a category of accounts where the customer is not entirely satisfied, nor seeing enough value, but continues paying for the product for unreasonable periods of time. Such accounts termed “prisoner accounts,” are the biggest irony of the SaaS world.
These are the accounts all customer success managers (CSMs) would do well to understand, learn, and watch out for. To quote Frank Whaley from Broken Arrow, “We don’t know what’s scarier, turning active paying customers into prisoner accounts, or that it happens so often there’s actually a term for it.” But, I digress.
For a SaaS business, the right way to build a long-term meaningful and successful relationship with your customer base is to pursue one of the following strategies:
A. Generate phenomenal value in your product
B. Build outstanding brand loyalty
A lot has already been written about how to achieve either of these goals. So let’s take a moment instead, to focus on why some customers tend to stick around even when they are less than thrilled with the experience — and worse, why CSMs can often fail to see this, turning the relationship into one of captivity than the thriving partnership one would envision.
Through research and conversations with SaaS customers, we’ve established the following as the 5 main reasons accounts become prisoner accounts:
1. Buyer-User Gap
If a product is not used much by the end-user, it is either because they didn’t need it to start with (incorrect purchase) or because they are struggling to use it (inappropriate design). The buyer and user are often different people. For example, an HR department might purchase a membership for a SaaS LMS, but if the end-user doesn’t see its value the product might remain unused for a long time. The buyer, meanwhile, continues to operate under the assumption that the product is the right fit and that the user is satisfied, simply because few end-users have bothered to complain, and usage metrics have not been accurately measured.
2. Lack of Integration
Sometimes the SaaS product does generate initial usage, but after some time the user realizes that it doesn’t solve their problem, or worse, the product expects them to re-enter data they are already managing with other tools. At that point, usage begins to taper off and engagement plummets.
3. Cost (and pain) of Change
There’s a cost to any change for an organization. Even if someone within the organization realizes that the licensed product isn’t a great fit, any further change requires research into better options. Someone needs to calculate the cost of change and develop a project plan on how to run the change through the organization, which often leads to the decision getting postponed for a quarter or more. This keeps the SaaS solution active long after it has stopped delivering any value.
4. Low Expectations
It is common for a SaaS CSM to manage between 50–250 accounts each depending on their size, budget, and industry. Customer Success (CS) platforms that do not have enough automation and alerts built into them make it nearly impossible for the CSM to track which customers are slipping on usage and engagement, and ultimately tough to get an accurate health score. The CS platform proxies as an expensive task management tool and no change is sought for lack of better expectations on what a true CS platform can and should deliver.
5. Low ROI
Buyers of your software expect a good return on investment. If it is not providing that to them, why should they bother continue using it? They may have set their expectations too high for what your product can deliver, or you overhyped it, which led to those unrealistic expectations. If this occurs, you will begin seeing those customers using your software less, or even ceasing its use entirely. You can look over what the goals of these customers are and lend a helping hand through the onboarding and adoption part of using your software, which will avoid them abandoning it.
6. Incomplete Account Setup
How can your customers expect any ROI if they are unable to get their accounts fully set up? They will be unable to make full use of your software, giving them an incomplete look at what your software can do for them. You can identify accounts that have not been completely set up and take action to guide them through the setup process. Make the adoption phase simple. You can set up alerts whenever they hit a snag, notifying you that they will need assistance and support in making it through to the next step.
7. Account Holder Is No Longer Available
People come and go from companies all the time. A user of an account for a business may no longer be with that company. They may also still be with that business, but out on sick leave or some other reason. When you see a decline in interactions with this user, it may be a sign that they are no longer able to be the one using the account. In situations like this, provide special training to switch over to a new user that will manage the account. Hopefully, you have another contact for the company. Otherwise, reach out to the company using their publicly-available information and get someone else onboarded.
8. Low or Stagnant User Engagement
When you notice that a user is barely using their account, or has stopped using it completely, you should help guide them through the adoption of your software. Lower the risk of prisoner accounts by asking them about what their goals are. This will help you better cater to their needs. When you understand what their goals are in a clear way, you can do a better job at guiding them through the adoption process.
9. Misunderstanding the Value Your Software Has
Users of your software should clearly understand what the value of your software is. If they seem to be showing signs of under-utilizing it, remind them of the kind of ROI they can expect to see if they use it properly. You should identify their underutilization as soon as possible so that they don’t drop off of using it entirely. You want to also demonstrate the tremendous value your software has by giving exemplary and expedient customer support. If you see an increase in opened support tickets from a user, this should tip you off that there is a problem. Collect some statistics that demonstrate how your software has helped them in a positive way.
10. Not As Many Features As Competitors Have
Your customers may outright cancel their subscriptions and stop using your software if it has less useful features than one of your competitors has. You can be sure that your competitors are continuously adding new features into their software, giving them an edge. You need to keep up with the times and update your software as well, if you want to retain your existing customers and attract new ones. Send out periodic feedback forms to gauge what your customers want out of your software. Also, pay earnest attention to any requests you receive for additional features and functionality. Review how your customers are using your software and ask them what they think about their user experience. Relay all feedback to your entire team, so everyone knows what customers want.
11. Outgrown the Usefulness of Your Software
Sometimes, a user will have simply outgrown the usefulness of your software. You can get insight into whether this is, or soon will be, the case. Keenly pay attention to when any users are submitting requests for more advanced features that are unavailable in your software. You may have the opportunity to implement a feature they need to stay a customer. Always communicate with your customers so you know whether they are outgrowing the usefulness of your software, updating it to fulfill their needs.
12. Bad Customer Support Experience
Your customers only need to have one bad experience with your support team to not want to use your software anymore. Your support team has to be trained to be professional and courteous with your company’s customers. Anyone working for your company that interacts with the customers in some way has to be properly trained. Different customers have different personalities. Match up someone on your team with a customer with a similar personality, so that they can create a rapport with them and deliver a more positive customer support experience.
13. Address Software Bugs
It’s difficult to release software that is completely bug-free. However, your development team can make sure they have done their due diligence by combing through the code for any potential issues. Occasionally, the odd bug will get through, which will lead to more open support tickets and requests for assistance from your customers. When this occurs, acknowledge their concerns and provide workable solutions or alternatives in the meantime, while the bugs are fixed. After the development team has fixed the bugs, let those customers know.
14. Change in Management
Your customers may occasionally have a change in their company management. They may question whether your software still delivers any benefit to their company. Help them justify the expense of using your software by outlining the ROI the software offers. Start things off by introducing yourself, along with the main ways your software can be advantageous. Train them on how to use the software, so they can make the most out of what it has to offer
5. Annual Lock-in
This one should come as no surprise. If the buyer has opted for an annual subscription and finds out about the lack of value in a couple of months, they are naturally going to remain captive (contractually) for the rest of the term.
Just as we can’t avoid every single instance of churn, some prisoner accounts are impossible to avoid, despite a CSM’s best efforts (ex. an incorrect purchase by the buyer). However, there’s a difference between acknowledging that reality and leaning on it as an excuse.
So, what then, can the Customer Success team do to avoid prisoner accounts?
CS leaders at the best SaaS companies have realized that they need to be on the lookout for prisoner accounts to be able to manage them and prevent future ones. The customer is often not aware of the product usage and thus doesn’t share information about it in conversations or surveys. Constantly searching for information in this regard is a good place to begin.
More and more CS teams are realizing that managing customers merely through the much-touted “touchpoints” without having an idea of their users’ engagement with their product creates a huge blind spot. They can measure engagement by instrumenting the key features in the product and sending a log entry to a customer engagement database every time they use that feature. The same can also be achieved through a tool like SmartKarrot (Bias Alert: this is our own tool, available for free trials), which gives CSMs free access to their product’s percentile-based Engagement Score.
Finally, recent subscription solutions like Slack actively link monthly billing to usage and proactively avoid billing for users who have not been using Slack for that month. While this practice is not very common yet, the day where this will be the de facto expectation from each SaaS product is not far off. Progressive SaaS companies need to consider moving away from the “per user per month” pricing model to the better business-value-aligned “per active user per month” model.
Your churning customers and your prisoner accounts can be your greatest teachers. While Churn is a lagging metric, a “Prisoner Account” is a leading indicator of distress and can help CSMs turn things around before it is too late. So, arm yourself with the appropriate insights, analyze them well, be brutally honest while you do — and you are likely to build a bigger, better SaaS business.
This article is written by Arnab Chatterjee, Co-Founder & CPO – SmartKarrot. It originally appeared on Medium.
This blog has been last updated on 9 April 2020 to make it more comprehensive.