This is a guest post by Jay Nathan, Founder & Managing Partner at Customer Imperative.
Disappointed, but oddly satisfied, I hung up the phone from a call with a recently-churned customer. I wasn’t satisfied that we lost a customer, but I was now armed with valuable new information that would lead to a breakthrough in our sales model.
When I ran Customer Success at PeopleMatter I interviewed every customer who canceled their services with us. From these discussions, we were able to gain incredible insights into the root causes of customer churn that informed our strategy from marketing and sales through product and service delivery.
Traditional product management and marketing teams tend to focus on win/loss analysis in the sales process. This is a valuable practice that increases our ability to close new business.
However, SaaS companies should also be taking advantage of the opportunity to learn from churned (and renewed) customers using similar techniques. Insights from paying customers who have actually used your product often uncover challenges and opportunities that prospective customers can’t.
For example, a recruiting product works great for a manager to find and hire new employees while simultaneously creating data integration nightmares for the back-office finance and IT teams. Eventually, these issues become deal-breakers which can lead to churn.
Learnings from customer challenges such as these should be studied carefully at the executive level where mitigation strategies can be prioritized and executed.
Digging deeper to categorize churn
There are only a small handful of reasons that customers churn. Those reasons can be boiled down to one of the following four categories:
- Lack of adoption
- Didn’t realize ROI
- Performance (didn’t meet product/service delivery expectations)
- Product fit
Yes, there are only four, and while there are multiple reasons at play, it’s important to choose one primary churn category for each lost account. This makes downstream reporting and analysis much simpler, and we can avoid the risk associated with double counting customers and revenue.
This may seem like an oversimplification, but trust me on this. When you’re presenting churn categories to an executive team and board members, simple, clear metrics win the day.
A note on “Didn’t realize ROI”
For a long time I made the mistake of using cost as a churn reason. And today I see many of my customers doing the same thing. However, cost is not a reason for churn. Follow me here: Customers pay for value provided, so if a customer tells you cost or budget is a factor you either didn’t provide enough value or didn’t prove your value.
If a customer tells you they have a cost issue it’s because they didn’t recognize appropriate ROI. I now classify these cases as either Didn’t realize ROI (generically) or Lack of adoption.
Controllable vs uncontrollable churn
Believe it or not, almost all churn is preventable. Which churn reasons you choose to solve comes down to a function cost and time investment. You may need to address gaps within your product, support delivery, user engagement or sales processes (e.g. expectation-setting) which all carry different costs to implement and returns in the form of retained revenue.
There is one reason I’ll accept as uncontrollable churn, which is when a customer goes out of business. That said, it is possible to retain business through a customer acquisition assuming ROI has been proven and the transition has been handled proactively.
We have to be careful not to lull ourselves into a false sense of security around churn reasons. It’s why I take such a hard line when defining controllable vs uncontrollable customer churn.
Conducting the churned customer interview
Now that we know what insights to seek, here’s how to go about gathering information.
Remember, you’re looking for root cause of the churn. Nothing less will do. I’ve seen CSMs, and have been guilty myself, accept surface-level feedback from former customers when it’s convenient or expedient to do so. It’s critically important for the business to find clear causes of churn so it can be addressed and prevented in the future.
Here are the questions I typically ask during a churned customer call:
- What problem were you trying to solve that led you to our company?
- In what ways did our product solve and not solve those problems for your business?
- How was the decision made to end the contract? (provides insight into who the ultimate decision-makers are in the organization to inform future engagement strategies)
- What is your perception of our team/service? (this is why you need an objecting 3rd party to conduct the interview)
- How did you budget for your spend with us? (marketing, sales, finance, operations budget, etc.)
- What will you replace our product with?
- Were you able to work with your peers in our customer base to share best practices to increase your proficiency and ROI with our product?
- What advice would you give us to help serve our customers better in the future?
- Would you be willing to reference as a former customer and participate in future product discovery/testing exercises? (keep them interested in your company, maybe one day they will come back)
You will also want to add industry-specific questions for your market and tailor the questions above to your competitive landscape.
Some of these questions could be awkward to ask for an account or customer success manager who’s been involved in the relationship. For that reason it’s good to have an objective, unattached (emotionally) interviewer. This could be someone in marketing, on the executive team, or an outside consultant (shameless plug).
Once you identify the root cause of churn, it’s time to do something about it.
What to do about it
Churn destroys SaaS business valuation. And I believe Customer Success owns the ultimate responsibility of helping the business understand and solve for its root causes. Step one is to gather data as outlined above. The next step is to aggregate and present this information at the executive level where mitigation strategies can be prioritized, championed, funded, mobilized and monitored.
Every SaaS business deals with churn, but it’s up to you to leverage the lessons learned into actions that improve the business.
In the epic words of MMA fighter Conor McGregor:
“It’s not really that much of a big deal [to lose] – you brush it off and you come back. Defeat is the secret ingredient to success.“
Don’t be discouraged by churn. Instead use it as your secret ingredient for building a great product, delivering great service, and achieving the long-term success you’re aiming for.
Customer Success Around the Web
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- Customer Success & the Coronavirus– Many CS professionals are not prepared to quickly adjust their operations and help their customers respond to emergencies, such as the current Coronavirus situation. Check out these resources to help.