icebergs
Customer churn is inevitable. But there are some things you can do to mitigate it PHOTO: Christopher Michel

You’ve probably seen the visual metaphor of the iceberg a hundred times or more. But there’s a reason it’s a reliable trope: it’s efficient shorthand for expressing a fundamental truth about how we evaluate complex systems and risks. 

In nearly every aspect of business, or life in general, we rarely look beyond the visible. Even when it’s the invisible stuff that’ll really kill you.

growth on top vs churn underneath

Business growth for apps and cloud services is a lot like that iceberg. It’s easy to see the results we commonly associate with “growth” shining above the surface: lead acquisition, conversion rates and other top-line metrics. 

But for cloud businesses, which almost all rely on the recurring revenue of a subscription model, what lies below the waterline is just as important: customer churn.

Without Strong Retention, No Service Is Unsinkable

It’s easy to see how high-flying businesses can get caught up in fast adoption and begin to consider themselves unstoppable. When success is measured exclusively by new customer acquisition, marketers can sometimes begin to believe their own hype.

But one of the basic contributions of growth hackers to the marketing playbook is a pragmatic emphasis on exploiting opportunities for growth wherever they occur, even (or perhaps especially) post-signup.

Consider this simplified way of calculating growth:

New customers + (existing customers × engagement) = growth

The second part of that formula is what’s critical to keeping our ships afloat. Its multiplicative quality means retention and engagement can have an outsized impact on overall results.

In contrast, churn inexorably will eat away at anything that happens above water. In fact, high acquisition costs combined with high churn rates is a klaxon warning of peril. Losing customers faster than you’re acquiring them is a sure sign the ship is already taking on water.

Navigating the Inevitable Churn

To some extent, churn is like death and taxes: There’s no avoiding it. It’s normal for some customers to drop away over time, though a business model that ignores high customer turnover is rarely sustainable.

Your actual goal shouldn’t be to hang onto every customer at any cost, but to find more meaningful ways to achieve “net negative churn.” Tomasz Tunguz of Redpoint described the power of negative churn in comparing two hypothetical companies, one of which had maximized net negative churn:

[If a company] loses 5 percent of its customer base each month, but the remaining 95 percent of the customers grow their spend with the startup by 10 percentage points, the total revenue from the cohort is equal to 105 percent of the revenue from the previous month. Like a savings account, each month, every cohort becomes more valuable.

That’s powerful math. The most highly valued public companies demonstrate excellent negative churn figures, but you can be sure they’re doing more than just optimizing the 20 percent in the 80/20 revenue maxim. They work hard at retaining and upselling other customers, too.

Tips for Hacking Churn

Like many cloud services, my company tracks churn as a key metric and works hard to minimize it. The biggest counsel we can offer any enterprise? Never stop trying to engage customers and improve their experience just because they’ve been “acquired.”

In our experience, a few techniques have been proven to foster retention:

Start at the top (of the funnel)

Retention begins with lead generation, actually. Your success (or failure) in retention can be directly pegged to the quality of the leads you’re delivering for the sales team. 

If you’ve identified and acquired good customers in the first place — the people who truly need and get value from your product — you’ve taken a big step in hacking retention. You’ll not only realize better conversion rates but greater likelihood of retention.

Educate each customer

Content plays a huge role, too.  A customer won’t stay with your product if they don’t know how to use it at a basic level, or get the best total value out of it. It’s simple: The more educated about your product or service a customer becomes, the more invested they are in using it.

Prove value immediately

New customers have heard you make a promise about the value your product is going to give them, so it’s up to you to deliver on that promise as quickly as possible. If your onboarding experience is terrible or it’s hard to get value from day one, it actually won’t matter how good your product is. You’ll have lost customers who got tired of waiting around.

Make them want to use you

It’s about both their user experience — making  your own product so intuitive, seamlessly functional and useful they won’t consider alternative solutions. This touches on a lot of bases, including product development. To make sure what you’re selling meets the needs of your audience, your peanut butter and chocolate have to merge: your marketing and product experts need to work together as members of a cross-functional growth marketing team.

Get personal and perky

Even in the era of the cloud, it’s hard to beat a personal touch that demonstrates just how much you value each customer’s business. Offer your most valuable customers exclusives, extras and perks that only they can receive. 

Whether it’s unlocked content, specialist training, enhanced features or something else, it’ll reward them for their loyalty and give them reasons to stick with your product. Even better, send a thank you note the old-fashioned way, by hand — that personal touch is worth many times the value of something that feels programmatic.