We recently met with an early investor of ours, who shared with us an overriding concern he has with his SaaS portfolio companies — churn. He said to us, “churn is the dirty little secret in the SaaS world. If you could figure out how to reduce churn for SaaS companies that would be really valuable.”
My initial reaction was to say, “that’s out of our wheelhouse,” but the more I thought about it, the more I thought that helping to reduce churn within our user’s marketing technology stack should be an objective. Reducing churn is beneficial to both the vendor and user, since churn results not only in the loss of an account for the vendor, but also in lost time for the customer, time spent in technology evaluation, implementation, integration and training.
Causes of Customer Churn
As vendors, we spend a lot of time creating nurturing email campaigns and loyalty programs to support the second half of the customer lifecycle — engagement, loyalty and advocacy — with the goal of driving ongoing subscription revenue. But how connected are we to how our customers are using our products? How much of our functionality are they using? Where do we fit in the bigger technology picture? How is our product performing? Do we understand the KPIs our users are tracking related to our product performance?
Customer churn happens for a number of reasons. Some, like elimination of budget, may be beyond the vendor's control but others can be managed with some focused effort. Some of the key reasons for churn include:
- Poor product performance.
- Poor user interface.
- Elimination of budget.
- Resignation of product champion.
- Limited utilization of the product (studies show that users tend to only use a small percentage of a product’s features).
- Competitive threat.
Poor User Interface
No amount of flashy marketing and live chat will overcome the limitations of a lousy product and user interface. It’s no secret when your product doesn’t work or is hard to use. You always know — customers are very vocal — and you need to address those issues to avoid churn.
Poor Product Performance (Real or Perceived)
Sometimes poor product performance is a perception and not a reality. You may have an excellent product but the customer doesn’t perceive it to be performing well. To avoid this situation it’s important when you sign a customer to ensure you have a clear understanding of how they will measure the performance of your product and what constitutes success in their environment. Make sure from the beginning their expectations align with what your product can deliver.
You should also check in regularly to see if they are achieving their goals. Don’t wait until the customer tells you they are canceling their contract. Once that decision is made it’s difficult to change minds. If goals aren’t being met, work with your customer to evaluate the reason why — in many cases it may be related to how the product is being used or in the case of a marketing product, the quality of the marketing campaign or program being delivered through your product.
Elimination of Budget
When budget cuts occur, products that are perceived to be performing poorly are generally targeted for elimination. It’s important to monitor the health and budgeting cycles of your customer’s business, so that you are able to anticipate a budget cut, and proactively work to ensure your product is delivering value and isn’t at risk for cancellation.
Where this becomes more complicated is when your product is performing, but isn’t considered mission critical. Often it’s eliminated to save costs or because there is a cheaper alternative from a competitor (along with an aggressive salesperson). The key to success is to ensure your product is considered mission-critical.
You can approach this in two ways:
- Find a way to directly tie the performance of your product to either revenue growth or cost-savings. It’s much easier to justify using a product when there is a very tangible benefit.
- Evaluate whether you could deliver greater value to your customer by integrating with one or more of the anchor platforms in place (e.g. CRM, Data Management, Marketing Automation). Once you are integrated into an anchor platform, extraction and replacement becomes more difficult.
Resignation of Product Champion
One thing that is particularly difficult to manage is the arrival of a new digital marketing head who comes with a set of preferred tools.
Last year I met a newly hired CMO who immediately replaced his company’s CRM platform only to find his preferred CRM platform didn’t have the ability to integrate with the existing intrastructure. He was forced to spend $50,000 and three months having custom code developed to integrate the new CRM.
That’s one of the most extreme stories I’ve heard and quite honestly with that uninformed decision-making I’m not sure that anything could’ve been done to prevent that. A more common personnel issue is that your champion leaves the company and your product becomes an orphan product. It’s never a good idea for there to be only one person in an organization who knows how to use your product. If they leave, you are at risk of cancellation.
It also isn’t good for your customer as it can lead to marketing performance exposure particularly if yours is a mission critical platform. I’ve lost count of the number of times marketing heads have told me they found out only one person in their organization knew how to use the marketing automation system on the day that person resigned.
Do yourself and your customer a favor — work to make sure that multiple people in the organization know how to use your product, and work to develop multiple champions. If you can’t make that happen, have a back-up plan in case your champion resigns. For example: develop a relationship with an external consultant that you can recommend as a stop-gap or offer a managed service program for your product.
Underutilization of the Product
Resources that are stretched too thin frequently underutilize a product’s feature set, which in turn means a company won’t derive the full value of what you offer. They may be struggling to achieve a positive value/cost ratio.
Invest time in reminding your users of your key functionality and do your best to deliver that information in digestible bites of information — don’t overwhelm them. Consider ways to offer incentives for using additional features, and make yourself available to demo key features on an ongoing basis. The more functionality your customer uses, the better their experience and performance, and the less likely you are to be displaced.
Related Article: Confessions of a MarTech Tool Underachiever
Make sure you stay abreast of your competitor’s functionality, positioning and pricing. You can be sure they are always hard at work trying to displace you.
Check-in calls to discuss product requirements with customers are extremely valuable. When you hear a requirement over and over, you know it’s something that needs to be addressed on your roadmap. If your competitor’s positioning is focused on a feature that you don’t have, or don’t do well, do not be complacent. At the very least, try to change the conversation to something that favors your capabilities. And, if necessary, add the missing feature or feature enhancements to your roadmap.
Graduation or Natural Churn
Sometimes there’s churn when a company outgrows the functionality that you offer. If you’ve made a company decision to stay focused on a particular market segment, you will often find that as your customers grow (or shrink) in size, you may no longer be a fit for their application — this is natural churn. I’ve heard it referred to as “graduating” as in we’re graduating from product X and moving to product Y. You see this a lot in marketing automation where companies move from Hubspot to Marketo to Eloqua or SAP.
The Best Way to Combat Churn? Know Your Market Environment
One of the greatest opportunities to manage churn is through technology management and awareness, my favorite topic. It’s difficult to impact churn if you don’t understand the environment that you live in.
What other tools sit around you? What tools are integrated? What tools are standalone? How much of the marketing budget do you represent? Are there other tools in the stack that deliver comparable functionality? If you have a clear picture of your environment, you can look for ways to provide additional value through utilization of additional features or via integration with other systems. If you have a suite of functionality that allows you to replace several independent systems, show your customer how to save money by displacing those systems (unfortunately causing churn for others).
Trying to operate in a vacuum makes it extremely difficult to anticipate and react to potential churn. The challenge here is that many of your customers don’t have a handle on what’s being used across their organization and won’t be able to give you the snapshot that you need. That means when budget constraints hit, the elimination of tools can be very arbitrary.
Remember, as bad as churn is for you, it’s also bad for your customer. They’ve made an investment in deploying and learning how to use your product, and all that investment goes to waste. If your customer doesn’t have a comprehensive view of their technology stack, then work alongside them to create one. Start with your own product at the center and then start to identify what other products sit around your product.
Trust me, this is extremely valuable information. The more you do this, the more you will see patterns emerge that will help you prioritize feature and integration development that will ultimately result in lowering your churn. It’s a win for you and for your customer.
Best Practices in Reducing Customer Churn
To recap, some of the things you can do to reduce churn:
- Make sure your product lives up to its functional specifications and is easy to use.
- Understand how your customers are measuring the success of your product and make sure their expectations are aligned with what you can deliver.
- Check in regularly with your customer to assess performance and feature requirements.
- Articulate a value proposition that relates to revenue growth or cost reduction.
- Advocate for integrating your product with other systems in use.
- Make sure more than one person in the company knows how to use your product. Work to develop multiple champions.
- If only one person knows how to use your product, have a back up plan to support its ongoing utilization in the event they leave the company.
- Continue to educate customers on your features and incent them to increase the number of features they use.
- Work with your customers to understand their technology environment and where you fit. Look for opportunities to increase your value.
Thanks for the reminder to think about churn JD!