They say high blood pressure is the “silent killer”. Many people have it, many people ignore it…a surprisingly high number of people die from it. For early-stage SAAS startups the silent killer is churn.
Churn is often pushed down the priority list and seen as something to optimise when the product has got some traction. However, even in the early days of a SAAS startup paying close attention to churn is important.
Naturally the initial surge of energy for a new business is in developing the minimum viable product, and getting it live. It’s often the reason that the company exists – founders had a great idea of how they could improve their industry, and desperately want to get their solution built and live.
Once the launch has happened – and the initial weeks of resolving the major pitfalls and unforeseen (yet foreseeable) critical bugs are over – the focus invariably switches to user acquisition. Whether freemium or £250,000 LTV enterprise sales, new customers are the lifeblood for SAAS.
New customer revenue growth is all consuming – there are so many levers (closing rates, sales duration, messaging, rapid experimentation, growth tactics, optimisation, pipeline management, automation…). However, after you’ve invested the money to acquire the lead, spent time on the phone, conducted demos, provided quotations and followed up relentlessly, it’s a major misstep not to also focus on why that customer churned a few months later.
Three biggest causes for churn
1 – Overpromise, underdeliver
The relationship went sour from the start. Whilst you’ve worked to hone a slick sales process and impressive pitch, the product simply didn’t do what that particular customer expected.
This could be because of an underlying disconnect between the Sales and Product teams. The reason people buy your product is not aligned with what your product team think they’re building. In that case examining your churn will help to improve the product market fit.
But if your product is meeting other customers’ requirements, the issue is likely to be an unwillingness from your sales team to disqualify a sale. The desire to close a deal, to book some revenue, to hit sales targets is a strong (and important) one. However, if everyone knows that by closing a sale the customer is not going to have success with it, why not disqualify the sale early?
It’s short-sighted to take the sale, and then hope for the best. That customer will become the bane of the working day for your product and support teams. Endless calls and emails convincing the customer that your solution does work; hacking about to get something cobbled together. And after all that work, they churn….and maybe get a refund also.
No early-stage software ever works flawlessly, exactly as promised. But there’s a big difference between “rough round the edges” and “fundamentally doesn’t do what the customer needs it to do”. Far better to disqualify the sale at the very early stage, and find some customers that actually need what you’re selling.
2 – Customer never got started on the product
A surprisingly high number of customers sign up, but never actually get going with the product. If they don’t start using it, it’s a ticking time bomb until they churn. Many customers will keep paying renewal fees for a time. For low value SAAS they might forget to cancel for a few months. For high value enterprise SAAS they’ve had sign-off internally, and might be locked in for a longer period of time. However, if they never start to see the benefit of your service, they’re not going to renew and at some point will churn.
The disconnect between the fully-fleshed out demo you first showed the customer and the blank canvas they get when they’ve got a fresh account can cause atrophy. Have you established a strong onboarding process? Is there a smooth hand-over from the sales team to whomever is going to help them get started with your software? Your sales function should continue to have buy-in, even post sale.
Sometimes startups have the right structure, but onboarding isn’t seen as urgent. Onboarding should be viewed as another sales funnel, another pipeline. There should be clear stages, and the same level of attention made to moving new customers through that onboarding funnel quickly, without stagnation.
3 – Poor customer experience
Even if your product does exactly what a customer wants, and they got onboarded well, they will still churn if the experience is poor.
Poor experience could be down to the product (good functionality, but riddled with bugs, downtime…), but the product is not the be-all and end-all of experience.
When your customer uses your product, what are the pain points? Are your customer support team effective, responsive and proactive? How well are you communicating with your existing customers.
There is nothing worse than a company that won’t admit there are problems. Transparent, honest and regular communication is more important than glossy denials of problems.
One fintech product I use is incredible. Functionality is exactly what I need. Broadly it works well, although there are some bugs. My biggest annoyance is that every time I need to talk to their customer support I have to wait three days for a canned response. Whilst they’ll need to improve their customer support (and product) to ensure I don’t churn long-term. In the short-term the reason I haven’t churned is because they sent me an email that said “we’re hiring 20 new support staff, we’re really sorry to be letting you down, but don’t worry the cavalry is coming”.
Get started with churn
It’s important to track and analyse your financial churn. However, it’s also important to be tracking usage churn. Most users will stop using the product some time before they pull the cord financially. It’s essential to track usage, and develop some indicators for churn. Which are your at risk accounts? How about proactively reaching out to those that are at risk? If you wait until they cancel, it’s too late to turn them around.
For your churn are you tracking the CPA spent to acquire your churned customers? Or are you just looking at the revenue they won’t be bringing in going forward? What was the true ROI you made on that customer? Was it worth bringing them on in the first place? If the customer was always going to churn, then you could have saved that CPA. If your ROI was still strong, then you’re able to calculate the acceptable level of churn for your business.
The quantitative data on churn is easier to obtain than the qualitative data. Why did the customers that did leave go? When they’ve left, they’re ever less likely to respond to your survey emails asking them (although they’ve already left, so there’s no harm in asking them), but it might also be worth asking your existing customers “if you were going to leave us, why would it be”.