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If you’ve been on LinkedIn recently, you’ve seen the wave of tech layoffs. If you’ve worked in sales this year you’ve probably heard things like “budget/hiring freezes” and “reassessing our tech stack”. If you’ve spent any time on the internet, you’ve surely seen headlines warning of a looming recession. Regardless of if or when this recession hits, folks are already acting as if. Doing everything they can to decrease costs, increase profits or breakeven, and do much more with far less.
For those of us living and breathing the B2B SaaS world – it’s becoming increasingly clear that preventing customer churn is about to get much harder than it has been in recent years. And, let’s be honest, it wasn’t exactly an easy task to begin with! Not only is it about to get harder to reduce customer churn, it also has never been more important to do so.
During market downturns, acquiring new customers becomes extremely difficult. And even more costly. So, to weather this storm, businesses must do two things: keep your current customers and expand them. This article details strategies to help you best achieve those outcomes.
Before diving into the tactics, lets define churn and why it’s so important to prevent it.
To put it simply, churn is the loss of business. This can mean a client leaves entirely (logo churn) or they reduce their MRR or ARR (revenue churn). As new customers become harder to attain, the loss of even just one existing customer can have a massive impact on your bottom line.
Understanding why customers have left and doing everything you can to overcome those points of friction is your best line of defense for preventing future churn. And let’s make one thing clear – churn is everyone’s problem. No company is immune to churn (although some have really stellar metrics!).
Not only is churn costly, according to research from Bain & Company, it’s shown that even just a 5% increase in customer retention can increase profits by 25% – 95%. So in a time where increasing profits and hitting breakeven becomes paramount, you can see how avoiding churn becomes a key factor in that endeavor.
In CS, we often use NRR (net revenue retention) as our North Star metric. A good reason for this is that it’s an all-encompassing KPI that folds retention, churn, and growth into one nice, neat package. A 100% NRR means you did not lose any clients or revenue but that you also did not grow or expand any current customers.An NRR of below 100% indicates you lost customers and did not grow/expand other customers to account for those loses. And that’s why we always aim for an NRR north of 110% – showing that growth and expansion outpaced any losses.
It is also helpful to track your customer churn rate. Because an insidious churn problem can be masked by a positive NRR. While churn rate is a lagging indicator (customers have already left to impact this metric), it’s good to track this over time as you analyze churn root causes and make adjustments. The churn rate can help you see, retroactively, if the adjustments you are making are having the desired outcomes, i.e. keeping more customers.
Alright, we know what churn is and why we want to avoid it. Before we get into the tactics of how to proactively minimize churn risk with your customers, let’s discuss why companies and people churn.
After more than a decade in this industry, I’ve heard all the reasons:
“It’s too expensive. Not enough of our team is using it. Your competition offered a better price/more features. We got a new team lead and she wanted to bring her choice in. Not seeing enough ROI. We’re cutting down to the essentials. xyz is no longer a priority for us.”
To name just a few…
I believe, with the exception of a company going completely out of business, all churn really boils down to one thing – lack (perceived or real) of value / customer outcomes. Once you start to peel back the layers in a churn analysis, no matter where you start, you’ll very likely end here:
So the real key to avoiding churn is to focus, with fierce determination, on driving customer outcomes and ensuring the customer is aware of and aligned to those outcomes. Let’s look at some of the various ways we can make that happen.
Reducing and preventing churn is a team-wide effort. And customer success is a mindset and operating mode rather than a single team carrying the load on their shoulders. These ten strategies can be used to help your company reduce and avoid churn both before, during, and after a recession.
If all churn roads lead back to a lack of value and outcomes, it makes sense to prevent churn by starting your focus at the desired customer outcomes and then working backward.
A helpful way to define what success looks like is to study your already successful clients and the outcomes they see that lead to that success. Make a list of those outcomes and then backward map their journey to achieving those results.
This will help you define not only the finish line, but key milestones along the way. This way, if we falter on a milestone, we can instantly identify and adjust to ensure we still reach that end goal. This also helps us track how we are doing on our way to achieving that goal. Any customers totally off that track are likely candidates for potential churn risk.
This tactic goes hand in hand with #1. Defining your ICP means that you analyze your successful customers and build a profile for your target audience.Do you want to sell to startups and small businesses? Or larger, enterprise accounts?Is your power user an individual contributor (IC) or someone in management/leadership? Is there a particular industry (Fintech, Martech, banking, etc.) that finds more success with your product or service than others?Are they mature in their business or just starting out?As you can see, there are many different factors that can be considered when defining your ICP. And that’s just the beginning.
Once defined, ensure that you target marketing and sales efforts to that group. A popular cause for churn is poor product fit and this is a primary reason why alignment between sales, marketing, and customer success is imperative.
If the sales team is working to hit quota and they aren’t incentivized to sell to good-fit customers (your ICP), the result will be churn within a few months of purchase when the customer realizes they can’t achieve their goals using your solution. This is a worst-case scenario but an unfortunately common one. In the end, these customers only cost us time and money for a short-term (if any) gain.
That’s why communicating your ICP early and often across functional teams is such an important piece of churn prevention. Use data-driven language to help your sales leader understand that selling to customers who will inevitably churn is a costly approach.Pro tip: don’t just define your ICP once. Revisit and refine it quarterly as you continue to learn from the field. Your ICP should always be evolving as your business does too.
From prospecting to contracting to implementation and onboarding to training to adoption to renewal – you need to define each part of your customer’s journey so that you can know if things are on track or need attention. We do this by not only defining each journey phase but also identifying key milestones, actions, and outcomes within each phase – all the while, keeping your customer’s experience top of mind.Put yourself in their shoes, does your onboarding process make sense? Does it reduce friction? Is it easy?Make sure you know how each phase starts and ends and have clear success criteria for each. And most importantly? Make sure your client knows that information too. Transparency and setting the right expectations up front are key.
Not only should you focus on the key milestones along each journey phase, but also identify upsell paths and indicators to ensure you capture additional revenue where possible.
And once you’ve defined this, don’t forget to track it!
We all know, first impressions are everything. The more optimized, efficient, and easy your onboarding process is, the better experience for the customer. Not only that, but you want to focus on reducing friction and maximizing time to first value. Those are two imperative pieces to an optimized onboarding flow.
Make sure your onboarding process contains quick wins and low hanging fruit to create a sense of achievement, value, and momentum.
Customers are far, far less likely to churn if your product or service is deeply embedded in their workflows and processes. Humans love the path of least resistance. So do everything you can to inject yourself into their day-to-day operations.
How do I create stickiness, you ask? Go back to #1 in the list above! Start with the desired customer outcomes and then define how your product or service helps them achieve that. Then, work with your customers on the change management required for them to regularly extract that value.How this will look in practice will vary from company to company depending on the type of value you aim to bring your clients. Perhaps it looks like customers using your data to report up the chain. Or maybe they use your software to conduct day to day tasks that their business depends on.There is no one size fits all approach to creating stickiness so find your niche and dig in!
SaaS companies have historically had a bad habit of rounding up key stakeholders once or twice a year into a Quarterly or Executive Business Review meeting (QBR/EBR). Putting together a presentation for the client around product usage, features added, projects completed, etc. to “show value” to their customers. Thankfully, we’re learning from and evolving this idea into practices that continually and consistently highlight value from a customer’s point of view.I can’t stress the importance of this point in reducing churn risk enough. Remember these key elements:
24/7?! But what about work-life balance? Relax, it’s 2023. Get technology to do this for you so you don’t miss those family dinners.But not those same old tools, the ones that require a ton of setup and ongoing manual input from a bunch of team members before you can use it. Get that new new. That technology that sees across all of your client interactions and gives you insights that our naked human eyes can’t see with low to no effort. Like gradual sentiment or engagement drops over time, cohorts of customers that have gone dark, common topics across onboarding, renewal, and other key journey milestones.Use technology to safeguard your clients 24/7, 365 days a year. Let that technology empower your team of people to take the rights actions, at the right time, with the right customers. We’re living in a dynamic era so our one-size-fits-all CS playbooks aren’t going to cut it anymore.
This one should be obvious by now. We know customers are far more likely to stay through a rough patch if they get consistent and continuously good service whenever they need assistance.We know problems and bugs will happen from time to time, it’s unavoidable. But you can build a lot of goodwill with your customers when you navigate those situations with rapt attention, transparent communication, and quick resolution.If you couple a product or service issue with a poor customer service experience, you give the client reason to question if they should stick it out.
One of my favorite business quotes comes from Lee Iacocca (Ford Motor Company) who said “Business, after all, is nothing more than a bunch of human relationships.”I’ve seen the power of relationships play out time and time again throughout my career. They carry you through the trough times, they open doors and opportunities, and they help strengthen your most important partnerships.
Here are some tips for leveraging a multi-threaded strategy:
Think of it like legs on a table. A table with one leg that loses that leg will fall. But a table with 4 or more legs can lose a leg or two before it starts to become unstable.
As I mentioned above, we’re living in a dynamic world. This means your customers are too. As their business grows, evolves, and changes, so do their goals and definitions of success. You must stay attuned to those shifts and keep your offerings up to speed with recent trends and changes.Always be talking to your customers – not just about your product/service – but about their business, how things are changing, what they are measuring/tracking, how their goals are adjusting throughout the year.Keep an open feedback loop between your customers and product/leadership team to ensure you can stay a step ahead. The more you show your customers you care about their continued success, the more invested they become in your partnership as well.
Conduct quarterly churn retroactives and adjust processes, product, service accordingly.
All of the tactics outlined above should be ongoing, living processes you conduct and revisit throughout the year to ensure you are on track, avoiding risk, and capitalizing on all possible opportunities to expand and grow your clients.A key piece of this process is consistently assessing results from changes you are making and staying agile enough to react and respond as those results illuminate. It’s ok to change course if something isn’t working. It’s ok to try a bunch of things and see what works. When you find what does, double down on that.Make assessing your churn quarterly a part of this process so that you can identify new or persisting causes and make a game plan for what you can do in the following quarter to learn and improve.
Remember, the goal is progress, not perfection.
Long blog short – preventing churn is crucial for business growth and stability in 2023. Downturned economies have always been fertile soil to creativity and new opportunities. Providing value to customers at every turn is your best path for preventing churn, creating advocates, and expanding your current customers. If this year is looking like lemons, let’s go make some lemonade!
If you stuck with me until the end, thanks for reading! I’d love to hear your thoughts on the above tactics, questions you have, or real life stories from your own experience fighting churn!
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