In the world of SaaS, customer LTV (Life Time Value) is the name of the game and a huge aspect of successful growth (and often funding) is contingent on not just converting leads to customers, but keeping them onboard for years to come. Unlike the notably entrenched enterprise market, SMBs (Small to mediums businesses) are less stable and more prone to churn if not properly supported.To begin, here are some benchmarks of standard churn rates in the industry…
Next, here is some basic terminology that is often present in these discussions:
Logos Churn -> Customers gained vs. Lost
ARR Churn-> Overall growth of ACV (Annual Contract Value) and upgrades vs. downgrades/cancels
Voluntary vs. Involuntary Churn -> Voluntary is accounts choosing to leave and involuntary is accounts getting closed out because they are taken to collections for non-payment, closed by email deliverability or otherwise lose access from the company end.
So what can be done to tackle the problem of churn? Here are some ideas:
Deep dive into WHY the clients aren’t getting results on a check-in call: This was shown well in a recent interaction I had talking a client off the ledge, whose marketing person was telling them to go to a different solution for better converting landing pages. He just wasn’t getting results with our inbound marketing tool and didn’t have time to troubleshoot. I let them know we needed to isolate the underlying key problem;
- Is it not enough hits to the landing page? (needs PPC, brand building, more events, more content, more exposure etc.)
- Is it getting good traffic but no opt-ins? (Need to analyze the lead magnet, is it actionable, is the CTA clear and concise, is the page design attractive etc.)
- Are people opting in but falling off? (Need to analyze the funnel steps, are we using goals to check for engagement? Are we seeing where they click? Are we trying different medium, like SMS? Where are the bottlenecks?)
After an immersive brainstorm session we isolated the falling off point for that client and kept them on board.
Sales comp plans impact churn. Hubspot had a 4 month clawback on commissions and saw lower churn rates in initial months and then a spike: https://www.screencast.com/t/TGECZrccYs
When they spaced out the commissions they saw better results. https://thinkgrowth.org/how-sales-comp-plans-impact-customer-churn-23a15ecad5ef
Part of this is where management wants focus. In terms of time allocation, for that person wanting to go above and beyond, should they reach out to that client who has been around for 2 months with another great use case or helpful chat, or should they reach out to ten cold leads that have gone quiet recently. Where that focus lies, and where the onus for retention sits (sales vs. CSR) will be impactful. And if it lies on both, what behavior does the incentive structure encourage?
Accentuation on work-arounds in the CS (customer support) process: Often times companies become entrenched in their processes and can lose vision of the timeless axiom, “Get the customer results”. Give employees the freedom and flexibility to go above and beyond in finding answers and reward them when they do. This will set a culture around customer advocacy and turn disenchanted customers into advocates.
Time vs. Natural Business death test: Select a group of say 10-20 recent accounts and go just over the top in terms of time allocation (building out full launch plan, constant check-ins, build audits, strategy advice etc.). This is not meant to be a sustainable model but rather to answer the simple question of, “Can time/support solve the problem?” or is this a target market issue (natural biz. Death rate in VSBs). If allocating 5-10x the time on accounts still doesn’t reduce churn, you will surely need to adjust your target market and right-fit customers.
Annual Contracts reduce Churn: Annual contracts reduce churn, plain and simple. Make sure your sales team has a concerted plan and incentive structure around getting people on to annual contracts.
Segment three types of churn. Early stage (0-3 months), Middle (3-12 months), Late (12 months + churn). I think that each stage of churn is distinct. Early stage is largely around adoption/learning curve, middle stage around results and late stage around not having a solid upgrade/path forward/replacement found. Each should be handled with a unique strategy to reduce those rates.
Vertical Specific Strategies: A common mistake for new SaaS companies is thinking they can serve every industry. Start with a focused game plan and get results in a handful of industries and then expand out.
Retention Incentives: There needs to be direct incentives for sales and implementation team members around retention. These do not have to be purely monetary. Cool perks, lunch with an executive etc. are all possible. Get creative but work to create stronger direct accountability.
Growth Team for Account Upsells: As a business matures, it is often sensible to implement a growth team with the focus on increasing account value of your existing clients. Clients who are upgrading are clearly seeing the value of the system and not churning.
Direct vs. Channel Selling: I found this article on LTV:CAC ratios between selling direct and through VARs interesting: https://www.screencast.com/t/h5I2TasAarrY pulled from https://www.forentrepreneurs.com/saas-metrics-2/ . For many companies, it seems as if channel selling is a great avenue to increase retention and sales.
Pricing: In any business, people leaving due to pricing (too expensive, not a plan that best meets their needs) will happen. Work to make sure your current structure is balaced in the market and reflective of your right-fit client’s needs.
In-Person Meets (Field Marketing/Implementation): I got inspired for this one by Jason Lempkin’s talk here (https://www.youtube.com/watch?v=a9r5M8uH25I) where he talks about the resurgence of in-person meets in SaaS. I have no doubt that deepening the relationship with an in-person meet will create more stickiness and brand loyalty.
I hope some of these ideas help! If are interested in chatting about retention in the SaaS space, feel free to shoot me an email at firstname.lastname@example.org.