Any RomCom fans here? Ever seen the movie He’s Just Not That Into You? Good, neither have I. But chances are that you could be a SaaS person who has experienced the gut-punch of customer churn who can relate to the title of the movie–sometimes you are dumped (or churned on) for inexplicable reasons that you can only sum up as “he’s just not that into you”.
The same rationale applies to reasons why customers leave your product or service. There are variations to why customers will leave, but ultimately there are just a handful of causes behind customer churn.
Sometimes it is human nature to search the reason behind a particular turn of events. A good reason is satisfying in the closure that it brings to the relationship, and helping us prepare for a different outcome in the future. And unless your name is Juliet (of Romeo & Juliet fame), then the break up has likely not killed you, so it can only make you stronger. Right?
In this post we will get into some of the main causes of customer churn at a high level, and how they can be preemptively addressed with prescriptive action.
The Heartbreak of Churn
There are innumerable challenges to getting a software as a service off the ground successfully: building the product, addressing customer need, finding distribution channels, and much more. So once you are getting some traction, it is damn painful to sign up new customers only to have them cancel on the other end of the sign up page.
Enter the cursed leaky bucket. The persistent ball and chain to SaaS growth. Achieving breakaway growth is nearly impossible if churn rates are high, as lifetime value, recurring revenue, and upsell potential all suffer.
While there is a significant part of churn that is product-related, there are tangible steps that you can take to position yourself in the best light possible to reduce the likelihood of customer churn. The impact of product improvements changes is a gradual but necessary change. But there are short term actions that you can take to make an immediate impact on churn.
Here is a non-exhaustive list of why customers churn. Let’s get into it:
Reason #1: Lack Of Value:
Here’s the good news: your marketing and product marketing did its job. You convinced your customer that your product and solution could address a specific problem. Enough to sign up, hand over payment, and give you a fair shot.
Here’s the bad news: you failed at delivering the value.
This is like the Adam Sandler of 50 First Dates: it requires immense effort and persistence to get your customer to realize your value. Spoiler Alert: Adam Sandler eventually broke through to deliver “value” and get the girl.
But if you aren’t able to prove your worth, you are fighting an uphill battle that could be leading to the inevitable cancellation.
What is going on here?
The Cause of Customers Who Don’t Find Value
If you have a functioning product yet customers are not able to find value, you can point the finger to a poor onboarding experience, inferior product, or just not a fit between your product and customer.
In short, there is a gap between the moment you have signed up a new customer and the moment you are delivering your first tangible Aha moment. In Customer Success parlance, it is called the “time to first value”. An airtight onboarding process is the antidote to remedying this churn.
What are the pain point that your customer is trying to solve?
How can you guide the customer to use your product to address that problem?
Your onboarding process should provide the guideposts to usher them to discovering that Aha moment.
How do you do that?
Depending on the complexity of implementation and product, it is going to include some combination of in-app tutorial, email onboarding, phone calls, video, even in-person sessions for high contract value customers. Whatever method suits your needs, your primary concern is simply knowing what outcome your customers are looking for, and getting them to that moment of realization ASAP!
The faster that you are able to deliver the value that your product offers, the greater your chances of avoiding churn due to your customer’s perceived lack of value. Do people bring flowers on first dates still? I’m not sure, but do what you need to in order to make them say Whoa.
It may be tempting to showcase all of the bells and whistles that your product offers. After all, you worked on all these features, so they deserve the light of day, especially in the early stages when you are demonstrating your value.
Keep that in mind when you are onboarding your new customers, and simplify your onboarding to focus singularly on the core value.
Tools At Your Disposal:
- Product Analytics: Mixpanel, Amplitude, Heap: provide you with the data to uncover what the key action is that drive value for new customers. You certainly have hypotheses of what that is, but getting quantified validation is critical in knowing how successful you are in achieving your onboarding goals. These analytics tools can also offer a lens into areas that are roadblocks or drop off points towards your customers discovering the Aha moment. Moreover, you can measure how long it takes users to arrive at their Time To First Value and the percentage of users that do and do not make it there.
- Product Tours: companies like Appcues and Pendo can help you create simple in-app onboarding flows using tool tips and guided tours. The goal is to offer the necessary help at the right time to get users to their desired outcome. So you have your singular goal that you are guiding users to in the onboarding process. These onboarding tools can provide guideposts and nudges to get users to the point of realizing value quickly.
“If you can’t measure it, you can’t improve it” – Peter Drucker
The best preemptive way to stop churn that results from lack of value delivered is simply to measure it:
- Did the user successfully complete the onboarding process?
- Did the user meet their Aha moment and derive value from the product?
- Has product usage increased, decreased, stayed active?
- How has communication with email, support reps, customer success managers trended?
If you are able to maintain the pulse of the customer’s activity in the app, you are empowering yourself to understand and predict any pending churn. You can counter any drop in engagement with an appropriate response, whether a personalized outreach, incentive, discount, upgrade, or anything else that will ultimately get the customer re-engaged.
Reason #2: Poor Customer Support
Closely related to the onboarding experience is the human touch provided by your support team. Your product could be the holy grail to solving your customer’s needs, but again if you can not prove the value then it is all for naught.
Once you have succeeded in acquiring the customer, treat them like the honored guest that they are. Don’t put baby in the corner!
If documentation and in app tutorials can not show the way, then your support team is often going to be the answer.
A few things are paramount here:
- Quality and thoroughness of the answer: once the momentum of frustration is set in motion, it is a quick acceleration to the “Eff it, I quit!” And then another one bites the dust and churns. If there is no outlet and system to provide necessary answers when they are needed, user experience is poor and your customer may be more frustrated and quit instead of trying to fight through the problem.
- Time to first response (and resolution): A long time gap between problem arising and problem solved can be very frustrating. On the contrary, if a problem emerges and your support team is able to address and solve it quickly, that can reinforce a positive customer experience. There is nothing inherently wrong with a customer reaching out to the support team, but the outcome can be anywhere on the spectrum of confidence-inducing (if the problem is solved promptly) or maddening (if unresolved or requires a lot of back and forth). The quality and speed of your support team can turn the tide in your favor if handled appropriately.
Scalable Support Systems: The machinery that happens behind the scenes once a ticket is submitted is important in establishing a support organization that can grow and handle an influx of tickets.
Improve Documentation and Self-Service Support – To the extent that you can have a robust onboarding program, you can reduce the number of inbound support requests. Creating a library of tutorials and how-tos in various medium can help customers be self-sufficient: creating a written knowledge base, in app tool tips, onboarding tours, videos, webinars, email onboarding and more can all help illuminate how your product is best used.
Reason #3: They Leave For A Competitor
In Rom-Com terms, this is the equivalent of My Best Friend’s Wedding: you are dumped for a known quantity, ie a competitor or “friend”. This can surface some fun naval-gazing reflection: –”what do they have that I don’t?”
The constructive lesson from this reason for customer churn is that it drives home the point that you are being out-executed in some facet by a competitor: it could be due to the product itself, marketing, pricing, customer support, word of mouth, feature set, or something else.
The bottom line though is that you did not deliver the goods like you needed to. And you lost–a customer, revenue, a shred of confidence, a few tears.
The short answer here is to hold your shit down while you have the opportunity. Take care of customers. You don’t know what you got ‘til it’s gone.
And get your customers deeply engrained in your product so that the hassle and challenge of switching makes the opportunity cost of churning a painful experience that they won’t want to endure.
For example, email service providers benefit from the enormous switching costs that is incurred if a customer switches. Consider how long it took you to set up the segments, tags, automations, and more. Have you ever experienced it? I have, multiple times, and it is not something that you want to do if at all avoidable.
So the moral of the story is to provide enough value with your product, and become an integral part of your customer’s day to day operations that it is simply not practical to churn from you to go to a competitor.
Don’t let your customers have a chance to be swooned by your competition. Even if you think that they are inferior or don’t stand a chance, you actually never know…..let Cameron Diaz’s charmingly terrible karaoke be the cautionary tale here.
Reason #4: They Leave Due To Price (ie Value)
What happens when your customers leave you because they think you are too expensive? This is closely related to the failure of a successful (or unsuccessful) onboarding: the goods are presumable there to solve the problem, but you did not prove it in the courtship that is the onboarding process.
The result is that your customers do not understand the value that you bring, or at least can not equate the value of the product to the price that you are charging. This disconnect is enough for the customer to justify canceling from your service.
Your marketing communication and product marketing can address this by quantifying the value that you are delivering.
For example, if you are a predictive churn analytics company like Retainable 😉 and you save customers before they churn, can you quantify how much that translates to in a dollar value? This is a straightforward calculation that your customers can relate to.
If you can frame the value that you bring in terms of dollars saved, dollars generated, or time saved, then you are definitely speaking in a language that the customers can understand.
For example, Redfin does a great job of simply demonstrating the value that they bring in selling a home, saving X amount of dollars on the transaction.
Reason #5: They Are Simply Not a good fit
Sometimes things just aren’t always a good fit. This happens with customers in the software world, and romantic relationships. In these cases, churn is going to be inevitable. And in these cases it is also a prudent move to not try to fight it.
Save the time and resources to allocate to a customer with greater prospects and a higher potential payoff.
For example, what happens when your app accomplishes its goal, and therefore drives the customer to churn, like a dating app or job board for example. Once you’ve helped your customer find their partner or find the job, there is logically no reason for them to stay on as customers.
Of course the good thing here is that there may be a recurring need for your service in the future, and as you have addressed and solved the needs a first time, you are going to be top of mind the next time around.
Other reasons that fall under unavoidable churn are if the customer goes out of business, gets acquired, has a change in ownership or management, or other reasons that are beyond your control.
The prevailing theme unifying these reasons for customer churn is simply that your customers needs were not met. The good news is that the solution is straightforward: lead your efforts with empathy for the customer, and do everything within your power to proactively address those needs.
What does this means to SaaS people? Once you have put your product out there, found your customer, and verified that you have product/customer fit, you want to do everything within your human capabilities to make sure that you make things work with that customer.
And for those that do get away?
Dig deeper into the reason of why they left:
- What were the root causes of why they churned?
- What can you learn from the experience and the loss to improve your product, onboarding, support, and marketing to improve going forward?
- What were the untold signs (the in app behavior and analytics) that you can point to retroactively that tipped off that this customer was going to churn all along?
If you are able to aggregate these data points and start creating data-driven hypotheses, then you are on your way to proactively addressing and reducing churn.
The health and future of your business relies on your ability to service and retain them once you have acquired your customers. Anticipating problems and proactively solving problems will make incremental yet huge impacts on your customer churn. Do you need help managing your SaaS churn? Email me firstname.lastname@example.org, we’d love to help you in your quest to make your customers retainable!