Top Two Reasons for Churn

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In working with a number of SaaS portfolio companies, I have found that there are two causes of churn that occur more frequently than any others. They are:

  1. Failure to successfully onboard the customer
  2. Loss of the champion who drove the purchase

Looking at these in order:

Failure to successfully onboard

It’s easy to understand why this is such a key driver of churn. However what is interesting to ask is whether your Customer Success organization realizes the importance of this stage. Often I see companies focusing on rescuing customers that are showing poor engagement just before renewal, to save the renewal. But if you think about it from the customer’s perspective, the right time to “save them” is right at the very start – the onboarding stage. That is when they are most excited about your product, and most willing to put in the time and effort to learn it, and get it going. If you fail to get it going at that time, they will write it off as not being as good as they had hoped, and once they get into that mindset, it is then much harder to get them back to a positive enough view to spend more time to try it again later.

So, armed with this information, what can you do about it? I recommend the following:

  • Focus more of your retention energies on the onboarding phase, rather than on saving deals later. Make sure your onboarding process, people, and materials are excellent.
  • Score the success of the onboarding by asking the customer to rate whether they are getting the business benefits that they expected out of the product.
  • If a customer gives a low score after onboarding, remediate immediately, and recognize that this is a key time to save the account.

Note the careful phrasing of the second bullet point emphasizing business benefits over usage of the product. Usage does not necessarily equate to deriving business benefits. While it is not always possible to deliver and measure business benefits that early in the usage of the product, if you are able to, you will be in a much better position. For obvious reasons, if a company is getting measurable business benefits they are far less likely to churn.

Loss of the champion

The SaaS/recurring revenue subscription companies that I work with have clearly seen that when their champion leaves or gets moved to a different role, that is very strong predictor that the customer will churn.

This one is painful, as you have no control over it. You may have done a fabulous job of onboarding the customer, only to lose the champion. However there is something you can do about this: make sure that there is a “Customer Health Check” performed regularly, and include this health indicator in the check. If the champion has left, then recognize that you will need to resell this customer to avoid the high risk of them churning.

That does raise the question: who is responsible for re-selling this customer? It’s an interesting problem, as there is no new revenue that will come from this sale. Just a retention of revenue further down the line. So if you asked one of your Account Execs that are focused on hunting (new logo acquisition), they might see this as a poor use of their time, as there would be no commission associated with this sale. To overcome this, you may need to use your farmer reps, or renewal reps (if you have the level of specialization) to work on this sale. And you might need to provide some form of compensation for reselling the account.

Summary

Knowing that these two factors contribute more to churn than any others should help you change how you approach customer retention. Hopefully the recommendations above will help you to lower churn.

Like many important business insights: this is obvious once you have heard it, but not necessarily before that.

About the Author

David Skok

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  • Larry Augustin

    David – Great post as always. A few thoughts on each topic:

    1. Onboarding – You need someone who owns onboarding as an explicit activity. For most people coming from non-SaaS businesses it’s a new concept. In the non-SaaS world there’s typically Sales and Support. In SaaS businesses you need an explicit stage in the customer lifecycle with the goal of getting from zero to business success. One good question to use to determine if you have achieved business success is to ask for the renewal. If the customer is seeing success, and has no doubts, you can often get the renewal early. At the very least you will get an immediate temperature check on your level of success and the value the customer is seeing.

    2. Loss of the Champion – Key here is to create multiple champions. Avoid the single point of failure. Also, one of the reasons I like the sales team having a portion of their compensation tied to retention is that if the need arises to “re-sell” an account, they have incentive to lead that. When your champion leaves the sales team is often the best equipment to identify and sell to the new champion. A retention component incents the sales team to do that, as well as staying involved in the onboarding process.

    Larry

  • Hi Larry, thanks for the input here. I love both ideas. For 1: this makes sense, and I’m a big believer in role specialization when at scale.
    For 2: is this (getting additional champions) something you ask your sales people to do after closing the deal, so there’s continued selling work involved? Or do you aim to have multiple champions as part of the initial selling process?
    Thanks, David

  • Larry

    Onboarding is itself a process with multiple stages. We track the stages of onboarding as part of the customer lifecycle in our own product using our Customer Journey Plugin.

    For multiple champions, this will depend a lot on the size of the customer organization and type of engagement. But it’s part of the initial sales process. Good Enterprise sales people will do this naturally, having learned that you need to engage large organizations at multiple points. This is something that should be part of the sales methodology. We also have an “at-risk” escalation process where key transitions in a customer can alert us to the need to create new relationships.

  • Thanks!

  • Ian Farmer

    Great post as usual David. The other issue that we find is no effort put into the renewal, or to be more accurate too little effort too late. The account manager calls up right before the renewal date leaving the customer thinking – these guys only call me when they want something. Even if its an automated program staying in contact well before the renewal date and then “reselling” (prove the value, re-map the politics – to your point about the loss of the champion – and re-proving the ROI from the solution) not simply renewing, is critical.

  • petercohen

    David, Thanks for these observations. They’re a useful reminder that for SaaS providers, winning a new customer isn’t really the end of the process; the work’s just begun.

    In my work with SaaS companies, I’ve found that a well-defined implementation plan that is shared with the new customer can be very helpful. It specifies what steps are to be taken – providing login information, inputting data, configuring the solution, training, etc. – and who is responsible, from both the vendor and the customer. The plan can also provide time frames, so the customer has a reasonable expectation as to how long it will take to get up & running.

    Not only is this plan helpful with new customers, it can also be effective in showing prospective customers that they can rely on the SaaS provider to implement the solution successfully.

    Peter

  • Kullah Anderson

    This is B2B, right?

    #1 applies to B2C, too.

    What is the #2 for B2C?

  • David – thanks for bringing these two very important points.

    Your point about the importance of focus on onboarding vs. saving customers is spot on. I call it drivers vs. outcomes. Focus your activities on drivers that lead to the right out come.

    It is true that customer success is about value realization to the customer and much like @larry_augustin:disqus mentioned asking for the renewal will allow to determine if the customer is realizing value (and perceives that as well).

    With regards to champion loss, my experience shows that in many cases it is a symptom and not the root cause. The true problem that it masks is inability to penetrate beyond a single champion. The goal here is to impact/automate a broader business process and provide multiple layers of visibility into the organization – users, operators and executives.

    Guy

  • Larry Augustin

    Guy – I agree that champion loss is something of a red herring. It’s not the actual cause of the loss. As you correctly point out the real cause is a failure to more broadly demonstrate value. Root cause analysis in customer churn is a challenge for most organizations. The easily observable 1st layer driver (e.g. loss of champion) is often one or two levels beyond the real root cause. People want to default to answers (like champion loss) that are beyond their control.

  • @larry_augustin:disqus – agreed. Churn analysis is tricky since you are putting the CSM under attack and for that reason ‘beyond my control’ reasons are preferred.

    One way to address this is to recognize that churn is a company problem and not CS (or CSM for that matter) problem. Everyone owns the customer and failure to penetrate and demonstrate broader value goes beyond CS.

    Curious to know what have you find as the most effective way for churn analysis?

  • Hi David, It’s great to hear other people looking at things from the customer perspective as well, rather than being completely business centred.

    I’ve found that many commission structures tend to miss out on the lifetime value of the customer, valuing a new customer as more than an existing one even though it can cost x20 more to win a new customer. It does require a pretty radical shift in how companies operate, but the savings can be huge and the customer lifetime value rockets. How have you approached this with the companies you’ve worked with to change their attitudes?

  • Jason Jacobs

    Great article. We discovered the lost champion pattern a couple of years ago. We instituted proactive customer health checks on a quarterly basis and that helped. What made the biggest impact was developing an analytics algorithm around usage trends that would alert us to changes in champion usage. We found a definitive reduction in usage well ahead of them changing roles or moving on. We also used this data to identify potential new champions and put a program in place to develop those relationships. We shifted our focus from retention to building champions in a career sense. Focus on them as an individual and how we can further their success and career. Last year 15% of our sales came from champions going to new companies. We call it, Building infectious loyalty! Now our churn is usually a function of a customer being acquired and forced to shift to an existing system.

  • Hi Jason, great feedback! Thanks for posting for other readers to learn from.
    Best, David

  • Matt Cameron

    David, an innovative comp model I saw recently to address the onboarding observation:
    1) This SaaS company figured out the onboarding milestones/markers that were causal for successful renewal. Then..
    2) CSMs are comped on achieving those milestones/markers (which are completed by Q1 of contract) and the actual renewal has nothing to do with comp at all.

    I love this approach and ensures that the patient is cared for when it matters, not when they arrive in the emergency room. Pre-requisite is that you have confidence in the causal data of course.

  • Matt,I like it! Sounds like a great solution.

    David Skok
    Matrix Partners
    *Blog*: ForEntrepreneurs.com

    *E*: dskok@matrixpartners.com
    *T*: +1-617494-1223
    *A*: 101 Main Street, 17th Floor, Cambridge, MA 02142
    *Twitter*: @BostonVC

  • Sorry to ask such a question, but who is the Champion you are referring to here is it any particular customer behavior?

  • The Champion is the person inside of the buyer that leads, or champions, the campaign internally to get people lined up to buy your product. Without a champion it is very unlikely that just the energy of your salespeople will get you a purchase order.

    David Skok
    Matrix Partners
    *Blog*: ForEntrepreneurs.com

    *E*: dskok@matrixpartners.com
    *T*: +1-617494-1223
    *A*: 101 Main Street, 17th Floor, Cambridge, MA 02142
    *Twitter*: @BostonVC

  • Yes, that’s true now I get it. The champion is indeed very important when it comes to lining up people for your product.

  • Kristen DeCosta

    David,

    This is a great post and so accurate. The loss of a Champion is something that happens so often. To go even further into this issue, it can also affect involuntary churn as well. Maybe the person who signed up and input their card information left the company, and now you have a card that needs updating. Or even worse– they left the company and now their email is non-existent and you can’t even reach them for renewal!

    Losing your Champion can be a really big hit for subscription-based services especially. Sometimes you have to completely re-sell the product to someone new, going through an entirely new on-boarding procedure (and sometimes running into another round of CAC). Luckily, there are some good fixes for these issues, but it’s definitely something subscription services have to think about and watch for!

    “Losing the Champion” is a problem that is so under-discussed. Thank you for bringing it to the forefront of the churn conversation!

    Kristen
    churnbuster.io

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