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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