Churn is bad for software-as-a-service (SaaS)
companies. Very bad.
But knowing there’s a churn problem is one thing; fixing it is
something else.
To bring down churn, we need to understand what’s behind the
numbers. Why are customers leaving? Different
causes will point toward different fixes.
Poor product performance
Sometimes the solution simply doesn’t deliver as
advertised. Customers subscribe,
believing it will perform some particular function… but it doesn’t. Once they figure that out – it may take a few
hours or a few months – they leave.
The solution for this problem: go back to the drawing board with the
solution. Learn where the gap is between
what customers want and what the solution delivers. Improve it to better meet customers’ needs,
or explain the solution’s features, benefits, and advantages more accurately.
Ineffective
on-boarding
If most of the churn is in the first 90 days after a
customer subscribes, the problem may be poor on-boarding. Entering data, training users, and changing
the way an organization does things isn’t easy.
To fix poor on-boarding usually requires putting more
thought and more resources to implementation and training. In fact, it’s not uncommon for SaaS providers
to require that customers sign up for training and
implementation help. And often they
charge for it.
(See this short video on “Turning SaaS buyers into satisfied users.”)
Inadequate support
SaaS companies cannot afford to ignore their customers. Especially for more complex, enterprise
applications - those that are critical to the customer’s operations - quick and
expert support is essential.
But effective support should go beyond a solid help
desk. SaaS vendors should be regularly providing their
customers with expert advice on how to optimize use of the solution. (See “Your
existing customers are prospects too.”)
And they can occasionally remind customers of the solution’s
value to their organization. For
example, “over the last 90 days, you’ve used the solution to conduct 450
performance reviews, manage 1200 new inbound leads, process 67 loan
applications, or whatever it is the solution does.”
Wrong customers
Sometimes high churn happens when SaaS providers sell to the
wrong customers. Superb salesmanship, yes. Good fit for the customer, no. Expect that the customer will discover the mismatch after a few weeks or months.
I’ve seen this happen when sales people convince a small
organization that the product is a good fit for their needs, but it turns out to be
overkill.
I’ve also seen the opposite.
Salespeople tout capabilities required to win a large customer, but the solution’s
actual features come up short.
Remedies for over-selling could involve clarifying the
messages to more clearly describe what the solution does and who it is designed
for.
A revised compensation scheme can also work as a cure for
over-selling. Salespeople are rewarded
for winning customers that stay for a long time, and they’re penalized for bringing
in customers that churn quickly.
Susceptible to poaching
In some cases, customers depart for competitors. They are lured away with more features, more attractive pricing, or some other advantage.
SaaS companies are especially susceptible when switching
costs are low. Customers can easily move
One approach to counter poaching is to lower prices, though that’s a tough
strategy to sustain.
Adding more useful features, delivering a solution that’s
easier to use, or providing outstanding customer support are likely to build a
more sustained relationship.
No universal fix for
churn
Any SaaS vendor with a churn problem needs to fix it. The business model doesn’t work when too many
paying customers leave too quickly.
In fact, the most successful SaaS companies actually achieve
“negative churn,” meaning they actually derive more revenue from their existing customers.
But fixing a churn problem means first diagnosing the
cause. I haven’t provided an exhaustive
list here, but it should be plain that there are a variety of explanations behind the
numbers. And each particular cause
points toward a different solution.
