What’s behind those churn metrics?

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

to another solution without painful implementation and training costs.

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. 

Sorry, there’s no simple “one-size-fits-all” approach here. 

How to get found when prospects aren’t really looking

I’m a long-time fan of inbound marketing, even before it got that nifty label. 

Why not attract prospective customers that are actively looking for a solution?  That’s got to be easier than hunting for them one at a time, or indiscriminately broadcasting your message to the whole planet. 

 

The idea makes perfect sense, except when one key piece is missing:  prospects that are actively

looking.

What if the people who should be searching for your solution just aren’t?

They’re not typing relevant keywords into Google, not asking their colleagues for recommendations, not downloading educational white papers, or doing anything else to actively search for a solution.

When inbound marketing isn’t enough

I’ve worked with a number of software-as-a-service (SaaS) providers that have faced this problem.  Inbound marketing would have been a cost-effective way to acquire customers, except that “prospects actively looking” weren’t in the equation.

There are a few reasons why they might not be looking.

The prospect might not see that they have a problem.  Sure, as a SaaS provider, you can see a problem, but the prospect doesn’t.  They don’t see that the way they’re doing things now may be hurting their organization.

More likely though, the prospect does see a problem, but they don’t see it as an urgent problem.  They know their existing process has its downsides, but they figure they can live with it.  (See “Your toughest competitor… inertia.”)

Or even if they do recognize an urgent problem, they may not know that there’s a better SaaS solution at hand, especially if it’s in a niche market.

Most prospective customers are aware that proven SaaS solutions are available for HR, sales, or marketing automation.  But what if they need a better way to report safety issues on oil & gas rigs, schedule home health care workers, or manage a chiropractor’s office?  (Yes, I’ve worked with SaaS providers selling these kinds of targeted solutions.)

In any of these instances, prospects are not actively looking for a solution.  Relying on inbound marketing to attract leads – that is, them finding you – won’t work very well.

Get in front of “non-active” prospects

If prospects are not actively looking and inbound marketing won’t work, SaaS marketers may need to revert to some of the more “traditional” marketing programs like broadcast advertising, outbound email or direct mail to carefully-sourced targets, or participation in events.

The goal of these programs isn’t to talk about the specifics of the solution; the prospects are not ready for that discussion yet.

Instead, the goal is to convince them that they do, in fact, have a problem, it’s a problem that they cannot ignore, and that there is a better solution readily available.

In other words, push them to become prospects actively looking for a solution.  Once there’s pool of active prospects, the inbound marketing tactics we know and love should move them forward from there.

SaaS Marketing Isn’t All About Talking; It’s More About Listening

If you’ve ever sat through a marketing agency’s pitch or seen an episode of Mad Men, you’d think that marketing is all about talking – pushing out clever messages so that people will buy whatever it is that you’re selling.

Not exactly.

You’re right that there’s plenty of delivering messages through email, blog posts, paid adwords, Twitter, TV, radio, or print ads or whatever media reaches the buyer.

But there’s more to it than catchy taglines, ads, or social media campaigns.

For any of that talking to work, there needs to a lot of listening, too.

What should you be listening for?

When you’re marketing and selling, you’re obviously keenly alert to a few magic phrases, along the lines of “Yes, I’ll buy it!”

But there are a few other things to listen for as well:

•  Who’s making the buying decision?
• What problem are they trying to solve?
• How painful is that problem?
• Why is their existing solution failing?

Asking these questions, you’ll hear a lot about who’s buying and why.

But you can also listen for how they’re buying: 

• Where are they looking for solutions?
• What are the selection criteria?
• What other solutions are they considering?

How should you be listening?

There are plenty of ways to listen to prospects and customers, from broad-based surveys to small, focus groups.  Vendors selling software-as-a-service (SaaS) solution have the particular advantage of gathering input from customers directly within the product.

I’ve found that monthly, one-on-one interviews with several new customers are one particularly effective way of listening.  The evaluation process is still fresh in their minds, and an open-ended conversation can reveal useful insights that might not surface in a survey. 

Companies can conduct these interviews themselves, though there are certain advantages of having an outside party handle them.  Customers don’t think you’re trying to sell them anything, and they might be more candid about what they liked or didn’t like when evaluating your solution.  (I’d be happy to talk with you more about my experience with these one-on-one interviews.)

Listening isn’t a one-and-done process

Don’t confine your listening to an annual event.  Relying on a periodic snapshot or using a single mechanism to learn what’s on the minds of prospects and customers means you’ll probably miss a lot.  Markets change: different buyers emerge, new competitors come to market, evaluation criteria change, and new channels to reach buyers become important. 

Whatever techniques you use, you should always be listening. 

What do you do with all this listening?

The insights you glean from this listening should factor into what you say and where you say it.  It should guide your messages and how you explain your value, and it should inform what channels and media you use to get in front of buyers.

In fact, a marketing plan that isn’t built on this kind of solid foundation – without a firm grasp on who’s buying, why, and how – is likely to fail.  Marketing without listening is a big mistake.