Data-driven Approach to Reducing Customer Churn in B2B Subscription-based SAAS Companies
With Q1of 2023 slowly reaching its midpoint, Customer Success (CS) teams should have already implemented their focus and goals for this quarter. At the beginning of every new quarter (and especially year) CS organizations look back to the achievements of the past period and strategize for the foreseeable future.
Minimizing churn risks or increasing customer retention is one of the biggest goals and at the same time challenges for CS organizations, especially in B2B subscription-based SaaS companies.
When planning for every future period, a CS organization should reach out to their clients and determine what their mutual goals are, allowing both parties to put their best efforts into working together to achieve mutually rewarding results. This client-centered approach will facilitate better business outcomes for both parties, and basically is the only working approach to building great customer relationships and reducing churn.
What is Customer Churn and Why Does it Matter?
To put it in a simple way — churn occurs when a customer cancels a subscription or terminates a contract, meaning that they stop using your company’s product or service. Churn can be measured by the percentage of customers that have stopped using your product or by lost revenues, both over a specific period (normally quarter/ year).
So, why does churn matter? Low churn rate indicates high customer retention, which not only positively impacts businesses’ bottom line and reduces costs to attract new clientele, but also demonstrates great product/customer service and strong brand positioning. Today’s business is not about one-time purchases, it’s about repeat purchases, long-lasting customer relationships and loyalty.
What are the Main Reasons for Churn?
Setting aside all product/service quality related factors (e.g., poor performance, bad service, repeated issues that are not addressed etc.) that inevitably lead to customer churn, one of the biggest factors is low or zero product engagement.
Due to the high volume of work and issues an average CS manager deals with on a daily basis, it’s very easy not to recognize red flags when your product is actually not being utilized, and therefore no value is delivered to the customer. There are, of course, multiple tools and management platforms for CS teams that are supposed to help track those scenarios and send alerts, but they cannot necessarily be relied on 100% of the time.
In addition, you might be blindsided by situations where the customer is quiet and you assume everything is fine, but then all of a sudden there comes a termination notice.
Needless to say, not all organizations have the right tools in place. More often than not, CS managers rely on multiple spreadsheets, analytic tools, platforms etc. so there’s in fact no centralized source of information to make a good judgment call about customer satisfaction.
How Do You Encourage Customers to Utilize Your Product to Prevent Churn?
Obviously, it is much easier to take preventive measures so emergencies don’t happen rather than having to deal with consequences when it’s already too late. This is especially true when talking about customer relationships, and customer churn respectively.
That said, in order to not have to deal with churn when it’s already escalated, do the right thing from the start. Below are three working tips:
- Pass the activation/implementation stage. Seize the day to start delivering value as quickly as possible after the contract has been signed. You have many more chances to quickly and smoothly pass the activation/implementation stage once the client is still focused on your product and is ready to do their bit in the process.
- Find your champion or champions and use their help to promote your product usage across their organization. Your best customer is the one who’s actively collaborating with you, sending tons of feedback, requests, and so on. That way you know your product is being utilized; all you have to do is deliver a great product and customer service.
- Know your customer, their business specifics and operations. In other words, establish great communication and serve as an extension of your client’s team. Make sure your product is set to help your client achieve their business goals and stay up-do-date, because businesses tend to change. What was important last week may no longer be relevant as businesses have to adapt to various circumstances and you want to stay-in-the-know.
What’s the Best Way to Know Your Customer is About to Churn?
In most cases customer churn can be predicted, and therefore prevented. All you need to do is pay attention to the signs. Easier said than done! You obviously need to come up with a system to recognize those signs and act accordingly. The right way to do this is to implement a customer health score that’ll help you recognize triggering situations, and also celebrate success when the customer is really happy and there are no red flags.
Even without the health score system, you will eventually know if your customer is satisfied or not. The big difference is that if you don’t have a health score (or if there’s no one actually working with this data) you’ll end up knowing the customer is about to churn when it’s too late. And that’s not the worst part. The worst part is that throughout the entire time this customer has not been receiving value from the product they paid for, so it’s wasted time and money – and this is most definitely not the right way to build a customer-centric organization that cares about delivering value.
Should you have a working health score system in place, you’ll have a chance to be proactive and make improvements on the fly. That will produce great customer retention and satisfaction.
What Makes an Effective Health Score System?
- Simple and easily trackable. Do not overcomplicate your health scoring system, especially if you’re only at the very beginning of the process of implementing and assessing your customer’s score.
- Flexible when needed/however needed. As your product matures and business grows, it’s only natural to revisit your health score and make adjustments. Rather than sticking to some scoring system just for the sake of saying that you have a health score, be flexible and make changes. You may realize that your health score was tracking some metrics that are in fact not too critical or are no longer needed for a particular niche of customers, simply because they stopped utilizing some product features.
- Have a playbook of action items in place for every triggering score you’re seeing. In other words, every CS team member in your organization should have a clear understanding of what to do in case they’re seeing a low usage rate, infrequent logins, etc.
It’s all about data, added value and ROI.
We live in a data driven world, where business makes decisions based on tangible metrics, not just a gut feeling. When selling your product, you most likely presented an ROI model to your client, and they were impressed with it. Otherwise, they wouldn’t have signed the contract. Now that the sales team have done their job, a CS manager steps in and actually proves the value and justifies an ROI.
It’s really easy to show great ROI when everything is really smooth and goes as planned. These would be perfectly “healthy” clients and you can build great case studies together and celebrate success.
In other instances where things are not that bright and shiny, you need to work on proving the value of your product, encourage close collaboration with your client, drive engagement, and improve product adoption.
How to Prove That Your Product is Adding Value?
Run experiments to prove your product value! Based on your business specifics, you may want to find a way to run an experiment to show that your product helps with set business goals and therefore delivers value.
Implement a product in a specific setting/group of users and compare users’ (target group) to non-users’ (control group) behavior and KPIs before and after the product was implemented. Expected takeaway: target group has better KPIs (different businesswise), not necessarily all KPIs – make sure your results are honest, and when you’re not seeing better results, mark them as an area for improvement and suggest a game plan to improve in the future. Since the target group improved their performance because they were utilizing your product, this demonstrates the proven value of your product.
Also, keep in mind that the best way to measure your product value is to solicit direct feedback from end users. Not only will you get a great deal of invaluable insights about your product, but you will also have validated data on how well your product is doing. So run surveys and manage feedback.
Now that you have the results of the experiment, and ideally survey results, package them well and deliver the value of your product in a QBR (quarter business review) setting. As an outcome, you have a good chance to increase product adoption, renew contracts, upsell, and obviously, reduce churn risks proactively.
Churn Happens. Learn from These Situations and Do Better Next Time
Churn will inevitably happen, and you will lose clients, large and small, at some point. One thing you should do is to establish a reasonable churn rate. This is so that in case the situation gets out of control and you lose a great many customers/contracts, you question if the business is generally doing all right. Probably not, and you need to understand what’s critically wrong and fix it.
Another thing you should do is really learn from these unwanted situations and do a better job next time. Make sure you find time to look back at the situation and analyze what caused churn. Was there anything that could have been done differently? What needs to be done/improved in the future so this won’t happen again?
Also, leave the door open and keep great relationships with your customers even if they choose to go with a competitor. It is likely that if you really improve and fix the issues which led to churn, your customer will come back some time in the future. If you learn from your mistakes, every churn can stimulate improvements and drive great changes, which is actually a good thing.