The following is a guest post by Ryan Law, CMO & co-founder of Cobloom. Cobloom is a team of marketing, sales and customer success experts that specialise in helping customer-centric SaaS companies gain traction and scale. Ready to grow your SaaS? Check out their SaaS Growth Blog.
After countless hours of development, relentless marketing campaigns and tireless sales effort, you’ve finally managed to secure a decent number of paying customers. But just as you ready yourself to uncork the champagne, you notice something terrible start to happen – some of your hard-earned customers start to disappear.
Customer churn (also known as logo churn) is the boogeyman of SaaS, and with good reason: even awesome products and smart growth strategies can be killed by out-of-control churn. Thankfully, you don’t need to be powerless in the face of this threat. I’ve picked out the 10 biggest problems responsible for customer churn, and laid out actionable solutions for each.
Desired Outcome Churn
Desired Outcome churn happens when your customers fail to hit their goals (known as their Desired Outcome) with your product. When we talk about churn, this one of two primary causes, and most importantly, it’s something you can directly influence and improve.
1) Bad Onboarding
The majority of your customer churn is going to take place between two pivotal milestones:
- Your customer signing-up for your product
- Your customer achieving their first “success” with your product
People pay for a SaaS product because they want it to solve a problem for them, whether that’s speeding up their invoicing or generating more leads. If you’re too slow in helping them reach their first success, you’re going to see churn, as they look for more immediate ways to reach their goals.
A great onboarding process bridges the gap between those two milestones, allowing you to lay a defined path for your customers to follow from sign-up to first success. So, to reduce churn, identify the first success your customers are aiming for, and create an in-app tutorial or email sequence to help them achieve it.
2) No Ongoing Customer Success
Even if you’re able to help your customers achieve early success with your product, there’s no guarantee they’ll continue that success days, weeks, and months down the line.
Your customers’ Desired Outcomes are usually big, multi-stage goals, like “increase profitability” or “free up time.” To achieve those outcomes, they need to make continual progress towards a series of smaller goals, like “send invoices faster” or “allocate 3 processes to a team member.” If those small successes quickly dry-up, churn becomes a real risk factor.
Helping customers make continual progress is literally the definition of Customer Success. By trying to understand their goals, and doing everything you can to help them move closer and closer towards their Desired Outcome, you can take a proactive stance in the battle against customer churn.
3) Bad Support
All-manner of problems can crop-up during the day-to-day use of your SaaS product, from mislaid invoices to confusion over in-app settings. To prevent these problems from becoming deal-breakers, and driving your customers away from your service, you need to offer fast, responsive customer support. If your fraught customer has to battle through dozens of phone menus to speak to a disinterested support rep, their chances of churning are likely to increase.
Thankfully, the fix is relatively simple: make customer support a priority, and be there when customers need you, using live chat tools and dedicated Customer Support staff.
4) Competitor-driven Churn
Even if you’re able to help customers achieve their desired outcomes, they’ll still churn if they believe a competitor will do a better job.
The quicker you can help customers reach that first success milestone, the lower the chances of this happening. You can also combat this with specialisation: if you’re able to differentiate yourself from other SaaS solutions (in terms of your unique expertise, product features or customer service), it becomes much harder to directly compare you to a rival.
5) You Closed the Wrong Deal
Sometimes there’s a disconnect between what a customer believes your product can do, and what it can actually do. This is the ultimate example of desired outcome churn: your SaaS product will never help your customer hit their goals because, well, it’s the wrong product for the job.
This is most commonly caused by attracting the wrong type of people to your product, either through a lack of understanding of what your ideal customers look like, or through unclear messaging and product information.
The best way to avoid this type of churn is to understand your ideal buyer persona in as much depth as possible. By using surveys and interviews to hone-in on their needs, you can turn your website into the ultimate self-selection tool: broadcasting a clear, defined message, designed to appeal exclusively to your buyer personas.
Natural Cause Churn
Natural Cause churn is a by-product of the unavoidable problems that sometimes crop up with the software-as-a-service business model. As you’re about to see, these problems can’t always be avoided, but it is possible to take steps to severely limit the harm they cause to your customers.
6) Cashflow Crises
If you sell to businesses, at some point you’ll run into a customer suffering from a cashflow problem. Whether it’s a temporary or a longer-term issue, if your product and service isn’t viewed as a priority, there’s a chance your contract will find itself on the chopping block.
The best way to avoid this is to move your SaaS business higher-up their list of priorities, and ensure that you’re viewed as an essential service, instead of just an extra cost. Everything we’ve said about generating immediate value will help here, but you can also look to increase your contract length (it’s easier to ditch a 1-month rolling contract than it is a 6- or 12-month commitment) and move to an automated recurring payment solution.
7) Loss of Key Users
Software adoption is often led by a handful of key people. These product evangelists are your biggest ally, but if they leave the company, and the fate of your SaaS solution is left in the hands of less interested parties, this poses a very real churn risk.
The best way to combat this is to get your SaaS into the hands of as many team members as possible. Freemium companies like Slack and Evernote have mastered this approach, but you can achieve similar effects with a paid model by incentivising user referrals, and making them a core part of your onboarding process.
8) Product Problems
Down-time is an almost inevitable part of running a SaaS business, and if your service outage has a real impact on a couple of customers, there’s potential for churn.
Tackle this by responding to the issue quickly and clearly, acknowledging the problem, and outlining your steps for solving it. If you’ve had a serious problem, it can sometimes be worth offering short-term discounts to the customers affected: taking a temporary hit to cashflow is usually much better than losing a customer for good.
9) No Chemistry
A lot of SaaS businesses take a pretty hands-on approach to their service: whether that’s personally onboarding early-stage customers (the concierge MVP approach), or offering consultation services to work alongside the product.
But whenever people are involved, there’s also the possibility of personality clash. The more time customers spend in contact with your team, the greater this problem can become, even contributing to churn. To help avoid this, you can be more proactive in pairing customer service reps and consultants with right-fit customers, and by having a process in place for quickly switching customers to different reps.
10) Leaving the Early Market
Early-stage SaaS companies attract very different types of people to more polished, refined solutions.
If you’re in open beta, you’ll attract early adopters: the tech enthusiasts that enjoy playing with buggy, unfinished products, and want to contribute to its development. But as product development continues, and you edge ever closer towards a finished product, there’ll be less opportunities for these early customers to engage.
The more refined you become, the more mid-market customers you’ll attract, looking for a fully-functional, proven solution. As you start to engage this new market, you’ll slowly lose your original audience to churn. This shouldn’t be viewed as a problem: making the transition into bigger markets is a necessary part of growth, and mid-market customers have far deeper pockets than early adopters.
The Key to Fighting Customer Churn
The key to solving your customer churn woes is simple: do everything you can to understand the root causes of your churn. As well as diving into the internally visible reasons for their churn (in-app engagement, failed payment, etc.), do everything you can to understand your customer’s personal reasons for churning.
I’ve covered 10 of the more common motivations here, but there are as many reasons for churn as there are people. What really matters is that you have a proactive process in place for communicating with customers, and helping them achieve their goals.