Many assume churn happens at renewal time. In reality, customers churn anytime they wish, should their motivation be strong enough. Even if a contract is for 3 years, but paid annually, their ‘perceived risk’ may be the balance of a year.
There’s obvious churn when customers experience ongoing issues and do the inevitable. There’s unavoidable churn, like a customer going out of business. There’s churn you don’t see coming and can be very hard to predict if the runway is long…and one of the most deadly churn species – ‘reductions’ of commitment to usage levels or additional services.
Many executives assume churn has a customer name attached (‘XYZ company has cancelled’), but may be less attuned to multiple exits of small, cumulatively damaging reduction dollars, which may be the harbinger of things to come – a step on the runway to defection.
Predicting the Ending
Finding a way to see the movie playing so you have a chance to predict the ending is valuable. Artificially Intelligent systems will be here soon – but in the meantime, here is a way to capture events and build a model to assess risk. (Jeanne Bliss, in her excellent book, The Chief Customer Officer 2.0, mentions the concept of a ‘defector pipeline’).
Churn dollars hurt. However, most painful is not knowing until it’s too late to forecast or plan. The inverse of the sales opportunity pipeline can be built for churn using a similar framework. If you are responsible for a quarterly/annual retention forecast, you will need to begin building accuracy. You need canaries in the coalmine…
The runway can be longer than a sales pipeline. What is more important are the events along the way.
The illustration is an example based upon an enterprise SaaS company in which the renewal vista is 9-6 months out. The stages along the path are populated with events related to the customer experience, in context with your customer journey.
The Customer Movie
Customers vary in their ‘pain threshold’. Some are very tolerant, others not at all. Most de-commitments happen because of multiple issues over time – we are trying to picture any cumulative effects. You know that when customers are unhappy, memories are long – a seemingly isolated issue to you may be perceived by a customer as mounting evidence they may be better with your competitor. They are seeing the movie unfold – are you?
Your response to a current issue must be in proportion to that perception. You need to understand the severity of the situation you are in – and the level of risk for churn. A truly great customer leader will anticipate the moving picture the customer is seeing, and predict what the outcome is likely to be.
List affected customers in the lower boxes, relevant to their experiences. The accompanying ACV can be listed and totaled as ‘at risk’ by the stage. (LTV could be used if your company truly understands that across the team).
As this builds, (and I hope for your sake, most of the boxes never get populated!), it will help you drill down on the future customers at risk for churn and you can build a risk index – ‘XYZ Customer is at level 5’, with accompanying churn ratios and probability for your world – i.e. 50% of customers who hit level 5 end up cancelling.
Take the History Into Account
How many times do we hear that a poor implementation process has a huge negative effect on the future relationship? With this type of tracking, you can take this history into account with any current or future activities.
This approach is powerful in strong sales cultures because everyone understands the pipeline view of a customer.