Strategies to Reduce Churn
Last week, I wrote about the misconceptions surrounding churn, and discussed the correct ways to measure it. Now, let’s examine the two types of churn, avoidable & unavoidable. This will help us come up with the right strategies for reducing churn.
Avoidable Churn Scenarios:
• The customer was over promised by the Sales team
• The customer onboarding was not done well
• The customer is not realizing the value
• The customer needs more support in using the product
• The customer is getting lot of attention from competitors
Unavoidable Churn Scenarios:
• The company goes out of business
• A new stakeholder has a different product preference
• The customer needs custom features that are not in the roadmap
• An unreasonable customer
The Journey and Expectations
There are numerous strategies and tools that can help you reduce churn. One of the most important techniques that will get you the most bang for your buck is setting realistic expectations early on during your pre-sales and sales process. You want to ensure that your customers are not being promised value that you may not be able to deliver later on. Otherwise, you are just setting yourself up for failure.
This goes hand in hand with understanding the complete journey that your customers experience working with you post sale. How do the transitions look between teams and departments? Are there gaps? Are you cutting the cord too quickly when a customer reaches production, so that they now need to go to a support call center for issues or questions?
Once you have a full understanding of your customer’s complete experience, and you work to smooth out any bumps along that journey, you can now shift focus to being proactive and monitoring customer behavior as they interact with your product. Understanding how customers are using your product will allow you to get in front of any potential adoption issues that could lead to churn. You’ll be able to easily remedy these issues by providing more training or hand holding when needed to help your customers get back on track.
Of course, we cannot dismiss NPS. There is an endless amount of literature on the value of NPS, but by the time you have a detractor, they have already begun to vote with their feet, and could potentially be on their way out. It is of paramount importance to reach out to your detractors and passives (you don’t want to forget the ones that are sitting on the fence). Hopefully, a few of the strategies laid out above will help minimize the number of low NPS score customers you will need to get back on track.
Negative Churn, the Positive Force
Negative Churn, though it may sound counterintuitive, is a positive force. Negative Churn refers to a phenomenon in which even though you are losing customers, your CSM and Sales teams are expanding revenue within your existing customer base to counteract the churn’s loss in revenue. This can occur through cross-selling, seat expansion or resource expansion (such as charging customers for more storage space if you are in the cloud storage industry).
As you grow from a small startup to an enterprise company scaling for growth, you may find that your customer or logo churn is higher for a period of time during which revenue continues to grow, resulting in negative revenue churn. This can happen if you have a more specific buyer persona, and you are now targeting medium or enterprise size customers that are bringing in more revenue. As this happens and your company changes with growth, you may experience some customer attrition concentrated around some of your early type customers, but this may have a low impact on your revenue churn because of the size of the customers.
Looking at both logo and revenue churn is important if you want the most accurate representation of what is happening with your customer base. If you are doing too well on the revenue churn and logo churn is too high, it could mean that you are losing too many smaller customers and putting too many eggs in fewer baskets with less customers. It’s always a good idea to keep your pulse on both types of churn.
A Summary of Churn
Churn has always been a concern for companies that need to retain their customers, but because of the exponential growth in the subscription economy, it has become even more critical to overall success. If you’re looking at churn, it’s key to calculate it correctly, over the same time periods, and benchmark against parallel sources to check whether you’re on track, or falling behind. Avoid unnecessary churn conditions by promising conditions you can meet, and make sure you know where your customers are at all times in their onboarding journey. At the end of the day, the ultimate tool for counteracting churn is Negative Churn, which blows monthly churn away with the revenue expansion harnessed from other open accounts. It’s the ultimate way to turn your biggest business challenge into a tool for positive growth.