Churn is a paramount topic in SaaS, as we all know. If every dollar of ARR is worth $6+ in the long term, including upsells and second order revenue … then of course, by the same token, for every dollar of ARR that churns … you’re losing $6 of notional ARR. Lose a $100k customer? That’s really $600k over the long term. Yikes.
So of course all great SaaS companies carefully measure churn and target decreasing it as one of their core metrics.
But maybe even more important is measuring Almost Churn. Why? Well, for every customer that churns … there’s at least another one just like them that almost would churn. Maybe they stay out of laziness. Maybe they stay because it’s already in the budget. Either way, these at risk customers are certainly only behaviorally loyal — not attitudinally loyal (more on the difference here).
And the customers that do Churn — well there’s not much you can do about them. You’ll only get a handful back. And the customers that love you? Of course, you need to keep investing in them. But if some love you, and are buying more — you’re doing something right. It’s the middle category to, as founders, as CEO, to put the extra effort into.
One simple way to think about it: whatever your churn rate is, find an equal percent of your customers as At Risk. As Almost Churn. If 15% of your revenue churns each year, find the other 15% that’s at risk.
Once you’ve systematically found them — what’s actionable here? A few suggestions:
- First: Get On a Plane. Meet Them. Talk to Them. Hear Them Out. Show them what’s coming. Acknowledge your mistakes. Explain to them where it’s getting better.
- And by on a plane, I mean You. Mr. or Ms. CEO / Founder. Not just your client success manager. Having your team do the rounds is critical. But you showing up — that’s a sign of respect. It shows you care. And it will produce returns.
- Get Weekly Reports on Who the At Risk Customers Are, and Quantify It. Force your client success team to identify the 15% (or whatever number) of customers are at risk, each week. With an action plan. This can be hard to measure with utilization alone — sometimes your most unhappy customers may still need to use your product. For now. So if you don’t know who this 15% is, you’re going to need to ask your customers and find out.
- Hack Net Promoter Score to Find the At Risk Customers. Readers of SaaStr will know I’m rather skeptical of the use of Net Promoter Score as a primary metric in SaaS start-ups. It’s backwards looking, and more importantly, it’s subjective, not really quantitative, and not connected to revenue. But Net Promoter Score can be a great way to ferret out individual unhappy customers. If you don’t or can’t ask them 1-on-1, a NPS or other survey will quickly ferret out unhappiness.
- Save Them. Believe it or not, you really can save a ton of your most unhappy customers. You really can. You can save customers that never deployed. You can save your biggest complainers. You just have to engage. Sell them all over again. It won’t be fun — you’ll need a thick skin sometimes. But it will work. I guarantee it. And believe it or not, you can turn a lot of them into your happiest customers. If you invest the time.
I know you want to spend more of your time on new potential customers first, and on your coolest and biggest and happiness customers second. But if you do that, you’re shortchanging one of the highest ROI activities you can do as founder and/or CEO. Which is save, and them ultimately even grow, your Almost Churn accounts.
- Churn and SaaS (cloudave.com)
- SaaS Churn Threats: Identify and Retain At-Risk Customers (sixteenventures.com)
- SaaS Churn Rate: Go Negative with Expansion Revenue (sixteenventures.com)
- SaaS Metrics FAQs | What is Churn?
- Can We Ignore Churn Early On at a SaaS Company?
(Cross-posted @ saastr)