Today, I’m going to share with you my process for tackling customer churn. This is one of the biggest problems that SaaS businesses face. If you don’t yet have a high turn rate that keeps you awake at night, you are either doing an amazing job or you haven’t yet scaled your customer acquisition. Unfortunately, I see this a lot.
Early-stage founders believe that they’re doing an amazing job because our churn is still low. In fact, the reason your turn might be low is that you’re still onboarding customers yourself and staying really close to the onboarding process. If this isn’t you, it’s likely that you have adopted a repeatable selling motion.
There’s no good churn, but if you fall into the category of businesses that have a churn that’s between 2% and 5%, I would say that you don’t need to worry so much. Regardless, the strategies that I want to show have lots of interesting components that you can proactively implement. You can apply to avoid high levels of churn in the future.
Before I go forward, let’s set the stage by explaining a few really important things. There are three different types of churn. The first one is revenue churn, which is the money that you are leaving on the table. This is all the money that you could have if your customers don’t cancel their subscriptions.
The second one is customer churn. This is the one that we will be discussing today. This is one a customer cancels and they stop giving you money because they’ve canceled their subscription. The third one, the lesser-known, is activity churn. Activity churn is when a user gradually stops using your tool.
As you can see from the graph, there is a critical point in time. When our user in red started reducing his activity, he showed a slight activity churn that increased over time until it led to the complete cancelation of his subscription. How many times were you planning to cancel a subscription, but only did it after you saw a charge in your bank account?
It is really important here to remember that the time that the customer churns is not the time that the problem starts, this is only the time that we see the problem in front of our eyes. So practically speaking, if we want to monitor activity churn, we can roughly predict if a user is going to cancel this account in the next few hours, days, or months. How can we do that?
There are plenty of product analytics tools out there, and I love most of them. There are really good tools like Bendo, KIPP, ChartMogul, Bare Metrics, Amplitude, Churn Zero. However, my favorite ones to do these really specific jobs are two others: Brightback and Sherlock. Both of these tools help us to monitor churn, segment our users, and get signals when a user is at risk of churn. When you set up these signals, you will feel as though you have superpowers.
This will give you the opportunity to know what the users might be thinking even before they actually perform these activities. This gives you the power of predicting their actions. When we gain an indication that something negative might happen, we should of course do something to prevent it, right? And that leads us to step number two, your customer success, or just you, if you cannot yet afford a customer success representative, should consider what the signal is.
When you get these activity churn signals, I’m not going to ask you to do something technical or difficult, just open your laptop and email the customer, pick up the phone and call them. Ask them, what do they think about our tool? What is their favorite feature? What is their least favorite feature? What would they change?
You can collect all of this feedback, consolidate it, and incorporate it into the products. There are plenty of techniques you can use to prevent churn. You can set up calls to explain to customers about how they can be using your tools better, and perhaps spend some time supporting them on performing key actions or even teaching them, especially when they’re struggling.
You can also remind them of all the incredible features of your tool. You can reestablish your value proposition. You could even suggest to them about pausing their subscription with a really small monthly fee, if they prove to be seriously dissatisfied, but they want to keep all of the data in their account. I’m sure you can think of lots of different ways to maintain a good relationship with your customer. The important thing here to remember is that you always need to collect the feedback and pass it back to the team.
When you’re speaking with lots of customers, you will need to organize all of the data that you’re collecting. You can either use a simple Trello board, or you can also use a tool that I’m currently enjoying using. It’s called Product Board and it lets you connect your main source of communication, such as email, and just transfer the feedback directly to the product. It’s a really useful tool. Product Board is also helpful to product managers because it helps them easily prioritize this feedback and match it with upcoming releases or ideas.
You will be astonished when you realize how easy it is to prevent 30% to 35% of your churn. The technique that I’ve just shared won’t fix everything. It will prevent a serious amount of churn, but at the end of the day, some people will ultimately just churn. We can’t avoid this.
There is one more thing. The cancellation process is the second point in time that you can actually prevent churn. Once somebody clicks that cancel button, you need to deliver a unique cancellation experience. You can test lots of different things such as reminding them why they fell in love with you in the first place, show them their successes, or even just give them an incentive to stay or pause their account.
Amazon does not amazingly. There’s a lot that you can learn from their cancellation experience. If you’re using Amazon, start the installation process just don’t complete it. I said before, if you follow this process, you will realize that 30% to 35% of your customers are preventable. You’re missing an amazing opportunity and leaving lots of money on the table. Let’s dive a little bit deeper now.
So far, we have predicted churn and try to present it to our customer success and our tailored cancellation process. But again, there will be users that won’t. Jobs To Be Done is a really powerful product development framework that is used by some of the most innovative businesses in the world. Many of these are actually SaaS companies that you are using in your daily lives.
The Jobs To Be Done framework is the idea that every tool we purchase is used to make our lives better, to solve a problem that we are currently faced with. In the case of a churn customer, our customer leaves us and switches from our solution to something else. That something else is not always another tool. It might be another method, another person, or they might simply ignore the problem and do nothing about it.
Behind every churn there are several forces at play. It is essential to understand these forces to prevent churn. The “push” is when something happens and we’re feeling pushed to find a way to deal with it. For example, my car has broken down. I need to buy another car. The pull force is when we just want something to make her life better. The new Tesla is out. I might like to buy a Tesla. When my car breaks down, the push force is that I need to buy a car. It doesn’t matter if it’s a Tesla or another car, but the push force is that I want to buy it because it will make my life better.
The anxiety about switching and the habits that we have developed prevent us from switching to another tool. In the case of a churn user, we want to understand what pushed them and pulled them into using another tool for the job. The only way for us to do so is through Jobs To Be Done Interviews. The first step to conduct JTBD interviews is through recruitment.
The recruitment of churned users might prove a little bit difficult because they are not particularly happy with you at the moment. But if you show that, if you serve them with a message right after they have churned giving them a strong incentive, you will manage to schedule 8 to 10 meetings in less than two weeks. We need 8 to 10. To incentivize them to participate in the interview, you could offer them an Amazon voucher.
During these interviews, we need to unpack the force and get them to share the events that led to the churn. Start from the present and go back, ask them about their current problems with a tool. Why did they cancel? And then move backward in time. What was the first time they used it? What were they using before? What did they like? What did they don’t like? What was the first experience?
At the end of these interviews, you ideally need to have recorded them as videos. You should also create spreadsheets with observations and insights. Once you’ve finished speaking to them, you will typically have a big bucket of qualitative data. Order a pizza. Buy some beets. Lock yourself and your trusted colleagues in a room – and talk about the feedback you’ve received from users.
I hope that you enjoyed learning more about how you can predict, prevent, and destroy churn for your SaaS business. As a founder, it is essential that you take control of your churn rate, ensuring that it is moving in a positive direction. By doing this, you can drastically change the course of your business and support growth.