How To Reduce Net Churn Rate For Your SaaS In 201923rd Oct 2017
Update! Our end of year numbers saw us hit negative 3% revenue churn through following through on these same lessons.
Hull’s 3 main KPIs for 2017 are: growing our revenue 10x, maintain a below 2% churn rate, and position us as the premier data brand in the SMB/Midmarket. And as we all know, there’s three core strategies for SaaS companies that want to grow:
Acquisition - find prospects / users
Activation - turn them into paying customers
Retention - keep them forever
Client Success is actually your secret sauce to success. Because in a typical SaaS company, even if you are growing 100% a year — well 50% of your revenue is existing revenue. And of that growth?
Often as much as 50% of that growth is upsell / additional seats / more revenue from your existing customer base. So directly, or indirectly, Client Success manages as much as 75% of the revenue of a typical SaaS company.
Measuring and managing churn is one of the most important aspects of growth - because if the product can’t sustain a lifetime value that is more than a certain amount, the leaky bottom can mean the SaaS company’s demise (especially in the early days).
Most companies obsess over acquisition and activation - and rightfully so. The market is crowded, with 5,000 companies with marketing and sales technologies, most of them look alike, and the competition is consistently challenging the status quo - which leads to buyer paralysis.
It’s the function that most organizations completely overlook - and to their detriment.
I run Hull’s Customer Success department, which I can gladly say is running a sub 1% net churn rate this year. As much as I would love to take all the credit for this, it has been a team effort from everyone in the company. I’m pulling back the curtains and letting you know how we achieved this as a team!
These are the exact steps we took to get there:
Analysis & deconstruction of the current state
Executive and departmental alignment
Being proactive and predictive
Positioning upsells at the right time
Analyzing and Deconstructing the Current State
Best-in-class SaaS companies are lucky to see 2% churn rate. And the outliers can achieve even negative churn.
But churn is something that can be controlled if not completely removed, and the first step takes a very real, very honest analysis and deconstruction:
Why were the companies churning?
Did it have to do with product?
Was it our customer service?
Was it our pricing?
Who are the companies that churn?
When have they churned? What’s the average time frame?
Using tools like Salesforce, ChartMogul, and of course Hull gave us the the quantitative data that couldn’t be argued with - like average number of days as an active customer.
We use Hull to create “red flag” segments of customers who aren’t interacting with our product.
We also leverage “reach out” segments where we want to proactively reach out when our users do certain actions such as adding a new user or go to the help section more than a few times in a week. All these segments can be passed through to the CS team in near real time - which allows us to strike while the iron is hot.
But the real discovery was in going through, line by line, why customers churned, what they looked like, and what behaviors led to it - the qualitative side.
Alignment, alignment, alignment
I cannot state this enough. If your sales, marketing, customer success, and product teams aren’t aligned, then you will never achieve a <1% churn.
After deconstructing every churn, the next step was to draw conclusions and make adjustments moving forward.
The key, however, was that this alignment initiative was driven from the top-down, and considering our goals for 2017, this was a no-brainer for executive leadership.
Generally speaking, it’s easy to paint the picture for executive leadership of growth (or lack thereof) with churn rate.
The MRR numbers don’t lie - at your current churn rate, how much MRR are you missing out on? Or ARR? How much does it stifle your growth? And if you were to accomplish your Customer Success goals, what kind of insane targets would you hit?
Leveraging these vital KPIs painted the complete picture of where the company wanted to be, and how each department can contribute while also making the VCs feel confident. Next, we needed alignment with marketing and sales.
We discovered that churn had everything to do with our ICP, short-term vs. long-term gains, and go-to-market strategy.
Sales was pushing some deals over the line that weren’t going to have “sticking” power.
And customer success wasn’t pushing back.
Which meant the customer churned.
Adjusting the ideal customer profile for marketing and sales meant:
focusing on organizations large enough to get value from the product,
making sure we were engaging the right persona within that organization, and also
making sure their technology stack provided enough value when combined with Hull.
The next step was to align marketing. Marketing wasn’t focusing on the businesses who had a glaring need for our solution - which of course meant attracting leads and accounts that weren’t going to have a solid need for the product.
And while our sales team is dope, this meant that even after marketing and selling the account on the product, they were just going to churn if they didn’t fit this adjusted ICP (which hurts everyone’s KPIs and goals).
From there, we worked with our Product and Dev teams to ensure the product roadmap and what development was building made sense for the larger customer base - as opposed to one-off scenarios.
CS was able to use product usage data to give us an idea of what our customer base was focusing on.
This combined with the strategic conversations we had enabled us to close our feedback loop and be more agile to respond to the needs and requests of our customers.
Onboarding is more than just telling your new customers what the product is and how it works.
It’s about getting into their head, feeling their pain, understanding where they want to go, and how they can get there with your product. For us, the path to <1% churn meant that our onboarding needed to be drastically overhauled.
It was imperative that we were as hands-on as possible in the first 30 days. We would walk through every aspect of the product, be as available as possible during the first two weeks, and be as highly responsive as possible.
We needed to add the “white gloves” for every onboarding call.
And it quickly became the difference between someone who is just assigned to the customer versus being a trusted advisor, brand representative, and champion for the customer.
Incomplete onboarding is already setting yourself up for failure. So don’t do it.
Plus, any additional discovery with the customer always helps and you’re able to figure out how to be a better consultant.
Being Proactive and Predictive
Any good CSM knows deep-down who’s going to churn and who’s not. Much like Sales, it’s the gut-check.
Pure intuition. Predictive.
There’s also quantitative indicators - the data-driven side. For us, it was:
- Anyone who hasn't logged in within 30 days,
- Anyone unresponsive after multiple attempts of contact,
- And anyone whose support tickets were outstanding for longer than 5 days
One of the best exercises we’ve done as an organization was pulling all of our accounts into a massive spreadsheet and analyzing, line-by-line, who we considered a churn risk based on both qualitative and quantitative indicators.
Next, we’re able to be proactive.
Being proactive with your customers means anticipating their needs before they ever even realize they need it and reach out to you:
Go into your customer’s account and see what they see. Being the expert, you’ll know if there’s something that needs to be fixed.
Mitigate any issues before the client knows and be completely transparent about it - as opposed to letting it be broken for 3 months and they have to come back and yell at you.
Churn comes within the first month or so. And as a CSM, our job is to get people out of that bumpy phase.
This is where being proactive becomes the game changer.
Pricing is one of the key elements of a product, and you owe it to the business to take a hard look at it.
Moving from monthly to annual contracts on its own drastically reduced the churn.
But the important part was that we tested it.
Pricing sets the stage for how customers perceive you.
But something we learned was that annual contracts meant that everyone - including us - was more invested in the product.
An annual contract that churns also hurts a lot more - which means more incentive to build excellence into the product and offer an experience that keeps people coming back.
Positioning Upsells at the Right Time
Another large aspect of achieving sub 1% churn are upsells. These are fantastic ways to help offset those clients who do decide to leave. Knowing the key signs and being able to proactively position the account for upsell is huge.
It's worth noting, however, that our CSMs are not responsible for closing the upsell.
They are there to be customer advocates, but they are responsible for positioning the account in the proper way. Our team makes sure that they only pass through extremely qualified accounts for upsell.
The last thing we wanted to do was to push an upsell on an account that wasn’t ready for it, thus leaving a bad taste in our client’s mouth - which could increase the risk of churn later on.
We are about proving value within 1 use case first, nailing that down, and then moving into the 2nd, 3rd, 4th, etc.
As we implement more use cases, we have more opportunity to position the client for an upsell.
It is important to know that it’s never too early to position an upsell.
Our sales team does a great job of selling only what a client needs at the time, leaving room for CS to grow the accounts. Some of our upsells have occurred in the 2nd month of the contract, while others take place in months 3-4.
We are seeing a pattern that some accounts keep tiering up within a 90-180 days cycle.
CS becoming close to the customer and learning what their goals are for their business allow us to position Hull to help them achieve those goals. When they achieve their goals, they’re more likely to recommend you to other departments internally and also expand their own usage of Hull within their own team.
Remember: you either win with the customer or your lose with the customer.
Hull chose to win with the customer.
"Tbass" is the Customer Success Manager at Hull. The biggest and best beard in SaaS, probably.