Winning clients in a startup is definitely hard work. So fighting with churn is as crucial as winning new clients. At Open Loyalty, we work with many startups, helping them make their clients more loyal, and prevent churn. So I decided to collect all our great ideas and share them in one place.
Just look at this chart below. This shows us how your growth might look like according to different churn levels.
A whitepaper by Frederick Reichheld of Bain & Company found that increasing customer retention by 5% can increase profits by 25% to 95%.
Huge difference, right?
Why does churn occur?
Churn describes the number or percentage of clients that resign from further usage in a given time period.
Why does churn happen?
- Customer can’t afford to continue using your service
- Customer can’t see the value of your products
- Your product doesn’t meet customer expectations
- Customer Support or additional services are below accepted level
- Your competitor is stealing your clients
- Something changed inside of your client organization and they can’t use your product anymore
What’s an acceptable Churn Rate?
Before you start optimizing your churn, it is good to know what an average churn level is, and what you can achieve.
Many studies says that churn rate depends on your target customer and your company’s phase of development. The general rule is – your churn rate should drop over time.
If you are selling to Small and Medium Business Owners, your churn rate could be around 3-5% monthly or less than 10% annually. Still, many businesses selling to this group achieve a negative churn.
For Enterprise Level clients with an 5-digit monthly ARPU, your churn should be under 1%, or even lower.
Some time ago, the guys from ProfitWell compiled the largest SaaS MRR churn dataset in the world, in order to help you answer that ever crucial question: “What should our churn look like?” You can learn more about this study from their recent youtube video.
OK, so I did some research – asking successful SaaS companies about their anti-churn methods. Here is a quite complex list of ideas you should try.
Analyze why churn occurs
The first lesson here is that, for every company, churn can be caused by different factors. It’s a good idea to call lost customers and just ask them why they left.
The main reasons why customers resign are shown in the Customer Experience Impact Report by Oracle.
- 58 percent of consumers noted that their expectations were not met because a company was unavailable by phone and e-mail.
- 56 percent said companies are slow to resolve issues.
- 57 percent said companies are clueless; it sometimes feels like the consumer knows more about the company than the customer service agent.
- 51 percent said companies are impersonal; sometimes they can’t even get the customer’s name right.
- 34 percent said companies are forgetful; they don’t even remember a customer who has recently talked to a customer service agent.
- 16 percent said companies are antisocial; they are nowhere to be found on social networking sites.
Our approach to churn is very data-based. We constantly analyze both our active and churned customers and search for red flags. This way, we can find out about potential churn before it happens and try to prevent it. Our top 3 red flags are: when there is a decrease in the number of logins, a change in the number of keywords or mentions (when the customer doesn’t use all their keywords, even though they’re paying for them), as well as a decrease in engagement. We message those customers and try to re-engage them. We’ve created separate segments for these red flags and we keep an eye on those segments every day. – Emilia Harabień, Customer Success Manager, Brand24.
Define your Most Valuable Customers
This sounds too easy but this can be true. Especially for typical B2B companies. Finding the most valuable customers is quite easy and can be the starting point for building a super-strong relationship with them.
There is even an interesting Paper with the theory that you shouldn’t fight with churn in general, just focus on the best clients and make them loyal.
The authors say:
Profit from targeting a customer depends on not only a customer’s propensity to churn but also on her spend or value, her probability of responding to retention offers, as well as the cost of these offers. Overall profit of the firm also depends on the number of customers the firm decides to target for its retention campaign. We propose a predictive model that accounts for all these elements. Our optimization algorithm uses stochastic gradient boosting, a state-of-the-art numerical algorithm based on stage-wise gradient descent. It also determines the optimal number of customers to target. – Aurélie Lemmens & Sunil Gupta.
Whatever your strategy will be, knowing the best customers sounds like a reasonable first step as they comprise the most important group when it comes to preventing churn.
Take care of onboarding new users
Groove reduced churn 71% using the red-flag metric and helping clients with the onboarding problem.
When we looked at the numbers, there were two metrics that seemed to be the most significant in the first 30 days after a user signs up – length of first session and frequency of logins. – Alex Turnbull, Groove.
I wrote a dedicated post about onboarding. A good, complex onboarding process is the first step of churn prevention.
Define a roadmap for your new customers
This is also part of good onboarding process but just to stress this – you should prepare a roadmap for new clients. This roadmap’s goal is to make clients familiar with crucial features and make you sure that they will not leave until they know the product better.
Crucial Time
I’ve heard many times that the majority of customers churn within the first three months.
Companies like Hubspot used to offer an intense customer success program to assist customers during that period.
“ContentKing keeps a full history of all tracked changes. That means that the longer you’re using ContentKing, the more valuable your account is.” – Vincent van Scherpenseel, CEO, ContentKing.
Find Pain Points
The easiest way of finding a really serious customer pain point is to allow them to contact you directly. Many startups use live chat apps to collect clients’ questions. It’s of course about helping clients but it’s also about seeing the app from the perspective of the client. I think this is one of the easiest ways of finding your UX bottlenecks.
Pay attention to complaints
When you see clients are complaining about something on LiveChat, remember that complaints are just the tip of the iceberg. Usually, they suggest that the bigger part of the problem is hidden from your view.
96% of unhappy customers don’t complain, and 91% of those will simply leave and never come back. So when you hear a complaint, you should multiply this by 10 (at least) and imagine the whole problem is much bigger.
The good news here is that dissatisfied customers whose complaints are attended to are more likely to remain loyal, and even become advocates, than just average customers. There is plenty of stories about customers who became advocates of brands that disappointed them at the beginning.
“To quote our SVP of CS, a relationship between a client and a company is not that different than marriage, it’s all about the right fit and ongoing nurturing. We found that our clients should be paying us less the X% of their yearly revenue to keep churn away. A healthy business will know how to turn down immediate ACV and focus on CLTV.” – Itay Vladomirsky, Partnerships, Yotpo.
Customer Experience
Speaking about customer experience – studies show that 82% of people have stopped doing business with a company due to a bad experience. This is possibly the biggest reason people resign from dealing with companies.
This is much bigger than you think. In 2015 the ROI study showed that the stock prices for the portfolio of CX leaders (the top 10) outperformed the portfolio of CX laggards (the bottom 10) and the S&P 500 from 2007 to 2014.
Of course, there is no one way of implementing great Customer Experience but this is a really crucial aspect of every business.
“Placing a tremendous focus on the user experience from the very start has enabled our clients to become truly independent with their eCommerce campaigns – sometimes for the first time. Instead of relying on someone else, they can launch and edit campaigns themselves and use our Success Managers as consultants and advisors, which adds a factor of stickiness unlike almost anything else.” – Patrick Obolgogiani, Head of Customer Success EMEA, Nosto.
Educate the customer
This is very natural when you think about churn prevention. Offer free training courses, webinars, video tutorials, and product demos – whatever it takes to make your customers feel comfortable and informed. The main problem here is lack of attention from the customer. If you aren’t selling life-saving products, clients always skip these edu materials. So I strongly believe in progressive onboarding and progressive training.
You can use Marketing Automation and Loyalty Program Software to engage with users and show them micro-educational-content contextually.
Automate
Use trigger-based emails, text messages, etc. Sending out the right messages at certain time periods for specific target groups can help you reduce churn rate thanks to educating clients and measuring their interest.
“One of the most important things we did was to segment our clients into tiers and then build a suite of touch points that fits each tier (the bigger the client the more frequent and the deeper the conversations are). Our product and R&D teams worked hard to release our new Growth plan, which was specifically designed to be a powerful and affordable tool for entrepreneurs and small businesses, this plan allows us to nurture SMB’s and upgrade them to our premium plans once they’re ready.” – Itay Vladomirsky, Partnerships, Yotpo.
Buffer is sending trigger-based messages to users with empty streams. These messages encourage people to schedule more using Buffer and help them achieve success.
Gamification
Create a leader-board or private milestone for every user. Try to show progress and motivate your users to make another step. You can’t change the behaviour of customers very easily, but you can strengthen the behaviours you choose to.
Clients of OpenLoyalty use Gamification to increase the engagement of users and make them more loyal.
Offer incentives as part of a loyalty program
You could use incentives as a Lifebuoy when a client isn’t happy. But you could also build a loyalty program when clients see what incentives they can achieve and are self-motivated to act according to your agenda.
Sometimes you could surprise clients, offering them some extra incentives, showing that you care. Having this kind of program also gives you an opportunity to measure the engagement of your clients and act accordingly.
Dropbox has successfully implemented an incentive program by offering extra space for referrals. In fact, this referral program was able to increase their signups by 60%.
Customer loyalty as your error-proof strategy
The best thing about building loyalty is that you will have some additional room for fuckups. Sooner or later your client will have some troubles with your product and having this bond in place helps you keep the client.
Just remember what the founders of 37signals say: you should act as a human being, when something goes wrong. Just say that you’re sorry, act fast and honest. Don’t use excuses, just say sorry and be open.
Incentives for prolonging contracts
You might pre-plan the incentives that you will use at some specific phases of the customer lifecycle. For example, if a client is approaching the end of their contract and you’re worried they might not renew, providing a discounted renewal rate could be the push they need to stick around.
You could also have invisible incentives that you will use only for clients at risk. Here, a good idea is to connect this with the personal involvement of C-level guys, showing your organization deeply care and that the event is breaking some in-house general rules to keep client happy. This kind of “I need my boss’s approval on that” deals can still do the job.
Incentives for lack of features
I’ve read an interesting story of a startup that used incentives to keep clients waiting for features they need.
“We’d offer a discount on their next month of service to tide them over while we finished up what it was they looking for. ” – Founder Josh Pigford, Baremetrics.
Add some excitement
Informing clients about new features keeps them loyal and helps them realize the value you are bringing. But standard email are so boring. Some companies experiment with more emotional ways of presenting new features – video, letters from CEO, etc. All that is worth trying.
An idea that I like came from Slack. They use this small “What’s New” place to show what is happening. It’s very natural and really grabs clients’ attention.
Provide Better Billing
Billing is boring and no one like this, right? This is also one of the most frustrating things when it comes to SaaS. I always struggle searching for invoices, etc.
I would reconsider Billing as another channel of communication. You can for example send small bites of info about new features at the bottom of the invoice :)
Remember also that when something bad happens with payment/billing, clients are angry and you should be able to help them really fast. Integrating a live chat at the billing page could be a good idea.
“Another aspect of churn comes in the form of payment errors, or “delinquent churn”. In terms of automatic payments, we have a really well-organized dunning system. It’s activated after several attempts have been made to collect payment when a credit card has been declined. We also message customers to let them know when this happens. In terms of non-automatic payments, we inform customers a few days before their payment due dates, and send them all their payment details. We try to be flexible – if a customer needs more time – we’re all for it.
We also try to stay flexible when it comes to customer cancellations. We don’t delete customer data and if the customer wants to suspend his account without payment for a few months, we support this option. Because we believe that this builds trust, and it leaves the customer with a good impression of us, so he or she will be more likely to reactivate their account in the future” – says Emilia Harabień, Customer Success Manager at Brand24.
Identify at-risk customers
Using data from marketing automation, loyalty and your product, you can easily find patterns of leaving customers. Then you can segment them dynamically and start acting according to risk and client value.
“Customer Success. We track signals that may indicate a user is about to churn, and then actively reach out to ensure they fully understand how to use ContentKing and are up-to-date on the latest features we’ve added.” – Vincent van Scherpenseel, CEO, ContentKing.
Sometimes it is enough to send an email, sometimes you should call them and just ask how things are going, sometimes you should offer an incentive. Connecting these actions with feedback loops helps you segment clients better in the future and automate actions for at-risk customers.
Customer Service
This is, of course, part of the Customer Experience area. Poor customer service is the biggest reason why customers leave. In fact, 89% of customers move on to a competing brand after having a bad experience with one company.
Improve your customer service– Many businesses call their customers only when they’re seeking contract renewals. You can break this bad pattern by offering something positive at different occasions
“Always Listening – derives from our heritage of being a company built by retailers for retailers. Informing the product development with customer feedback is a common practice, but ingraining the habit of listening within the company culture as well as many internal processes has been key for Nosto to keep up with the constantly changing needs in the market. One of the things we do, for example, is making sure that every single employee in Nosto – from product to management – has a client interaction every quarter.” – Patrick Obolgogiani, Head of Customer Success EMEA, Nosto.
“As we ramped up our offerings for small businesses and entrepreneurs, our support team brainstormed ways to improve service for annual customers. These customers commit to Yotpo in the long run, so we need to ensure they get the full value they expect from Yotpo. This has meant introducing a number of new initiatives, including live chat support for select client groups, faster response time, and a renewed focus on customer satisfaction (increase NPS as a company goal).” – Itay Vladomirsky, Partnerships, Yotpo.
“These are a few tools which I find very helpful in my work: Intercom – we use it to contact customers and create segments, Heap Analytics – it’s great for analyzing customer behavior, Excel – so we can store our data in one place, and of course, our personal e-mail accounts. This last one is not exactly a tool per se, but even the best tool in the world can’t replace personal contact with your customers” – Emilia Harabień, Customer Success Manager, Brand24.
Accounting Team
With bigger clients on-board you should probably develop a full-scale accounting team. This team will act systematically to create and implement customer programs.
“We built a Customer Account Management team that worked with customers over the entire lifecycle. (…) We defined a twelve-month program with regular check-ins, emails and phone calls to make sure customers were successful in using the product. (…) Occasionally, fast-growing customers would outgrow their initial setup. We worked proactively to help them through these situations. ” – Zack Urlocker, Executive-in-Residence at Scale Venture Partners, previously the CEO at Zendesk and VP Products at MySQL.
“We bonus our Account Managing (AM) team on retention. We have a customer success team that work alongside the AM team to ensure the client gets the support they need. We run numerous events such as dotlive, keeping our clients updated on industry trends, best practice etc and gives them the opportunity to speak directly to our subject matter experts and AM teams.” – Nyree Ashby, Director of Customer Success, Dotmailer
“The act of building and training a world class Customer Success team has been arguably the most important investment in reducing churn at Nosto. Their ability to match the client’s varying needs with the capabilities offered by the Nosto platform, as well as deep understanding of eCommerce and personalization best practices is what truly delivers on our mission: Empowering Retailers to Succeed. ” – Patrick Obolgogiani, Head of Customer Success EMEA, Nosto.
Marketing to existing customers
It’s a good idea to spend some time creating marketing-like materials for current clients. Remember, they know you but they don’t know all the new products/features you are offering.
Additionally, you could build informative content, such as tutorials and infographics, to inform customers about how useful your product is.
One of the ideas you can try here is to create a success story/case studies and share them among your clients to get them motivated/inspired. These kinds of communication efforts helped Mention reduce their churn rate by 22% within just one month.
Removed self-cancellation of the account
This is quite tricky advice :) The main idea here is to force a client to contact you, and then you can just ask what happened. This will give you very deep insight.
I’ve read the story of startup that saved about 15% of cancellations only by doing this.
Add self-help instead
For many products, it’s a good idea to build a kind of self-help around the product. This could be just a FAQ, but with a bigger customer base, you can create something more like a community. Now many companies use a Slack Channel to allow people to help each other. We use this approach for our PWA VueStorefront. Developers just resolve their issues even without our participation. This is super-effective – especially for other time zones that we are in.
We have a development forum for clients to offer feedback on what they would like to see on the system. – Nyree Ashby, Director of Customer Success, Dotmailer
Measure
38% to 40% of survey respondents said their companies track standard customer service measures such as time to resolution. But only 22% use more business-focused metrics such as Net Promoter Score.
Use Client Heartbeat Tool to see how your competitors are performing in terms of customer satisfaction.
Hubspot uses the Customer Happiness Index (CHI) to reduce churn rate. The factors used for measuring CHI include a customer’s frequency in using the Hubspot’s system to track leads, their social media engagement, etc.
“Measure as many dimensions of customer usage and engagement as you can (…) Use the data to identify segments of customers who exhibit important behaviors. (…) Run regressions to determine the most significant dimensions of usage and adoption and combine those factors to create a single score that is highly predictive of the behaviors from step 2. (…) Now that you’ve got a good leading indicator of customer success, make changes in the business to try to drive CHI scores up. When you try something that works, keep doing it. When something doesn’t work, just try something else.” – Jonah Lopin is now a founder at Crayon and former VP of Customer Success at Hubspot.
Say: Thank you
I wrote about saying Sorry, you should also Say Thank you :)
Build customer loyalty by thanking them for their continued business. The systematic approach here could be to implement some kind of reward system.
But sometimes something really basic is enough. For example, you can officially thanks to your client on your social media.
Up-Sell
Up-selling is also part of churn-prevention. Building a deeper and broader relationship with the client is your safety net for any problem in the future.
Marketing Metrics claims that the probability of selling to an existing customer is 60-70%, and only 5-20% for a new prospect. So if it is so easy to up-sell, just do it. Think about external services and partners you can add to your offer.
“We don’t charge per seat, meaning that every user is free to invite as many colleagues as they want. We often see ContentKing fully embedded within an organization thanks to this.” – Vincent van Scherpenseel, CEO, ContentKing.
The link between the customer & employee experience
The best companies know that happy and engaged employees are the best guarantee of the high quality of customer support. This is why companies like Zappos create a culture based on happiness and openness.
Sources
I used multiple sources to gather all the ideas, here are the links:
- https://blog.profitwell.com/saas-churn-benchmarks-mrr-churn-study
- http://www.saasmetrics.co/churn/
- http://www.oracle.com/us/products/applications/cust-exp-impact-report-epss-1560493.pdf
- https://www.smartinsights.com/traffic-building-strategy/integrated-marketing-communications/17-unbeatable-ideas-reduce-churn-rate/
- http://gigaom.com/2014/03/15/how-to-lower-your-churn-rate/
- http://www.evergage.com/blog/how-hubspot-raises-their-chi-customer-happiness-index-interv/
- https://www.forbes.com/sites/oracle/2016/01/28/the-customer-experience-imperative-how-to-justify-the-investment/#7d209aeead5e
- https://www.watermarkconsult.net/docs/Watermark-Customer-Experience-ROI-Study.pdf
- https://www.superoffice.com/blog/reduce-customer-churn/
- https://blog.hubspot.com/customer-success/how-to-reduce-customer-churn
- https://www.forbes.com/sites/hbsworkingknowledge/2013/11/11/a-smarter-way-to-reduce-customer-churn/#3a36d9f82c0a
- https://hbswk.hbs.edu/item/managing-churn-to-maximize-profits
- https://baremetrics.com/blog/how-we-reduced-churn
- http://www.evergage.com/blog/4-ways-use-content-prevent-customer-churn/
- http://www.bain.com/Images/BB_Prescription_cutting_costs.pdf
- https://sleeknote.com/blog/reduce-churn
We are currently looking for startups who have/want to build a product around customer loyalty, and early adopters who would like to adopt our codebase in the non-standard applications. Visit our website: Open Loyalty for Startups.
Published February 26, 2018
