Secondary Effects of Churn: Part 2 of 2

May 6, 2021

Brad Davis

Category: Customer Retention, Customer Success as a Service, Customer Success Maturity, Customer Success Strategy, Voice of the Team

In part one of this two-part series, I shared the five secondary effects of churn on your organization. I discussed the reality that churn impacts more than just your bottom line, including these very real potential consequences for your brand:

1. Perception of product becoming reality
2. Negative publicity from churned users
3. Employee anxiety
4. Loss of second-order revenue
5. Management attack

Luckily, all is not lost and there are many levers to pull when it comes to reducing churn.

Top 10 actions to reduce your company’s churn

#1 Don’t conflate Customer Success with Customer Service

Practitioners of Customer Success will understand the biggest difference here is reactive versus proactive. Customer Service (also known as Customer Support) is reactive in nature – this is who you contact when you have a problem or things go wrong. On the other hand, Customer Success is proactive in principle and helps clients avoid pitfalls, difficulties, and disappointments.

Organizations that muddy the lines between these two functions could find themselves on a slippery slope toward disappointment. The core of any company are the people that fill that organization. Therefore, building a Customer Success team with people that truly understand the differences between the two concepts is a critical first step.

#2 Hire the right people

Your employees and managers must understand the value and role of a Customer Success Manager, and the skills and attributes it takes to be an awesome CSM. I could go on and on about this topic, but for now here are the key traits that I look for when hiring CSMs.

Candidates can bless organizations with additional qualities above and beyond these four, but having a CSM that is a self-starter, demonstrates empathy, is tech savvy, and possesses a customer-first mindset is the strongest foundation you can ask for.

Having a solid candidate that understands the principles of Customer Success will put you at a huge advantage compared to competitors who may have simply “rebranded” Account Managers as CSMs.

#3 Accept that the customer lifecycle is not infinite

I previously worked for a company that sold commercial and industrial construction analytical reports and planning capabilities to large corporations and contractors. Companies would hire us when they wanted to build a new warehouse or plant, or if they were a contractor when they wanted to make a bid on such projects.

Let’s say Company ABC wanted to build a new 2,000,000 square acre server farm in Utah. This project would take five years to complete, and Company ABC wanted to use our subscription service for those five years. In our business model, revenue events occurred at the initial sale, then at renewals time each year. Assuming that servicing the account went as planned, I’d say that is a great account!

Fast forward five years when Company ABC has completed their construction project, and they don’t need us anymore. Thus, they would “churn” and not renew their subscription for a sixth year. The customer lifecycle for this customer lasted for a total of five years. We had the benefit of knowing that ahead of time, but many companies do not. This type of churn is natural for limited time subscriptions like this.

Many (if not most) services are not indefinite subscriptions, so having solid analytics on how long a customer will likely stay is a great starting place for projecting future churn. If you have fulfilled the purpose of your customer’s use of your product, and helped that customer successfully cross the finish line, then pat yourself on the back, (kindly) ask that customer to write a glowing recommendation for you, and keep the door open to future engagements. This should be considered a great success, so don’t you dare knock the CSM that owned that account for this type of expected churn.

#4 Simply not annoying your customer isn’t good enough

In an attempt to reduce churn, many companies hold Quarterly Business Reviews (QBRs) and internal meetings galore to discuss how they can become more “sticky”. The term “sticky” refers to features of products that really drive adoption and expansion and will get your customers to “stick” with your brand. For example, social media companies identified that displaying the number of likes on a post boosted engagement significantly, and therefore is considered a sticky feature. However, many companies in pursuit of stickiness can annoy customers with what they perceive as gimmicks and unwanted solicitations.

The goal of a CSM is to understand what success looks like to their customer, and then to make that happen. In other words, why has the customer purchased my subscription, and how I can make sure that my service will not annoy them, but will provide value to them?

Early in my career, I worked at Apple. One of the big insights I gained there is to “surprise and delight” customers. Your subscription service is falling woefully short if you are annoying your customers. In fact, churn is almost a certainty as soon as they find a competitor that will better serve their needs.

#5 Don’t give away the farm

The American idiom “don’t give away the farm” means that you shouldn’t give more than you’ve promised. Despite the prevalence of this phrase, there are companies that indeed do this with their subscription offerings. But why do they do this, and how does it happen?

I once worked with a company that faced this challenge. Churn rates were high, and adoption wasn’t great. Their subscription gave access to a complex tool that had many functions for many different types of jobs. The pricing for such a tool was relatively low for an enterprise subscription, around $5,000.

The profile of companies that would buy this enterprise subscription didn’t value something that they paid $5,000 for, since that was just a tiny drop in their very large buckets. They also tended to become easily confused since the tool was so complex, and they only needed to use a small portion of the tool to accomplish what they had purchased it for.

After I recommended that this company raise the price from $5,000 to $16,000 and remove some features, churn rates decreased by 20%. Yes, you read that right, I recommended making the subscription more expensive and giving end-users less. Now, this is far from a universal formula, but in this particular scenario, it was just what they needed, because they were giving away the farm.

Make sure that your product is priced strategically in the minds of your customers. If you price yourself too low, then customers will not perceive your products as valuable, and this could hurt onboarding and adoption efforts.

#6 Set expectations with stakeholders

Everyone loves the sales team. They pay the bills for the company, as nothing happens until a sale is made and a customer comes through the doors. During the sales process, a narrative is presented to the customer about your product, your service, and expectations about their experience. Turns out that not every company has perfect alignment between their sales and Customer Success teams about what that journey will actually include.

There needs to be absolute clarity between the sales, onboarding, and CS teams on what sales promised and what CSMs need to fulfill, especially when your solution is complex.

Your customers will buy your product or service for different reasons, and success is a completely subjective variable for each of your customers. If you want to reduce churn, make sure the expectation set by the sales teams is communicated down the line and you know what success looks like to that unique customer.

#7 Report on the right things to the right people

“What gets measured, gets improved.”      – Peter Drucker

Peter Drucker was an American management guru that concisely articulated this next point about measuring and reporting outputs.

Think of it, you’ve done the impossible! Your sales team presented, convinced, and closed a sale, and now you have actual money coming into your business. Then, because you are a progressive business and have a mature Customer Success organization in place, you then executed on your plan. The customer has discovered value and they voice their success with your product. And now, finally, renewal time comes, and the conversation is about to happen with the account’s decision maker.

But to your dismay, your team has not properly documented and reported the KPIs that matter to that decision maker. Now, because the decision maker does not have the proper reporting and numbers, they decide to cancel their subscription. You executed on all that amazing work just to lose the account to a lack of reporting. If you are missing good reporting, then it’s like forgetting to add yeast to bread. You will get baked bread, but it will be flat, because yeast is the key ingredient to make bread rise. If you want to make your renewals rise, have fantastic reporting and make sure it’s delivered to the right people.

In many instances, CSMs work closely with end-users of your product, but those users are often not the decision makers. The decision makers are the ones with the money and the authority for the renewal. Thus, relying solely on your users to communicate all your wins to their boss is a big no-no.

If you want to reduce churn, understand that reporting success to the right people, namely the decision maker, is paramount. Hoping that your user will advocate for your renewal is not a prudent plan.

Bonus: Make the reports simple and easy to read

#8 Plan an annual review before renewal

I have heard this meeting referred to by many different names, but the purpose remains the same. An Annual Review (AR) is a… and here is the keyword…formal… meeting that involves all parties that will be involved in the renewal (or non-renewal) for the upcoming year.

This meeting is ideally around 60-90 days before the expiration date of your customer’s subscription and fits most easily into a High Touch CS model (although an automated version is certainly possible). Stakeholders that should be in attendance include:

• All available users at the account.
• The assigned Customer Success Manager
• The assigned Account Executive or Sales Representative
• The Decision Maker(s)
• The identified influencers that may have sway
• Any other operations or customer support players that contributed significantly to the account

The meeting should always have an agenda and should almost never be more than 30 minutes long. Some of my fellow professionals might disagree with the shorter meeting schedule; however, I defer to the law of forced efficiency from Brian Tracy’s book, The 100 Absolutely Unbreakable: Laws of Business Success, which states:

The more things you have to do in a limited period of time, the more you will be forced to work on your most important tasks.

It has also been my experience that 30-minute meetings are the sweet spot for attendee engagement. Longer meetings may result in mental drift and interruptions. Plus, decision makers and executives are simply more likely to be able to fit a shorter meeting into their busy schedules. Half an hour is plenty of time to cover the key topics at hand. My preferred agenda for an AR is:

1. Agenda (1 minute)
2. Value and Deliverables (5 minutes)
3. Personal Stories or User Testimonials (10 – 12 minutes)
4. KPI reporting (2 – 3 minutes)
5. Give Praise (1 minute)
6. Next Steps and Renewal Expectations (2 minutes)
7. Q&A and Open Discussion (5 minutes)

Bonus: Always end your meetings a few minutes early if possible. Ending meetings early allows your attendees to feel safe about attending your future meetings and shows respect for their time.

Prior to your actual meeting, you should have a few key communications:

1. Share the meeting agenda and attendee list.

2. Reach out to the individuals that you want to share personal success stories in the meeting, ask them if they’re willing, and provide the time constraints of their contribution. For example, your user made their company’s sales process more efficient with your subscription – have that person share that experience on the call.

3. Share a summary of all positive activity or deliverables provided to your customer. This allows them to look at it before the meeting rather than during the meeting when it becomes harder to read graphs and listen at the same time.

#9 Give praise to your frontline CSMs

The power of positivity is well documented and generally accepted as a powerful virtue. Indeed, this is an important point in how to reduce churn for both your employees and customers. Losing high quality CSMs can be very expensive, as the probability of accounts churning during employee turnover increases.

When giving praise, I like to use what I call the rule of ten. The rule of ten states:

You must have ten deposits before you make one withdrawal.

Think of all your personal and professional relationships like a bank account. When you give positive feedback or praise, it’s like making a deposit of a dollar. Making a judgment or a criticism is like making a withdrawal of ten dollars. If you make too many corrections with your CSMs without also providing encouragement or praise, then you are overdrawing your account, and they will mentally avoid connecting with you in the future. Use your withdrawals judiciously, only when you feel you must or on egregious errors.

#10 Read in your industry

We know that as a professional, we should read in our industry – blogs, books, articles, social media, research papers, everything you can get your hands on.

One hour per day of study will put you at the top of your field within three years. Within five years you’ll be a national authority. In seven years, you can be one of the best people in the world at what you do.                   – Earl Nightingale

CSMs will help reduce churn by becoming experts in their chosen field and reading content from industry leaders. These are the leaders that pioneered and lead our profession, and I personally have gained much from their literature.

When I look to hire a CSM, I always like to ask some version of the question, “What do you know about Customer Success as a profession or as an industry?” I give candidates with solid, meaningful answers that include references to reading in the industry significant consideration in the hiring process. This shows professionalism, dedication, and an eagerness to learn and develop. Reading in your industry can help CSMs bring the much-needed creativity and openness that the position requires, but more importantly, sharpens them to be a higher quality problem solver in their role.

Final words

Software as a Service (SaaS) companies offer oodles of varying types and packages of subscriptions in the marketplace. Some SaaS models are very low touch and all digital in their service offering, while others are human and white-glove high touch in their offerings, and others still, smartly incorporate both modalities. In this article, I have spoken more toward a high-touch model; however, do not allow the variety of offerings and models of a SaaS business to obfuscate the truth that Customer Success is an artform.

Businesses understand the customer lifecycle and that some customers, even at the best companies, will eventually churn. Churn is a part of this business and there is no escaping it. I have provided these ten actions in hopes that these insights will help you and your organization think about churn in a deeper, more interconnected way. And that in the effort to reduce churn, we might continually look beyond the first-order effects (the dollars and cents) and truly examine the second-order implications and their impact on your business.