Customer Success How to: Learning from Customers Who Churn

Churn-Canceled Account

Nobody likes it when a customer cancels their subscription. In SaaS companies where the bottom-line is so heavily dependent on Customer Lifetime Value (CLTV), churn is particularly troubling. As Joel York explained in SaaS Churn kills SaaS Growth, unless you know and control churn, your chances of building long-term success for your business are slim.

Now the fact nobody likes churn doesn’t mean it wont happen. It will. The bigger question is, “What will you learn from each customer that churns?”, so you can build upon that for the future. We recommend the following:

The Churn Database

The most important thing to start off with is keeping a record of why customers cancel. It’s amazing how many businesses don’t do that systematically. If your business is of low velocity, this can easily be captured in a spreadsheet. If not, you may want to have something a little more robust. The point is to keep it simple and establish a practice where the data is captured and consulted on an ongoing basis.

We recommend keeping the following 3 data-points on each canceled account:

  1. Reason: as stated by the customer – The best is to add a step to the cancellation process, but you can also get to this by email, calls etc. Most customers will happily give you candid feedback at this stage. Make it a point to ask each one.
  2. Time from subscription to cancellation: How many months from the time they started till termination
  3. Level of engagement the customer had throughout their subscription: At a minimum, did they ever get productive with your offering before cancellation, but you can and should get much more refined than that.

Analyze the data

When it comes to churn analysis, there are two major categories of causes you need to handle very differently:

No more need for the service offering
Ran out of business, was a tactical problem you helped solve and it no longer exists.

If this is the main reason for churn, you may want to consider finding a customer-base that is less volatile, structuring your pricing differently and so forth.

The point is that, if this is the core reason, the corrective actions you can take span beyond the realm of your product and customer-success practices. They may be the realities of your business which you need to factor for in your overall business plan.

Disappointment from the quality service offering
The other case relates to customers that still need the product – they just don’t want to use yours anymore.

If that’s what your churn analysis is telling you, focus should be on figuring out where the failure is and fixing it within your product and service.

Time to cancellation (2) will usually tell you if you have an onboarding problem (people leave because they can’t get established) or if people cancel because they outgrow your solution and move on. Here again, you need to invest in different areas depending on where the majority is.

Engagement level of customers with your application is another key thing to measure because it, almost always, gives an early sign of churn. Knowing that ‘customers typically churn after 3 months of inactivity’ is crucial for building a proactive churn prevention discipline and reaching out to them before it’s too late.

Is Churn really bad?

Finally, consider that churn isn’t by definition a bad thing. Some businesses even have a strategy accepting certain types of churn and compensate for that (see the case of 37signals).

But you must know why customers are canceling for this sort of business planning.

Not knowing is really not an option in SaaS.

Customer Success Management & The Channel

Customer Success Hands

From the earliest beginnings of the transition to the Cloud, doomsayers were predicting that either the new model would fail – because “the channel” wouldn’t like it – or that the day of the channel itself was over. There were a variety of reasons being quoted, but the major point was the change in the profit model over to incremental income streams. With no up-front burst of profit from sales of perpetual licenses, it was claimed, there would be no funds to pay adequate commissions to partners, etc. Here we are years later, and the channel has not gone away in the SaaS/Cloud world. Its role may have been redefined in some areas, but partnering in the Cloud remains a basic reality. Why?

There are some very good reasons why it is in the best interests of both vendor and customer to have 3rd party partners involved in the ongoing relationship. The critical driver is the imperative of customer retention. If the contract is terminated or not renewed, the money stops. If the end comes within the first year, before the customer acquisition cost has been recouped, what was a profitable relationship instantly turns into a net loss. The success of the customer in fully adopting the application and receiving value from its use is therefore necessarily too vital a matter to be left to chance or the customers’ own resources.

Covering the Bases

Not every software vendor is able or even wants to cover all of the potential service bases in the new business model. The vital point is not who provides what service to ensure the longevity of the customer relationship, but that the services are available and effective. The presence of competent partners extends the value of the application to the customer, and therefore encourages the continuance of the relationship to the benefit of all concerned.

While it might seem that some aspects of providing software as a service to customers are necessarily limited to the vendor due to access to sensitive information or resources, there are many examples of very trusted relationships between vendors and channel partners. It is not at all uncommon, for example, for an implementation or integration partner to have direct access to the application source code. That same level of confidence can be built to justify giving a partner access to application monitoring tools so that they can see what their customers are doing with specific features, etc.

Intimacy + Expertise = Trusted Advisor

Traditionally, the channel partner has always been viewed as being closer to the customer. That was the key advantage that the partner brought to the three way relationship. If anything, the shift to the Cloud has increased the importance of that closeness, since the operating realities of of the new model argue against fielding large sales teams. The result is a loss of intimacy; where sales are made over the web, it’s not uncommon to have a situation where the large majority of customers have never met anyone from the vendor in person. That’s a serious risk scenario. Application features & functionality, and price, are too easily duplicated by the competition. In-depth relationships, on the other hand, are not easily matched – they take skill and time to build and nurture.

As the new Customer Success Management profession continues to develop, the demand for qualified people is becoming intense. One major Cloud company recently told me that they literally cannot find enough people to hire and are therefore actively talking with their channel partners about assuming additional roles. Others are finding that the best source for new CSM’s is former implementation consultants of large implementation firms. As noted earlier – it isn’t how you fill the role that is the key, it’s that the role be properly filled.

About the Author

Mikael Blaisdell, The Hotline MagaszineMikael Blaisdell, publisher of The HotLine Magazine, brings 30+ years of experience in the strategy, process, people and technology of customer support, retention and profitability to the emerging profession of Customer Success Management. He is also the moderator of the CSM Forum on LinkedIn. Read moer about The Customer Success Management Initiative, sponsored by Totango.

 

 

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Best of 2011: Top Videos and Blogs on Customer Engagement

Customer Engagement and Customer Success

2011 was a busy year! We’ve discussed a lot of important themes which are the hottest topics for any SaaS business such as Customer Engagement, Customer Success, Customer Lifetime Value, SaaS Best Practices, Low Touch and Zero Touch Sales Models, Free Trial and Freemium, Customer Analytics, SaaS Churn, Customer Retention Strategies and more.

With such a vast range, it’s easy to get lost and so I’ve decided to bind the best of blogs and videos related to each topic.

Today I’m going to review the best of Customer Engagement, Customer Lifetime Value, Churn and Customer Retention Strategies.

As you already know by now, Totango’s goal is to help other SaaS companies to optimize their free to paid conversion/on-boarding/up-sell opportunities, or in other words – increase customer engagement opportunities and by that reduce churn whereas our customer success is actually our own success and customer success will naturally increase Customer Lifetime Value (CLTV).

Below are our top posts on these topics to help you get oriented in the Customer Engagement, CLTV and Churn areas:

Customer Engagement and Customer Lifetime Value:

SaaS Churn and Customer Retention Strategies:

Tomorrow I’m going to review the best of SaaS Best Practices for SaaS and Application Vendors

 

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3 Steps to Measuring User Engagement with your Web Application

Engagement in Application

Take a step back and you’ll realize user-engagement is the single most important metric in any SaaS business.

In a world where customer evaluate your offering at their own pace, and can cancel their subscription at any time, the best way to maximize your business potential is to make sure users are engaged and see value in your offering.

And the best way to ensure that is to create a metric which can be monitored for change and improvement on an on-going basis.

It has been somewhat surprising for us to see that most SaaS companies (and we’ve spoken to hundreds by now) are somewhat at a loss as to how to actually measure their user’s engagement with their offering and application. In fact, when pressed many admit that, important as it is to their business, they actually *don’t* measure user engagement. Simply because they could not figure out a systematic way to!

Since we’re here to help SaaS companies do better in this area, here’s our 3 step guide to getting started.

Step 1: Segment your users into lifecycle stages

The signals engagement for a trial user that has just signed up vs. an established customer is very different. Trying to come up with an engagment metric that applies throughout all lifecycles is practically impossible. Consider the following (in a fictitious SaaS application):

User1: Signed up last week, has logged in 5 times, created a project with some content and reviewed our knowledge-base 3 times
User2: Paying customer for a year. Last week logged in 5 times, created a project with some content and reviewed our knowledge-base 3 times

Clearly User1, as a new trial user, is exhibiting a good level of engagement, where-as the behavior of User2, a year into their subscription, is concerning at best.

We recommend you break down user lifecycle at least into the following stages. We also suggest some ideas of things you’d want to look at as you compute engagement at each stage

LifeCycle Table 1

You’d want to apply a different engagement metric to users depending on where they are in the process.

Step 2: Create a scale

Engagement is not a binary metric. Users are not either engaged or unengaged, but rather fluctuate on a scale. We recommend creating the following buckets:

Customer LIfecycle Table 2

The time window to measure varies. we typically suggest 14 days – 30 days, depending on the application’s complexity.

For a top-line view, you eventually want to end up with a dashboard similar to that shown below.

The chart shows, number of total, highly engaged and lightly engaged users overtime. For convenience, we overlay important milestones (product releases, marketing campaigns, etc.) so we can see their affect on our users.

For example, we see a good pickup of total activated users after launch . Growth is mainly in lightly engaged users however.
Important milestone 1 made almost no impact (maybe it wasn’t that important after all? :-)
Important milestone 2 on the other had, clearly increased the number of highly engaged users (we should do more of that)

Growth Trends Over Time

 

Step 3: Constantly refine & improve

Your engagement metrics should not be static but evolve over time. You should constantly “test” them against users eventual decision to purchase or cancel their subscription. If they don’t provide a good enough prediction as to what a user is likely to do with their account, the metric and its underlying formula should be tweeked.

Specific Examples:

  • Highly Engaged” Trial users should convert at a very high conversion-rate to paying accounts
  • Gone” and “Fading” Paying users would tend to churn if left unchecked

 

Summary

Measuring engagement can be tricky, but is absolutely essential for success in a SaaS environment.

A corporate-wide engagement metric helps:

  • The product-teams improve the product’s value to customers
  • The sales team focus on trial accounts that matter most
  • The customer-success team identify and proactively manage paying-customers
  • And helps marketing teams bring more qualified, relevant leads

It should be part of every SaaS organization’s core-competency. Get it implemented in yours today!
 

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On User Retention as a Service

Customer Retention

Paul Stamatiou is doing a great job describing the concept of “User Retention as a Service” and from the long thread of comments we can certainly learn that this is a true pain point folks have.

The basic idea as described in the post is to run drip marketing campaigns based on user life-cycle and as opposed to mass marketing email or time based marketing systems.

I absolutely agree! And in fact this was one of the first features we’ve put into Totango. And yes, we provide this feature as a service ;) (you can start a free trial here)

The importance of doing communication with users based on their life-cycle is clear. Instead of bombarding all users with the same message regardless to their status and progress of using or evaluating a service, way more effective way is simply ‘talk’ to users in a way which is specific, personalized and timely.

I had several discussion with Steve Bartel from Dropbox to learn about how they communicate so effectively with their users. And indeed, Dropbox have developed an internal system which does exactly that – it communicates with users based on their usage (or lack of) within Dropbox.

I like that – it is a great concept!

The Top 10 Must Do’s for Young SaaS Companies

To Do List

I declare this week as the “Top 10″ Practices week in Totango!

After yesterday’s post on Top 10 Requirements for an Effective Client Lifecycle, Today, I’m going to review Jeff Bennet’s top 10 must do’s for young SaaS companies.

Jeff Bennett, who is the founder and CEO of ServiceVantage, has a lot of experience working with SaaS companies in various sizes and being part of the SaaS Industry myself, I see eye to eye with his key strategies and therefore thought it would be interesting to share:

  1. Easily Consumable and User Initiated – have ALL of your customer experience as easy as possible. This includes software trials, sales, on-boarding, training,  support etc.
  2. Hold off on the elephant hunt – Don’t start off with the big shots companies, take it step by step and wait till you’ll have a more mature infrastructure
  3. Configure, don’t customize – Rather than customizing, allow configuration which do not change the core product yet provide some tailoring to specific customer needs
  4. Marketing can close deals – Sales are all about conversion from lead to paid. Incent your marketing to close deals!
  5. Understand your cost of sale – Push deals by their cost – bigger deals to outside sales and smaller to marketing
  6. Understand usage rates – Learn to measure customer engagement and usage data, you can use specified SaaS dashboard to do it for you!
  7. Have a Client Lifecycle Program – Especially important for SaaS businesses that need to ensure customer retention and recurring revenue
  8. Don’t be an island – Aspire to integrate your solution with other solutions to increase dependency on your service
  9. Broaden the impact of your SaaS solution through services – Provide service offerings to compliment your solution
  10. Make client retention a corporate mantra – this is not only the concern of your Support group – have the entire company focus on client retention and reducing churn

For the full version of the tips, please refer Jeff’s post on ServiceVentage blog

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VP Customer Success at Alcove9: On Boarding SaaS Customers

Alcove9 Main Slide

At Totango, I have initiated a project to collect and share more best practices around low-touch selling, free-to-paid conversion, up-selling and customer retention. On this blog we will share what we learn from speaking to sales and customer success professionals in the field of open source and SaaS software.

Today, I had an opportunity to speak to Rudy Reyes, the newly appointed VP of Customer Success at Alcove9. Alcove9 is a young company with an open source search tool that looks into a company’s intranet and indexes all of its data and information for rapid retrieval. It is a subscription-based service, but not a cloud-based solution.

Alcove9 Gallery

The basic indexing and search tool is a free, open source download called the a9 Hub. Then, Alcove9 offers support subscriptions and upgrades to premium features such as CAD visualization and markup (a9 CADViz) or application connectors (a9 AppConnect) to systems like PLM (Product Lifecycle Management), ECM (Enterprise Content Management), ERP (Enterprise Resource Management), and more.

I asked Rudy about his priorities and customer success metrics for the company.

What are the priorities for the company today?

Rudy Reyes - VP Customer Success at Alcove9Alcove9 just went live on Monday, October 31; however, the foundation is based on a proven solution that has matured for over 7 years.
Our primary focus is on people who are looking for instant access to all of their corporate data that often resides in disparate systems. The core, open source download, a9 Hub, is the cornerstone of the entire suite of products and support services. Another important aspect of our sales and marketing activities is to work with partners such as AutoDesk and Aras to identify new product solutions in order to make organizations more efficient while eliminating the frustrations of trying to find vital, lost or legacy data.

What is the priority for the Customer Success team?

I work with the early adopters, translating customer requirements into product features. Then we help customers with successful on-boarding and implementation. It is really important to have someone who is focused on the total customer experience.

What are the key metrics you measure?

We are interested in adoption rates: who is downloading our application, who is installing it and then adoption metrics of different modules, such as which features they are using and finally retention rates (churn).

What are sales or up-selling signals?

Our sales are based on high-touch qualifying questions. For example, do they use CAD; do they have a PLM, ECM or ERP system. If they answer “yes,” then we will introduce them to the appropriate connector solutions. (AppConnect).

Thanks Rudy for the insights! I am keen to watch the progress of Alcove9 in the future!