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Here’s how to stop churn
Hint: It's not just a Customer Success problem
👋 Hi, I’m Kyle and welcome to my newsletter, Growth Unhinged. Every other week I take a closer look at what drives a SaaS company’s growth. Expect deep dive takes on SaaS pricing, product-led growth, public company benchmarks, and much more.
In an emerging PLG business, especially one that initially sells into a single user rather than a team or entire organization, churn can be one of the biggest inhibitors to long-term growth.
I’ve seen annualized retention rates in PLG businesses range considerably from 50% to upwards of 90%. When retention falls on the lower end of that range, it puts tremendous pressure on a company’s ability to keep accelerating new logo acquisition and to squeeze as much as possible out of the customers who stay.
It’s easy to dismiss churn as a Customer Success problem that just requires additional bodies. Here’s the thing: much of the churn happens within a user’s first 3-6 months (below is a real life example), which means SaaS companies need to get their customers to see value extremely quickly. It can be extremely tough to win a customer over if they stumbled out of the gate.
Ultimately making customers succeed is a business-wide responsibility that requires contributions from each function. And the work starts well before the customer starts paying.
Here are 8 things that can really move the needle on churn. Pro-tip: focus on 2-3 things to start rather than jumping into all 8 at once.
1. Selling to the right customer
Target your proactive sales and marketing to the right ideal customer profile (ICP) rather than attempt to sell to everyone and their brother. If you focus on where your product does best and then carefully expand from a position of strength, you’ll be much more successful in the long run.
Now, this doesn’t mean you should stop selling to customers outside of your ICP. It’s a question of resource prioritization and where you’re being proactive. Think about what content you write, which conferences you’ll go to, where you put your paid advertising spend, and which sign-ups get extra support.
2. Not getting too greedy on the initial deal
Over promise, under deliver. That’s exactly what happens when your sales team captures so much extra stuff in the initial deal in an attempt to get every last dollar out of the customer. Doing too much at once can actually stop customers from being successful—and then they’ll start looking elsewhere for a solution.
Don’t get greedy—start smaller, give the customer some time to get to know the product, and you’ll be setting the stage for an easy growth opportunity in the future. This can also mean landing a customer on a pay-as-you-go plan before shifting them to a committed subscription.
3. Moving from monthly to annual plans
One portfolio company I work with spent years trying to improve churn. The most important lever was shifting 70% of new cohorts from monthly to annual plans.
This is controversial. Doesn’t this contradict #2? Doesn’t this just make customers who want to churn feel trapped? While this could happen in certain instances, on the whole you’re usually better off because:
You’ll have more time to impress the customer
The customer will have more skin in the game, which will make them more motivated to implement the product
4. Market to existing customers
Marketing and sales shouldn’t stop once someone becomes a customer. Customers need to know about new features (and feel excited about them), learn best practices, and understand how the product can be used and what makes it worth spending money on so they can defend the spend to their leadership team.
And they also need to feel like they’re connected to something bigger than just the product, like a supportive community that helps them learn and get better at their job. Keep this in mind when you’re creating marketing content: highlight your most successful customers in order to educate and inspire your not-yet-successful customers.
5. Nailing customer onboarding
Seeing value fast is critical for a customer staying engaged.
At the beginning of their time with the product, you have their greatest attention. They have a pain point that they’re looking to solve and this is your key window to impress them. Don’t mess it up.
Most SaaS companies guide users towards “activation”—the moment when your product has delivered on its promise to your users. This should happen as quickly as possible. The product team should be responsible for making sure a larger and larger share of your users reaches activation.
6. Integrations, integrations, integrations
The more your product is embedded in a customer’s workflow and systems of record, the harder you’ll be to rip out.
Three reasons why this is the case:
Data aspect: Data is connected across systems and lives in multiple places
Adoption aspect: It’s easier for people to use your product since it’s available inside the applications where they already spend time
Use cases: Your product solves more problems for a customer when it’s connected to other software vs. just playing in it’s own silo
7. Broadening the use cases for your product
The more problems you solve for your customer, the more champions you’ll have.
Ideally, your product should have layers like an onion. The outer layer is what brings people in. Take Zoom, for example. People may initially sign up because they need a video conferencing tool for remote work. But over time, they discover more and more layers for themselves and their teams: it’s a tool for brainstorming, meeting scheduling, group discussions, and even IT troubleshooting because of the remote desktop control.
8. Measuring product health indicators
Do you know what features are predictive of retention? Unless you’re Amazon, Instacart or Zoom, you need to assess your customers’ engagement with your product.
Since it’s not possible to speak with every customer to understand how they think about your product, you need your product to tell you whether your customers are truly seeing value—or if they want to leave.
Here’s what else I’m thinking about this week:
GitLab IPO-ed at a $16B+ valuation. Despite their incredible success, GitLab still made a big pricing decision back in January to fuel continued growth.
Flywheel, founded by an Atlassian alum, becomes the newest tech company to help folks adopt and scale with PLG.
PayPal is exploring a purchase of Pinterest. The lines between B2C and B2B are getting blurrier by the minute.
Is usage-based pricing coming for auto insurance? Check out Tesla’s latest launch, starting in Texas.
Typeform changed pricing and sorry they’re not sorry about it.
An earlier version of this post was originally published on the OpenView blog.