Can Customer Churn Be Good for a B2B SaaS Business? Sometimes...
Customer churn tends to be viewed negatively by SaaS companies, and for good reason. However, in specific scenarios, it can actually be, dare we say, a positive.
Customer churn prediction is hard—we get it. Especially when you consider most customers don't tell you when they're unhappy. Here are 5 mistakes you might be making when predicting customer churn and what to do about them
Customer churn prediction is hard—we get it. Especially when you consider most customers don't tell you when they're unhappy.
According to a study conducted by Customer Strategy Consultant Esteban Klosky, only 1 out of every 26 troubled customers files a complaint. That means almost 96% of the time you have to rely on something other than direct feedback to identify a churn risk. The odds are not in your favor.
That's why we in B2B SaaS use customer churn prediction to find the silent majority of unhappy customers.
Churn prediction uses data to forecast when a customer might stop doing business with you. It's a way of analyzing current customer behavior and comparing it to past trends so you can anticipate future actions. If you know that customers who stop using the chat feature in your platform are likely to churn, you can watch for that behavior and jump in to save a customer when it happens.
Unsurprisingly, predicting churn using this method is a delicate balance, which takes time and experience. Like any learned skill, there are plenty of mistakes to make as you figure it out.
No fear. We've watched hundreds of customer success managers (CSMs) navigate churn prediction and have found a few common mistakes.
The good news? Knowledge is power here. Buckle up as we show you how to avoid making the five most common customer churn prediction mistakes we see most often.
Product champion (n.)
The most influential user of your product. They either made the buying decision or heavily influenced the person who did.
Not tracking the actions of a product champion can lead to a false reading of customer health and a missed chance to ID a churn risk.
Let’s say your customer - Hulu - has 500 employees using your product. Most of those users are engaging with your platform regularly, enabling all the features, and providing positive feedback. Hulu seems like a healthy customer, right?
But the product champion at Hulu hasn’t used your software in weeks. Plus, they just turned off three integrations. Could they be trialing your competitor’s software? You’d never know because that one user’s actions are barely a blip in Hulu’s overall analytics.
Track the behavior of the product champion separately from the overall account. The criteria you use to track the product champion is up to you. It might be as simple as how often they engage with your product. Or it could be a custom metric you’ve created.
Low engagement with key features is a good indication that a customer is going to churn—if people aren’t using your product, why would they pay for it? It's why we usually see customer health scores that weigh product usage heavily.
But it’s a different story during the onboarding phase. When a customer is onboarding, the focus is on actions required for setup, not your differentiating features. Not performing these actions during onboarding is a clear churn risk sign, regardless of how many people are actually using the product.
That's why product implementation is a better indicator of account health than product usage during the onboarding phase.
Use different health scores for users who are onboarding
All of your new customers will be tracked by the onboarding health score until they’re fully set up in your product. Then, you can move those accounts to a standard health score that emphasizes factors like product usage or NPS score.
Learn how to automatically segment your customers and define different health equations for each segment
A user enabling an integration is a reason to celebrate. It means they’ll get more value out of your product. But what does it mean when your customer disables an integration?
At Vitally, we think of disabling an integration as a potential churn signal. For example, Vitally offers an integration with Salesforce. If one of our customers disables that integration, it could mean they’re trialing another customer success platform - one that also integrates with Salesforce. We would never notice that churn signal if we only tracked integrations as they’re turned on.
Every time you set up a new integration, make sure to track both when a customer enables it and when they disable it (which is hopefully never).
Those users are typically the first to make a change, and disabling an integration is a signal that a change could be happening.
The number of people using your product at a given company. Sometimes referred to as “seats” or licenses.
To normalize the usage rate for population, divide the number of times all the users on an account use your product in a meaningful way by the total number of people using it at that company.
If you don’t normalize for population, you’ll incorrectly interpret the health of a user and miss a potential churn signal.
Let’s say you’re a CSM at Asana, a web-and mobile-based app that helps teams organize, track, and manage their work. In an ideal world, every user is creating and completing tasks. If some number of people aren't, it could indicate a churn risk.
But what is that number? For Asana, a customer could mean one lone consultant or a massive team like Salesforce that has hundreds of Asana users. If you—an Asana CSM—focused on the number of tasks created per account, the numbers would be nonsensical. A lone consultant who creates 10 tasks in a week is great. But if all of Salesforce created only 10 tasks in a week, that would be a huge problem.
Normalize your usage rate to create data sets that have meaning.
Let's take the Asana example from above. Salesforce has 100 users. In total, they use Asana 500 times in one day. That means the daily usage rate, normalized for population, is 5.
Ideally, you'd automate this calculation and output it somewhere your CSMs can take action on it.
How much a customer uses your product directly correlates to customer health. The more they use it, the more value they’re getting out of it. But you can’t just look at today’s usage. You need to compare it to the trend over time to know whether a customer is healthy or a churn risk.
No matter what success metric you’re looking at, the real story is in the trend, not the current state.
Let’s say your team has agreed that any customer health score over 7.5 is healthy. Today, your customer has a health score of 7.8. They're healthy, so no action needed, right? Not so fast—last month, their health score was 8.5. Why the slip?
You’ll never think to ask that question if you're only looking at only the current state and not the trend.
There's really no way around this one—you just have to track trends over time. You can do it with a spreadsheet or an automatic tool, but it's especially helpful if you have it in a setup where you can trigger automatic actions against it.
Take an action when a customer is trending up in a given category. Those customers are ripe for upsell. They’re also the ideal type of customer your sales team should be targeting.
A study by For Entrepreneurs showed that it costs SaaS businesses nearly 9X more to acquire a new customer than it does to retain an existing one. Research by Frederick Reichheld of Bain and Company revealed that just a 5% increase in customer retention increased profits by 25%.
The message is pretty clear: The road to SaaS profitability is shorter for startups that focus on reducing customer churn.
It would be great if customers told us they were thinking of leaving. The vast majority of the time, they don’t. So if you want to lead your SaaS startup down the shorter road to profitability, you’ll need to get good at predicting when a customer might churn. Overcoming these five customer churn prediction mistakes will put you well on your way.
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