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 won’t 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:
- 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.
- Time from subscription to cancellation: How many months from the time they started till termination
- 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.