How to Avoid Churn and Identify Risk

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Avoid Churn and Identify RiskWhen a SaaS customer churns, it isn’t just a sign of dissatisfaction with your product. As Lincoln Murphy puts it, lost customers are literally “threat to your business, your revenue, [and] your ability to grow.” Regardless of whether your company has a churn rate in the range of 5-7%, it’s critical to utilize implicit data to determine risk among your customer base.

If you aren’t actively using behavioral analysis to determine the segments of your clients who present the greatest churn risk, and reach out accordingly, you could be surprised by a sudden and potentially devastating loss of revenue when your customers migrate to a competitor. Here are several ways to proactively identify risk for churn:

1. User Engagement

The single-biggest risk for churn occurs when your customers aren’t invested in your product. If they aren’t using your subscription business on a regular basis, why should they continue paying for the service? However, it’s essential to realize that you can’t accurately analyze behavior without a baseline measurement of optimal engagement. What’s normal for your product may change significantly over the customer lifecycle, so develop an accurate gauge of how your real-life customers use your SaaS.

Murphy points out that without a baseline measurement, you could miss signs of disengagement, and “lose a customer when you really didn’t have to.” Webengage can aggregate customer insights and feedback for proactive monitoring.

2. Sign the Right Customers

Behavioral segmentation during the trial phase can ensure your company’s sales team are focusing on the right prospects, with intention to buy and a need for the product. Michael Gentle recommends proactively scoring your trial users against a set of defined churn risk criteria, which could include organizational information and insight on need, in addition to engagement.

By starting your battle against churn “upstream,” you can sign a customer base that’s more likely to remain engaged. Marketing automation, like Marketo, can assist in creating comprehensive lead scoring profiles for your trial users.

3. Strive for Meaningful Engagement

Your company’s best weapon for retaining high-risk customers is to provide them with tools for success. If your customers aren’t able to successfully use your product, they’ll stop engaging. Invest in meaningful interactions with this segment of your customer base, and focus your customer service representatives on proactively making suggestions for better usage.

In the SaaS realm, as Gentle points out, the customer needs to realize value each month or quarter before renewal. The job of your account managers or support representatives is to promote a continual realization of value among your customer base.  A CRM, like Salesforce and apps in their AppXchange, can scale your new needs for renewals and engagement.

4. Monitor Trigger Events

For many subscription businesses, “trigger events” within the organization can be a key contributor to churn. Unlike client engagement and happiness, they’re much more-difficult and expensive to monitor. Have a plan in place if your point-of-contact at an organization leaves for a new position, or account administrators are changed, which could indicate organizational restructuring.

Due to the cost and personal attention required to effectively monitor trigger events, Murphy recommends developing a strategy based on retaining your company’s best customers, and potentially letting others go.

There are reasons for churn that lie well outside what your company’s customer service and retention specialists can control. Lack of organizational readiness and misalignment between cost and value on the customer’s side can both cause customers to cancel their subscription to a stellar product they love. However, ensure your churn occurs at little fault of your own, and you didn’t ignore warning signs and respond proactively.

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Posted on May 7, 2013

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