Churn and burn…

November 24, 2009

Churn and burn…

Over the weekend, I attended Cyberposium where I listened to some great panelists and speakers. One topic of discussion that a few Saas CEOs discussed was how to keep churn low. While keeping your customers happy is important in every business, for Saas companies it is even more important. One of the key metrics for driving success is low customer (number of customer and customer revenue) churn . Depending upon the pricing structure and cost structure, high churn can result in high cash burn especially if the Saas company does not have annual contracts, does not collect cash up front, or has a customer acquisition cost that requires a high lifetime value.

“Customer service is not a cost center” was an important point that Simon McDermott of Freshbooks brought up. However, it is not just customer service, sales and marketing support, it is the full experience from when a customer engages and throughout its lifetime at every touch point. During the trial period, which most Saas companies offer, to the first few months of usage are the most important. The beauty of Saas is that you can see the activity levels of users and understand their behaviors. You will eventually be able to predict when companies will churn off or if they will be long term customers. More importantly, you will be able to identify the most appropriate times to engage to improve their experience and prevent churn. Of course, if the product is easy to use and straightforward, there are fewer or less invasive touch points required. However, not every Saas company has the luxury of completely intuitive solutions and even with support documentation, webinars, and videos, customers always have questions. Often times, even though a company may offer a great product, it is important to provide operational support from a process and workflow perspective. Additionally, customers do not always take full advantage of the solution. So, by investing early on in the on boarding process, companies will see a return in the long term.

Churn is not always a bad thing. Churn can get rid of the less profitable customers sooner rather than later. Also, churn may indicate noise by bringing on less committed customers who were not your ideal target customer to begin with. One of our portfolio companies shifted away from certain segments that had very high churn because they were either consumers or small businesses, which typically have higher churn associated with them, and once they focused on their core segments, they actually started growing better. This was because they had fewer segments’ needs to focus on, and their customers became longer term customers.

Another important piece to ensure low churn is having a renewal process where reps (whether you have the resources for dedicated customer service reps, up sell reps, or whatever structure) are nurturing customer accounts prior to just a few days before that the customer is up for renewal.

Again, it is about understanding your customer and what the customer needs. Listen to your customers! Enough said on this …

Trader

Elizabeth Knopf co-founded a technology-enabled service company and worked in venture capital investing in software/internet/new media companies. She is also a Freelance Writer on eCommerce and professionally wrote for Promoboxx blogger. Currently, she is a Trader at <a href="https://www.sloan.com/">Sloan LLC</a>and a Consultant on Mobile, eCommerce, & Customer Acquisition Strategies at Knopf Consulting. Previously Elizabeth was an Operational Associate at OpenView.