You hang up the phone, thank them for their business, and wish them well going forward.
The exchange, cordial. The words, friendly.
You’ve lost customers before, but none of them made your stomach turn quite like this one. None of the others felt so existentially threatening.
Losing a top subscription customer hurts. Not only can a major churn cut your confidence down to size but it can also take a considerable bite out of your recurring revenue.
Most B2B businesses see about 70% of their revenue come from 20% of their customers. This obviously puts an enormous premium on retaining large accounts.
Losing a big customer is a bad experience, often fraught with unpleasant consequences concerning budget and possibly even personnel. For all the unpleasantness though, an educational opportunity emerges. Businesses that learn from their churn experiences advance into the future knowing how to save the next big account.
As Jason Lemkin at SaaStr says,
“Few things are more brutal than when the competition steals one of your top customers….But even though it feels that way at the time, it usually ends up being a gift. You and the team quickly learn how to save the next customer just like them. You level up your game”.
Taking the right steps following a major churn can help your business avoid seeing history repeat itself while also recovering your losses.
Perform a postmortem when a big subscription customer churns
When your SaaS business loses a major account, it’s important to set time aside to analyze what happened leading up to this point.
Hold a meeting with all relevant personnel and pick apart the factors that may have led to the churn. Here are a few things to look at.
- What was the customer journey like from beginning to end? How long has the customer been with you and what was their journey like? Understanding when customers tend to leave can hint at why.
Is there something going wrong in your onboarding process? Does your product not scale well to the needs of a growing business?
While the customer journey alone might not answer the question of “why” completely, it can serve as a preliminary indicator.
- How much was the customer using the product? If a customer’s usage begins to drop off, it can be a good warning churn is looming. At the very least, it may indicate the customer isn’t enjoying the full value of your product.
Taking a retrospective look at how your customers' usage levels have corresponded with churn in the past may provide insight into how you should interact with current customers.
For example, if your post-churn analysis indicates a number of previous accounts' usage levels dipped to a certain point preceding churn, you might use that level as a red flag going forward. In the future, you might then reach out to customers whenever their usage dips to this point.
- What kind of experience did the customer have with you? It’s been said customer experience is the new battlefield in the world of SaaS. In fact, 86% of customers say they’ll pay more for brands with excellent customer service and some have estimated the customer experience will overtake price as a decision-making factor in the years to come. What's more, over 40% of outgoing SaaS customers cite experience as the reason they left or switched brands.
To that end, sometimes it isn’t very difficult to determine why a customer left. Did something happen on the customer support front that could account for this churn? If so, what was it and what can be done to avoid replicating that situation in the future?
Reviewing the historic NPS scores and comments of churned customers is an important source of learning and part of improving your future processes.
- Where did the customer go? Finally, where did the customer wind up? If your outgoing account has moved on to one of your competitors, it’s important to find out why.
Does the competitor offer different or better features? Lower prices? Or is it simply a matter of service and experience?
Understanding how your outgoing customers view the competition can be just as important as understanding how they view you.
- What are the next steps? It's great to dig in and discuss what went wrong. But then, it's time to do something about it!
Once your full postmortem is complete and you've identified the reasons why that big customer churned, you need to make any necessary changes based on those findings. Does your customer experience need work? Is your product in need of some development? And what churn risk indicators have you found that will now trigger calls to action for your team going forward?
After the right action items are in place, it's time to turn your attention to addressing that reduced recurring revenue.
Look to recuperate your lost recurring revenue
Big customers leave big shoes to fill. The loss of recurring revenue that results from a major churn can feel insurmountable, but there are things you can do to mitigate the situation.
- Maximize the value of your current customers: While looking for another big client may feel like the natural next step, it shouldn’t represent the entirety of your strategy. Landing large accounts can take months, and even after you make the sale, you’ll likely spend the better part of a year recuperating the cost of acquisition.
By all means, look for your next large account, just not at the expense of maximizing the value of your existing customers. Keep in mind the probability of selling to an existing customer is about 70% while your chances of selling to a prospective customer hovers at around 5%.
Having studied what went wrong with your outgoing account, you're now well-positioned to do better with the customers you still have. Use that intel to improve their experience and grow your revenue.
Maximizing upsells and cross-sells is an effective way to enhance the lifetime value (LTV) of your existing accounts while also helping your customers get the most out of your products. In fact, many businesses focus on upsells as a major component of their strategy, implementing a “land and expand” technique.
For example, On24 is a virtual communications SaaS business that has used upsells and excellence in customer service to bring in $200 million in annual revenue. And they’re far from alone.
Customer-centric businesses are, on average, nearly 60% more successful than those who do not focus on the customer experience.
- Satisfied customers may also be a rich source of referrals: As Slack co-founder Stewart Butterfield says, “Every customer interaction is a marketing opportunity. If you go above and beyond on the customer service side, people are much more likely to recommend you.”
Churn is part of SaaS life
SaaS customers tend to stick around for between 3-5 years on average before moving on. That number can, of course, vary enormously. But regardless, no business relationship lasts forever.
When a big customer churns, it’s what you do next that’s important.
Bill Gates put it well when he said, “Your most unhappy customers are your greatest source of learning.”
Pick yourself up, dust yourself off, and advance onward, confident you won’t make the same mistakes twice.