I spend a lot of time on this blog talking about selling and making new sales. What I haven’t talked a lot about is protecting the base or preventing churn. Churn is becoming increasingly important. I am seeing more and more business monthly recurring, SaaS business models. These businesses rely on being sticky and keeping their customers. When customers leave it’s painful and expensive.
I saw this post on churn by Kissmetrics the other day and was considering responding to it, but as I read it again, there is NOTHING I could add. It’s so well done. I’ve posted the entire thing to this blog.
If you have a recurring revenue base read it more than once and take ask yourself what is your churn strategy?
6 Ways You Can Improve Churn Rate and Increase Revenue
By Zach Bulygo from Kiss Metrics
There’s a lot of focus in the business world on making sales. But a less talked about (and arguably more important) goal is ensuring your customers remain customers.
Churn rate, also known as cancellation rate, is the percentage of customers who have cancelled a product or service within a given time period. Ideally, you’d like to have a 0% churn rate, but often, that’s not the reality. In this post, we’ll be examining some ways to improve your churn rate and push it down closer to 0%.
Let’s look at some of these ways to keep customers paying and improving your bottom line:
1. Talk to Your Customers
For too many companies, the only times they talk to their customers are when events like these occur:
- The company wants to up sell or suggestive sell the customer
- The customer has a problem and needs to talk to the company
For some customers, this is optimal. They simply want to be left alone, use the product, and notify the company if they have any problems. But even for these customers, the suggestions I give below will help. I do not advocate spamming customers with multiple emails every week. Instead, just “be there” and make it easy for customers to talk to you.
Because, frequently, companies aren’t there, and the customers have to work around the company’s schedule and adapt to them, instead of the company adapting to customers. There’s not much of an effort on the company’s part to proactively talk to customers and get their feedback.
Luckily, there are many ways to gather feedback. Let’s look at a few of these:
Customer Satisfaction Surveys
Surveys can get a lot of feedback from your customers, but they have to do be done right. While there are probably 50+ questions you can think up, you need to keep it limited to 10 or less. If you make it seem like a college exam, people will view it as work; you won’t get accurate data because people will think less and less about the questions as they move through the survey. Keep it short, and you’ll get better responses and more accurate data.
Your survey should not look like this:
Instead, leave boxes for customers to fill in. Let them tell you what they think and give you insights, instead of you giving them a few options and limiting their voice. They can provide a lot of good insight, so don’t limit them by having only a multiple choice survey.
When customers are using your product, they may have questions, comments, or feedback that pops into their heads. However, many of them are not willing to stop and contact your company or don’t even know who to contact. Wouldn’t it be nice to have a feedback bar in your product? KISSmetrics does:
There are also many live chat options available for customers who need to chat but don’t want to use the phone.
Emails Announcing New Features
When Buffer announces a new feature or has company news, they welcome feedback. So as an example, here’s an email I recently got from Buffer:
Take advantage of people opening your emails. They may be willing to provide feedback since it’s as easy as just replying to an email.
While you don’t necessarily need to provide support via social media, you can talk to your customers and answer questions via social media. If an answer is too drawn out or too private to answer on social media, give them an email address to contact and tell them you’ll follow up promptly.
You can also randomly contact a portion of your customers and ask them how things are going and if they need any help. It might be refreshing for customers to hear from a company not trying to sell or up sell them, but simply offering help. Just be sure you think about the email subject and make it sound inviting and not “pitchy.”
2. Know Your Weaknesses
- Know why some people don’t sign up for your service?
- Know what you’re company is not very good at? If you think it’s flawless and good at everything, you may need to look a little deeper and listen to customers more.
If you’re not aware of your weaknesses, you’ll never be able to fix them. You may run into big problems if you don’t work on these weaknesses or don’t fix new ones that suddenly emerge. Let’s look at a few cases where companies didn’t fix their weaknesses, and it ended up costing them.
For a time from the mid 1970s to the early to mid 2000s, American cars were known for poor quality. Due to this and mismanagement, many Japanese and other foreign auto manufacturers experienced increased sales. In 2009, Toyota overtook long-time sales leader GM as the world’s largest automobile manufacturer. Clearly, it was a big problem.
One of the first things that new Ford CEO Alan Mulally did was take a small group of executives to Consumer Reports to get an assessment of their vehicles and understand the weaknesses. Today, Ford is improving the quality and design of their vehicles and becoming profitable again. GM is turning around their business as well.
Regrettably, all this happened too late. Many of the foreign auto manufacturers continued to improve their products while American manufacturers didn’t evolve and improve with them. It ended up with both companies encountering serious financial trouble.
Today, both Toyota and Honda are worth more than GM and Ford. But things are getting better for the American manufacturers.
Remember the days when Windows PCs dominated the market? When people wanted to buy a computer, the only decision they had to make was choosing a manufacturer. There were a lot of problems with Windows as well – Blue Screens of Death, spyware, malware, viruses, freezing, and general instability.
Unfortunately, it was really the only choice for people. There was Linux, but it wouldn’t be a good choice unless the customer was technically inclined.
Today, things are totally different. The Mac OS X was a fresh breath of air for many Windows users. It had better design and didn’t have many of the problems that Windows had. To illustrate the differences, Apple released the brilliant Mac vs PC ads. Today, the Mac OS X is quickly closing the previously large sales gap.
Microsoft could have been more proactive in fixing Windows problems. For much of the time, Windows would leave it to third-party companies to secure Windows PCs. It was left to the consumer to be aware of these products, download them, and know how to run them.
And now there is another change with the introduction of Microsoft Security Essentials.
The moral of the story is that it took Microsoft too long to fix the persistent issues with Windows, and they let Apple enter their market and close the sales gap. Is something like this happening to your company?
Myspace was a product that, if it didn’t change, was going to die. It was buggy, had banner ads, and didn’t make iterative improvements. Because of this, it’s now losing traffic and revenue.
It was only a matter of time.
What Facebook brought was a cleaner layout, a sense of security, and status updates. And most importantly, they kept spam under control. It gave people a reason to go to Facebook and update people with what was on their mind.
Myspace, for all intents and purposes, didn’t change when it held the crown as the world’s biggest social network. It was the company’s inertia and lack of iteration that eventually killed them.
Time moves quickly. About 10 years ago, people were making the change from VHS tapes to DVDs. Today, you would be hard pressed to find anyone with a VHS player near their TV.
With the advent of these DVDs, movie rental stores like Blockbuster and Hollywood Video quickly adapted. For some movies, there was an option for VHS tapes and DVDs. Soon after, rental stores made the move and DVDs were the only option. Some even made video games available for rental. Everything was, for the most part, moving along nicely.
Then came Netflix.
Netflix gave consumers an alternative to the traditional pay-per-rental model. Perhaps what was most striking at first was the large library of DVDs. Beyond that, DVDs were mailed; you could rent an unlimited number of DVDs; there were no late fees; and often, it was a better deal per movie. Many consumers saw this as a better option and moved to Netflix, never to step into a movie rental store again.
Blockbuster tried to offer a Netflix competitor, but ultimately, it was too little too late. The product failed to capitalize on any big weaknesses of Netflix.
Blockbuster ended up being bought by Dish Network 2011, and Hollywood Video officially died in 2010.
Now, consumers are slowly moving off DVDs and adopting on-demand streaming. Netflix is leading this new innovation and avoiding their own disruption in the process.
Why didn’t Hollywood Video and Blockbuster do the same? Why did they laugh off Netflix and not buy them for $50 million when they had the chance? Did they just think people didn’t want a service like Netflix? Did they actually look at the data, or did they judge it by their own biases?
The lesson here is that there are people who actively try to take your customers, steal your revenue, and become the market leader. They’re your competitors, and some of them are the scrappy disruptive startups that may have a better plan for your customers. So ask yourself these questions: Is there a competitor that you’re writing off? Are you letting your own biases get in the way of actually seeing the real situation? If you are, it’s time to wake up. Don’t let yourself become the next victim of a disruptive technology or business.
And don’t let your company resist change. Look at the data, see what’s happening, and have a formidable plan. Or just die a slow death like Myspace, Hollywood Video, Blockbuster, and many others who let their own company’s inertia kill itself.
Capitalize on your weaknesses before your competitors do it for you.
3. Deliver on Your Competitive Advantage
People became customers of your product because you offer some unique advantage that they cannot get anywhere else. If you neglect this, or fail to deliver, they could desert you.
Where would Rackspace or Zappos be if they didn’t deliver stellar customer service? Where would Apple be if their products weren’t beautifully intuitive? Would Amazon be worth over $100 billion if they didn’t have a huge selection of products at competitive prices?
All these companies deliver on their competitive advantage consistently. Customers have come to expect it.
Whatever your advantage is, deliver on it. You expect it from the companies you work with, and your customers expect it from you.
To ensure that your company and employees deliver on this advantage, you may want to form a “core values” list. Zappos has ten core values that define who they are. Every Zappos employee is aware of these values and works to deliver on them every day. It’s ingrained in the Zappos DNA.
If you make your list, make sure every employee is aware of them. It will help reinforce the brand’s uniqueness and help deliver on that competitive advantage that you promised customers.
When you survey your customers or talk to them, you can ask them if you’re delivering on your competitive advantage. If your advantage is that you’re product is simple to use, you can ask:
What’s your opinion of <product name> user experience? Is the product simple to use? Please tell us why or why not.
Even if they give you a one word answer, you’ll know more than if you didn’t ask them at all.
4. Know Why Customers Cancel
If customers don’t tell you why they cancelled, how will you know what to improve so you can reduce the number of cancellations in the future?
KISSmetrics asks outgoing customers to tell why they cancelled. Then they can use this data to better understand their business and their customers, and they can make any necessary adjustments.
For your business, simply asking customers why they cancelled should provide some good insights. Then you can analyze each response and see if there is anything you can adjust to prevent a cancellation like it in the future.
For example, if one of the answers is “I could never get good enough use out of it to justify the cost,”you know two things. First, your product might not provide enough value. Second, you may need to do a better job of helping customers understand your product so they can reap the full benefit.
You also may want to follow up with “What did you do to get help with our product or to understand it better?” If they say they didn’t do anything, then you know that you need to be more proactive in helping them set up, and afterward, you need to keep in contact, asking if they need help or have any questions.
Know why customers cancel, learn from it, and reduce any cancellations in the future.
5. Avoid Stupid Decisions and Bad PR
Easier said than done, right?
You’re right, but I’ll give you some ideas to help you avoid bad decisions and handle the backlash correctly.
Bad PR is unavoidable for any company that grows and becomes large enough. One of the most recent self-inflicted blunders was the Netflix price increase. The plan was to split Netflix into a streaming service and a DVD-by-mail service known as Qwikster. This, along with the price increase, resulted in abig backlash from customers. They also lost a lot of customers and increased their churn rate.
There is also bad PR that happens when a bug slips through the cracks. Good examples of these are the Dropbox password debacle and the Airbnb horror stories. Then it is the job of the company (specifically the CEO) to manage the disaster appropriately.
The bad PR that these three companies have received does not take away the fact that they’re great companies. Bad PR happens to every company.
If you make a decision as a company, such as to raise prices, it’s always best to think of the possible ramifications and seek experts who have had experience raising prices. What lessons can they teach you? What do you think the reaction from customers will be? What are the pros and cons? This won’t beat the reality of actually getting the response, but it can help prepare you. Make sure you have all your bases covered when you make a big decision.
Here are a few tips for dealing with bad PR, whether it’s from your own decisions or system errors:
- Admit the error and explain how you’re helping the people affected
- Tell what you’ve learned and how you’ll prevent problems like this in the future
- State that you look forward to continuing to serve customers with the <enter your competitive advantage> you’ve come to expect from us
All three of the examples listed – Netflix, Dropbox, and Airbnb – had great responses:
Netflix – CEO Reed Hastings: We’re sorry. Note: this is before they made the decision to shut down Qwikster.
Dropbox – CEO Drew Houston apologizes and gives customers that were affected his phone number to discuss the issue.
Airbnb – CEO Brian Chesky apologizes and offers insurance to protect users from this in the future.
As they say in life:
It’s not what happens to you but how you react to it that matters.
This is quite true in managing blunders.
6. Assure Them While They’re Customers That They’re Using the Best Product
Customers have a lot of options. You’re probably not the only one that offers a solution to a specific problem. Don’t think that customers aren’t aware of your competitors or willing to switch if presented with the right offer.
This is why, when you release a new feature or email customers, you’ll want to remind them of the quality of your product. This doesn’t mean inserting your slogan on every email; that’ll fall on deaf ears. Rather, tell them of a recent new feature or bring up the power of your product when they have a question about it.
Here is a possible example of an email transaction:
Hello <company name>,
I’m having trouble uploading a file from my desktop to your product. Can you help?
To upload a file, simply follow these directions:
<company name> is the only product that lets you upload files from any mobile device. To do this, simply download our app:
We’re working hard every day to improve our services for you. If you have any questions, email me, call me, or contact our CEO at:
We are listening, and we love getting feedback from our customers!
Thanks for choosing <company name>!
It’s not about selling the product to them, it’s about assuring them that they’re using the best product available. It’s also not about criticizing or downplaying your competition. Customers have a lot of options, and they need to know they’re using the best. Remind them of this by telling them why and by showing them with your high-quality product.
It’s a fact of business – customers are going to cancel. Some of the cancellations may not even be because of your own shortcomings. Businesses close, and as a result, they close business with all of their providers. However, there are some customers that stop doing business with one company and move to a competitor. In these latter situations, there can be a lot of learning. Be sure to get feedback from your outgoing customers. And with it, be gracious. Thank them for the opportunity to serve them, and let them know you’d love to have them back. If they have a bad experience with a competitor, they may be willing to move back to you. But if you aren’t gracious, you’ll probably never see them again; and not only that, they’ll go tell all of their friends about how they were treated.