The capacity to forecast that a specific customer is at a high risk of churning while there is still time to do something about it is a major new possible revenue generator for any company. We, at CustomerSuccessBox, spoke to some of the Top Customer Success Influencers to know how they manage churn!
Lauren Costella is currently the Vice President of Customer Success at GoodTime.io. She’s a leader, change agent, communicator, and passionate champion for Customer Success in business. She was named Top 25 CS Influencer (2020). She is also a Board Member of CS Leadership Network.
We asked Lauren to share her opinion on customer churn and retention. The following is what she has to say.
Q: What do you think are the common reasons why a ‘churn’ occurs?
A: Value isn’t perceived or realized – this materializes through:
- Product Usability & Focus: If the Product isn’t focused on a particular target audience or “persona” such that it meets the needs of that audience, it’s very hard to showcase the value and ensure the stickiness of the product within the organization.
- Lack of adoption (you don’t have individuals who own the strategy and process of implementing and maintaining your service and therefore the product doesn’t get utilized well)
- Turnover: you may have adoption but if you have turnover in key positions (ie. Executive Level; Budget holders) the customer can churn due to a lack of understanding of the value you provide and drive.
- Acquisition: acquisitions are generally done by larger organizations; enterprise sales are very different than SMB, Mid-Market. They take longer and require a lot more coordination and focus. Even with six months’ notice, an enterprise account could take 12 months to close; therefore, the account churns before you can close the acquiring company.
- Out of Business.
Q: What should be the KPIs for measuring churn?
- Gross Retention
- Net Retention
- Product Adoption (this will vary by company, but if you can work with a data team to understand what areas of your product and their accompanying usage levels correlate to retention, you can use those as your adoption metrics…I highly recommend working with a data team for this, since what you THINK is related to adoption, may be completely off)
Q: Who should be responsible for managing ‘churn’ in a firm?
A: Customer Success team. The entire company plays a role in understanding churn, but if everyone is “responsible” then no one is responsible. Therefore, it’s the job of Customer Success to “own” the number and coordinate cross-functionally to ensure that teams understand how churn occurs, how it’s classified, and how they can prevent it. For example, Customer Success should work with Marketing and Sales, if we close accounts that aren’t part of the Ideal Customer Profile. There should be a discussion about why we are targeting outside of our profile and if that’s a conscious decision or not. If it is, how is product iterating for those use cases? If not, how can we redirect our efforts away from less than ideal customers?
If everyone is responsible, no one is responsible. You need a SINGLE owner for particular business KPIs. BUT it’s up to the owner to identify blockers and/or issues that prevent the owner from hitting set goals and to work cross-functionally to address those issues and then review the impact.
Q: Do you have a framework/template/playbook in place for analyzing the churn?
A: We analyze churn quarterly and yearly to understand patterns of why customers are churning. Not all churn is bad churn. For churn that we don’t want, we then raise these issues at a team, cross-functional, and strategy team level.
Q: What are the strategies you use for managing churn?
A: The way I think about churn from a strategy perspective is first:
Understanding my business and who our target audience is (you should know who your ideal customer profile and persona you’re targeting is)
You should also understand what your business CHOOSES to be GOOD at, and what your business CHOOSES to be POOR at delivering
When you understand these core principles, then you can strategize around churn (what churn are you trying to prevent, what churn is acceptable, and what areas you need to work cross-functionally with teams to work through)
Your churn strategy is reliant on your BUSINESS strategy and target audience. Not best practices.
I spoke about this at Gainsight’s pulse in 2021:
Imagine a company that creates home products and furniture for consumers.
Instead of buying these home products and furniture assembled, the company makes customers assemble their own products.
These products come in sometimes as many as 100 pieces
The company provides but a single tool to build each product.
Sometimes these products are difficult to move or carry; the company doesn’t provide delivery
If the customer needs to return the product, wait times are long and service is generally poor.
When customers go to search online for products or even in-store, the names are not easy to find or search or understand.
When customers go into the store, there is no organization by aisle, making it almost impossible to find a needed item.
As a CS Leader, would you consider this a great example of Customer Success?
Did you say no? Did you say yes?
Guess what? You’re both right!
The company in question is actually IKEA.
And the point of the above description is not to point out the flaws or difficulties, but rather to highlight that by all “best practices” accounts, this is a poor experience.
And yet, we as CS Leaders would or should question: is it?
According to financial statements and releases from the IKEA website, in FY20, they closed over $39B in Revenues and netted over $1.7B in profits.
Additionally, according to Statistica, IKEA has seen year over year growth since 2001, except in FY2020 as the pandemic affected retail. Additionally, the site states that “the company has over 400 stores worldwide and is the most valuable furniture retailer brand in the world.”
This would tell us that they seem to be doing something right.
And every case study and source you’ll come across will showcase them as having focus. Real focus on knowing themselves.
Again, Verne Harnish would state that it’s because they have their Core Values, Core Purpose, and Core Competencies well defined. With these defined, they have a clear brand promise that attracts the BEST right customers. And they say no to ones that do not fit. And because of all of that, they are (for all intents and purposes) kicking butt.
Again though, why and how does this impact Customer Success Strategy?
Q: Do you believe these strategies change according to different segments of customers?
A: Yes. There are customers that can use our product but don’t necessarily grow with us, and there are customers that are high-growth types of customers. As a business, we can’t spend equal energy, time, and resources across both of these groups. So, we employ different strategies to maintain and grow.
Q: How soon should you start the renewal process?
A: Starting the process of renewal is about 90-120 days out; though, you would already have a good idea if this account would churn or stay.
Q: How do you know that when you’re off-track?
A: We monitor adoption and how quickly we get to adoption from the moment a customer begins their journey.
Q: Automated vs Remote vs In-person retention? Which one do you prefer and why?
A: There’s not necessarily a preference. This is dependent on your business strategy. There isn’t a one size fit nor is it a “preference” type of model. Deciding which strategy to employ completely depends on your business strategy and goals and growth and how you plan to do that as an organization.
Q: What are the common mistakes that you made or have seen someone else making while handling churn?
A: Not understanding the core business – values, brand promise, target audience, and how that aligns with retention strategy.
Back to my previous example about IKEA: their core purpose is high quality, low price products.
The CS Leader would be in a world of pain if they kept paying attention to those customers who wanted delivery with assembly because that moves away from their core purpose. To keep prices down they have to focus on making sure customers can build their own furniture and that operations are smooth.
Now if a Customer Leader were paying attention to reviews of customers who said the quality was low or that the quality was lacking, then they would be on the right track, and they could work with their head of operations and supply management to understand the issues and hopefully prevent them.
Q: Any tips for CS leaders who want to manage churn/retention?
A: We are dealing with people. And if that’s true, we must understand and embody our true selves (as a business) to attract the right people to us, and let the incompatible people leave us.
We do that by knowing our Core Values, our Core Purpose, our Core Competencies, and our Brand Promise. When you know these things, you can attract the right best-fit customers and say no to those who are not a fit.
And it’s ONLY when we know these key pieces that as CS Leaders we can employ the best strategies to keep those best-fit customers delighted by delivering what we promised.
To play out the IKEA example, I, as a CS Leader, would be more apt to ignore strategies that focus on trying to enhance delivery and be more focused on strategies that help ensure high-quality product production. Why?
The brand promise for IKEA: High-quality products. Low prices. So know your business, before you start trying to employ “best practices” blindly.
P.S. – The main image has been taken from pexels.com