Cancellation friction as a vital part of your user feedback loop
In this post I’ll explain why I consider adding friction to the cancellation process for your SaaS edtech product is both a desirable and reasonable thing to do.
Growth stage goals
While you’re still under $10k MRR, there are three core things you should be thinking about:
- Product: what do you offer that solves a problem/creates a gain
- Persona: who precisely are you building your product for
- Pricing: how can your solution scale profitably
While it’s natural to want to spend time thinking about ‘positive’ things such as adding new features, reaching new markets, and acquiring new users, you should aim to spend an equal amount of time thinking about the reverse: cutting unnecessary features, doubling down on solving the problems of one particular class of people, and, understanding your churn.
While it’s a shame whenever an early adopter of your product wants to cancel, the process of a user cancelling their subscription can offer invaluable insight into each of the three Ps above. Not to mention by adding a little friction to the process, we can potentially prevent a cancellation altogether.
Climbing mount impossible
If your bucket of customers is too leaky, you’ll be fighting a loosing battle no matter how many new customers you add every month. Subscription businesses live or die by their churn.
There are reams of quality writing on what can be done to reduce churn. However, this discussion tends to focus on what happens before the user decides to click the ‘cancel’ button.
But, what about after that moment, when they want to carry out their decision?
Well, one way to prevent churn is to make it really, really hard for users to cancel.
ISPs, cable providers, gyms and the like insist their exiting customers jump through hoops like calling a specific number at a specific time, filling out bothersome forms, or even having to go to a branch.
Some tactics otherwise reputable business use to make cancelling the contract with them as tricky as can be are so infuriating that they dominate the reputation of the company.
Legislators — aware of how high switching costs are bad for consumers — have even put into law measures that force companies to make the process of switching to a competitor as painless as possible. The UK Government, for example, introduced a law in 2013 that compelled banks to help their customers reliably switch to a competitor with seven days.
Traditional businesses have exploited the fact that the effect of the status quo bias is strengthened when the transaction costs (things you need to do to change from the existing state of affairs) are higher, and the time and energy of 20 minutes on the phone is enough for some people to rule out switching to a cheaper provider altogether — even if this is an economically irrational position to take.
But even after searching for a (sometimes premium rate) phone number, calling at the right time, dialling the correct numbers to be put through, and performing whatever bureaucratic requirement is demanded of them to speak to an individual that can help them cancel, the battle is not lost.
When you call up your ISP and ask to be put through to the ‘cancellations department’, you can be sure internally it will be called the ‘retentions department’. The operator speaking to you from this department will likely have even greater flexibility than a sales assistant would in offering you an unbeatable deal in order to maintain your custom.
Knowing that retaining a customer (even with a razor-thin margin) is usually more profitable than finding a new one, traditional businesses consider that the potential reputational damage from a few unhappy former customers is a price worth paying for keeping cancellations under control.
Acceptable friction
Some of the practices I’ve described above are exploitative and unfair. They disproportionately affect elderly and vulnerable individuals, and companies that exploit them deserve all of the negative press they get.
However, there are some learnings we can take from the tactics of the big players. Let’s look at how we can implement the methods that big industry use in a way that still delights your customers.
A trend among startups over recent years has been to put customers in complete control of their account and subscription status. Credit card gateways such as Stripe allow you to set up one click upgrades, downgrades, and cancellation with a simple API call.
Some new players go even further, seeking to minimise the amount customers end up spending. Slack’s fair billing policy, has led the way in charging teams only for the team members that are actually using the product, by refunding pro rata unused time by dormant team members.
While these methods do make sense for some businesses (and can even have a net positive effect on the bottom line due to the reduction in support costs), if you’re a growth stage business, you may not only be risking unnecessary revenue loss, but also valuable customer insight.
When you have fewer than 500 paying customers, do not implement a self-service cancellation feature. Instead, your cancellation workflow should involve co-founder intervention. Even assuming a terrible churn figure of 10%, it only amounts to one or two cancellations a day.
Implementing acceptable friction
The simplest way to implement cancellation friction is to ask customers to email you to cancel. There’s no need to do this in a sneaky way, you can simply have a line on your account page that says: “Want to upgrade, downgrade or cancel? Drop us an email!” with a link to your email address.
A simple email
I’ve never seen a company that has implemented email cancellations get a single complaint. Providing you reply in a reasonable timeframe, users are usually glad of the personal touch.
We’re going to want to extract data from the email exchange. In some case, the user may give you the reason they are cancelling in the body of the text. In other cases, they may just ask to cancel.
Reply to the email as soon as you can, in a personal and human way. Be sure to include the following three steps:
- Acknowledge you will cancel their account. It’s crucial that the first line of the email says in no uncertain terms that you have understood that they wish to cancel, and you will do this for them. You can do this in casual language such as, ‘Thanks for reaching out, Rachel. I can go ahead and update your plan at our end’.
- Ask a question. Ask a very specific question about the value proposition of your product: e.g.: “Just before I do so, may I ask why you’re thinking of leaving us? Have your studies not been going to plan lately?”
- Encourage a reply Say something that makes the act of replying to you as hassle-free as possible.
Where possible, you should use any information you have collected about their use of the product, and use this to make the email even more personal: “I see that last semester you were creating dozens of wonderful bingo cards on our platform! I thought the one with penguins was super creative.”
If a user doesn’t reply within a day, you should immediately do what was asked of you.
If the user does reply, you’ll have an opportunity to persuade them not to cancel. Make it clear you’re still happy to go ahead with the cancellation, but respond to the particular reason they’ve given with empathy.
Some methods include:
- Offering them one to one training to help them get back on track with the product.
- Offering to pause their subscription for a few months.
- Offering them a ongoing discount for their loyalty.
It’s perfectly fine to set a time limit for this offer. Saying something like “let me know by Friday if you’d like to take me up on this offer!” should create enough scarcity to persuade somebody on the edge.
A self-service platform
“But, this approach isn’t scalable!” you may be thinking. First, not everything in a startup has to be scalable. Second, when it becomes truly unmanageable to have founder or employee involvement in the cancellation process, think about implementing a blended approach.
Some consider that the cancellation page should be just that, a cancellation page:
However, depending on the nature of your product, emailing the customer that has cancelled a day or so later may lead to incomplete data, since the user is no longer necessarily invested in your product.
We built an approach at language learning site LinguaLift that allows users to cancel in their settings panel in two clicks.
However, we ask them for their cancellation reason with a simple choice of button: issue with the course, or issue with the price (which we identified as the two main reasons why people cancelled).
If they click the former, they are taken to a screen where they can input their phone number for a personal call with one of our tutors to discuss their study progress, and whether we can get them back on track. Users often misattribute problems with their use of the product with unsuitability of the product itself, and 10 minutes of personal education is often enough to persuade them of the merits of the product.
If price was the issue, then the user (providing they have been with the service for long enough) will get an on-the-spot 25% discount on their plan, redeemable only immediately.
Having the free text field means that customers that are minded to share precisely why they are cancelling are still incentivised to do so.
Whether you do so manually via email or through a self-service system, It may be no matter what you offer, you can’t retain that user. But, the very act of adding friction to the cancellation has generated invaluable data that you can use to improve your business.
What we can learn
Let’s go back to the three Ps we looked at learlier.
Product
The reason your user took the step of submitting their credit card details in the first place is because they truly believed they had a problem to solve or a gain to be had that could be achieved with your product.
The fact they are looking to cancel is evidence of one of two things: either this belief was wrong in the first place, or it was the case that you were meeting their needs, but now for some reason you’re not.
If this belief was wrong in the first place then this usually indicates an issue with your marketing copy. Make sure that at each step of your sales funnel your message is accurately reflecting the product you’re selling, and using language that resonates with your persona.
The alternative is that the customer is churning for extrinsic reasons. Their circumstances have changed such that no matter what you do, you’ll be unable to retain them as a customer without building essentially what amounts to a new product. This could include reasons such as completing all of the content you offer, their institution using a fundamentally different system of course delivery, or a change in financial circumstances.
Keep a record of these reasons. If you notice a trend, with a big enough addressable market, then it may be worth chasing these customers again in the future.
Persona
The user persona is the impersonation of your entire customer database in one name, bio and picture. It’s critically important you have one.
Ideally you would have a chance to interact with your customers during the on-boarding process, but if not, seeing them on the way out is a great way to find out whether their demographic information, use-cases, and hopes for the product align with those of your persona.
If the people cancelling seem to be wildly different from your persona, then it may not be worth expending much energy on wondering how you could have fulfilled their needs. However, if after getting to know them they are precisely the kind of customer you were expecting to serve, and you’ve been unable to meet their needs then this may suggest a fundamental problem with your business.
Pricing
This point is somewhat obvious, but if enough people are cancelling because they have found a cheaper alternative, then it’s worth exploring whether your pricing is appropriate for the market.
But don’t go lowering your prices just because people say that they can’t afford you any more. Remember, people thought that your pricing was reasonable at the point they signed up, and it may well be that it’s better to let these users churn, so you can focus on improving your product for a pricier end of the market.
Ethical friction
You may have aspirations to be able to serve your customers with a Costco-like no-quibbles money back guarantee, or a Slack-style commitment to charging as little as possible.
While you’re still at the growth stage, however, you should take every advantage you can, and adding a bit of ethical friction to your cancellation process will provide you with actionable insights that will help serve your existing customers better, and help to refine your product.
