‘FAIR’ framework to analyze 7 Different types of SaaS Customer Churn!

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Churn is the greatest evil for a SaaS business. And if that evil is not taken care of, it becomes a problem for the entire business growth. According to a popular survey, with a 5% decrease in churn rate often makes companies 25% more profitable. It’s critical to your company’s ability to survive and thrive. Thus cutting down on the churn rate has immense potential to drive growth.

For handling churn, we need to first understand the underlying reason behind the churn. That is only possible through analyzing data to generate meaningful insight.

But to discover the ‘why’ and other deep insights you need to talk to them by conducting phone interviews.

In this blog, we will cover the 7 types of SaaS customer churn and some strategies to tackle the same. So you can analyze the customer churn and take further action on it. Further, I have also discussed a churn analysis framework that would help you analyze churn better.

7 different types of SaaS Customer Churn

1. Bad Fit

This type of churn occurs when your customers are not the right profile fit for your product. No matter how good your product is, it would never satisfy your customer’s needs. Thus churn is inevitable. Although you can’t have much control over bad fit churn. It can harm a growing company’s goodwill at the initial stage. A few bad-fit customers that are bound to churn can affect a startup adversely.
This situation could be avoided in the first place at the interview stage, where you could refrain from acquiring bad-fit customers knowingly. For that, you should know your Ideal Customer Profile (ICP), i.e., customers for whom the product is actually built.

Strategies to tackle bad fit churn

1. Training your sales team to be able to identify the ICP(Ideal Customer Profile) and differentiate the wrong fit customers.
2. For salespeople selling to bad-fit customers, the commission given could be reversed in case a customer leaves in the first 90 days in order to avoid conflict of interest.

2. Missing functionality

There could be a situation when your customers will make a new feature request and if that demand is not fulfilled, the customers may churn out. This situation generally takes place only when it becomes efficient to switch to other competitive products rather than work without that feature. Because switching involves a lot of hassle. Thus when a customer churns out due to this reason it implies that the feature was an absolute necessity for him/her.

But it is equally important to only add features that help you in achieving your overall vision. If you keep adding features requested by every client which are not part of your original mission behind building the product, you may upset the majority of your existing clients.

Strategies to handle missed feature churn

1. Create a product roadmap in advance that will include the upcoming functionality or features that would be released up to 2 to 4 quarters down the lane.
2. Analyze your existing roadmap and identify the number of customers you are losing because of a particular missing feature and then use the data to re-prioritize. Share the updated product roadmap right away with your customers.
3. Train your sales, support, and customer success team members on expectation management so that if a feature could not be made available in the near future, things won’t take a bad turn.

3. Company Acquired/merged/closed

This type of churn is pretty unavoidable until it’s the case of acquisition or mergers. Shutting down a business will leave you with unavoidable churn that you can’t do anything about.

Say, in the case of mergers and acquisitions, you will have to start again by convincing the old customer who has merged or has been acquired. Now, starting again might feel a bit demotivating but the new customer will provide more opportunities than the previous one for obvious reasons.

4. High price

When there is huge competition in the market with easily available rather cheap alternatives to your product.. Customers are likely to switch since the cost of switching is less. If your product is priced higher than its competitors then you might face churn despite giving your customers all the features.

Strategies to tackle high price churn

1. Calculating product Return on Investment(ROI).
2. Communicating ROI effectively- It is essential to remind your customers of the measurable value delivered out of your product.
3. Calculate product stickiness- It’s always better to be safe than sorry. By calculating the stickiness of the product for every account you can get a better insight into the red flags for churn. For that, you can use the Customer Success analytics tool.
4. Understanding Total cost of ownership: Sometimes, it is not the cost of the product, but rather the total cost of ownership. For example, people needed to operate it. This requires a detailed understanding and what can you add or change in the product to bring that down.
5. Competition Price Analysis: There could be possibilities when the existing or new players will reduce the price of the product. This type of move is from being strategic to being a commodity over time.

5. Missed Outcome

Missed outcome churn happens when your customers are unable to get the desired outcome. This could happen even though your product is capable of delivering the exact outcome your customers want, but despite that, they are not able to get to it. Now there could be several reasons for your customers not getting the desired outcome. Poor onboarding is one of the major factors.

This is the worst and most unacceptable type of churn. This type of churn needs to be handled immediately because despite your product being ideal, your customer is not satisfied. This can destabilize your product’s position in the market and lower expectations.

Strategies to handle missed outcome churn

1. Work on delivering customer domain knowledge using a guided, education training program. Conduct webinars not limited to educating on product usage, but also on building domain expertise and sharing knowledge on solving the business challenges to get to the desired outcome.
2. Work on either making the product easy to use and intuitive. Make it easy for users to get to their desired outcome. Make help available right within the product.
3. Analyze your customer’s product usage to understand where they get stuck in your product. Accordingly, work with your product manager and product design team to fix it.

Never Onboarded

This type of SaaS churn occurs when your customer never really got started with your product. There could be possible reasons for it, like the next steps were not clear to the customer, maybe there was simply too much work, or maybe it required data or inputs from someone else who didn’t participate. We have to also keep in mind that not every time the customer is lazy to not use the product to its potential. To tackle this issue the best way is to conduct a customer interview. That is when you understand the exact issues that the customer is facing and try to solve them.

Strategy for handling never onboarded SaaS customer churn.

1. Analyze the time and effort that goes from the customer’s side to get the early value. In case it is too much time and effort, work with the product design team to reduce time to value.
2. Keep the support and help available from the very beginning. This could be self-help, user guides, manuals, or even product instructions. It could be from your support or success teams.
3. Guide, Train, Configure, and Onboard customers. For free or for a reasonable fee.
4. Revisit and streamline the onboarding processes for your customer success team.
5. Monitor onboarding of new customers using Account health monitoring tools.

User or Buyer left the company

This type of churn occurs when the customer who bought your product left the company and the new user is unaware of the product. Where the product subscription is eventually canceled. It is a common but difficult-to-handle situation.

Generally, this condition prevails when the previous executive may not inform the new one about your product and the new one may or may not renew the subscription. When the new one decides to start all over then you will have to start over too. This will mean additional acquisition costs and resource implementation for getting the customer back.

To avoid such situations, contacts are made with the previous executive as well as the user in the company. Thus you can not only prevent churn but also acquire a new customer with a lower acquisition cost. This new customer will be your previous buyer who got into a new company.

Strategies for handling this type of SaaS customer churn.

1. It’s always safe to keep warm relationships with more than one contact. One is too risky, especially for large accounts.
2. Prepare a backup in advance. Keep a tab on the proof of value delivered so that the new executive can be easily demonstrated the value of your product.
3. Request your champion hand over the relationship and the product to the new user.
4. One of the best ways to tackle this churn is to bring in the Sales Reps working alongside the Customer Success Manager: Treat the account just like a fresh sale and start by pitching value.

Now that we have discussed the major types of possible SaaS Churn. The moment you decide to segment churn, your next step should be to analyze the prevailing churn. Remember, churn is inevitable but a detailed analysis will help you get control of unexplained churn and surprise churn.

SaaS churn analysis is the evaluation of a company’s customer loss rate in order to reduce it. In order to perform an analysis, we need to set up a process. We at CustomerSuccessBox have created a F.A.I.R framework to perform churn analysis. FAIR or Feedback, Analysis, Interview, and Review.

Feedback

To begin with, we have to scout for the feedback received in the recent past and recurring feedback. This will ensure a transparent way to let your customers express how they feel about your product.

Analysis

Data never lies, we analyze the way they have been using the platform:

• Which use cases were nailed, were unaware
• Frequency of the usage, what exactly they use to spend time on
• Which users were consuming?
• Were the right stakeholders using the product?
• How many QBRs had happened? What did you discuss?
• What was the trend of usage?
• Were they showing early signs of churn(drop in usage, not using features)?

Interview

We do a Post Churn Interview and ask very fundamental questions.

• What value was getting from your product?
• What is the current expectation from the team (many times this will be different from why they buy in the first place since they would have matured in their understanding and practice)?
• What we could have done / can do to retain your business?
• Will you recommend it to someone? (why and why not)?

Conclusion

No matter how hard you try, there would be some amount of churn that you cannot have control of. But doing an in-depth analysis of churn would help you get rid of unwanted and unexplained churn.