5 Keys to Unlocking Negative Churn in B2B SaaS
Retention, retained revenue, gross churn, negative churn, expansion…in 2018 the SaaS gods will surely create at least 5 more terms for the concepts of keeping and growing recurring revenue from an existing customer base.
Whatever you may call it, as a B2B SaaS leader how to achieve negative churn is what should be keeping you up at night. Here are some ideas to help you get back to sleep:
1. Make Customer Adoption a Top 3 Strategic Priority for the Entire Company
A quick one to start: Establishing and maintaining customer adoption of your product is THE core-prerequisite to retaining customer revenue and expanding that revenue i.e. creating negative churn. That being agreed, we need to define what ‘adoption’ is and isn’t so we can measure its achievement and status.
2. Recognize that Usage Does Not Equal Adoption
Adoption is NOT a customer achieving utility of your SaaS product. The customer that has activated their account, set up their team’s profiles, migrated their data, consumed the training and is appearing as ‘active’ in your environment does not automatically equate to an adopted customer.
Adoption is achieved and maintained when the customer is realizing recurring value from your product. Value is realized each time the customer achieves a Value-based Outcome that 1) you have prescribed to them 2) they have agreed is desirable and 3) you both can measure the results of. This is customer success.
3. Approach Retention and Expansion as a Science Not an Art
To achieve negative churn consistently and efficiently across your customer cohorts, standardized formulas that achieve and maintain adoption, as defined above, are needed. This is opposed to custom or even reactive approaches that are prone to high costs, overruns and failures.
By defining prescriptive Value-based Outcomes for your ideal customer profiles, repeatable and measurable activities that achieve those outcomes can be mapped. These activities will cover which:
- Feature/functions in your product must be used by what user role and how often,
- Onboarding/enablement/service tasks your teams must complete
- Equivalent tasks the customer must complete their side.
Measuring of the completion of these activities drives the definition of leading Key Performance Indicators and other leading metrics that will enable prediction of revenue churn risks and revenue expansion opportunities.
By the way, if a customer isn’t seeking the Value-based Outcomes you prescribe, they shouldn’t be your customer…which brings us to:
4. Ensure Your Sales Strategy and Process is Setting Customers Up for Success
Sales teams squeezing the square customer into the round product does not create a customer that can be retained or expanded. Instead, a customer expecting outcomes that can’t be efficiently or effectively delivered is created. These customers will churn.
Execution of your adoption formulas starts the moment a customer enters your sales funnel as a new prospect. Sales qualification, discovery, governance and presentation/demo processes should be fully aligned with the dependencies, assumptions and results defined in your formulas. By doing this, you are creating alignment with how adoption will be executed and therefore how retention and expansion will be achieved.
As an example: ensuring that the customer is purchasing the correct products/modules with the correct number of users/role profiles will reduce the risk of revenue churn at time of renewal. “Correct” is defined as those products/modules and users/roles that enable the customer to perform the in-product activities prescribed by you to achieve value realization. If the customer can’t measure value against it, don’t sell it.
And the last one for today:
5. Create a Churn Risk Management Framework (CRMF)
Revenue churn is one of the top operational risks facing any subscription revenue company. Establish a CRMF by borrowing best practices from the discipline of Operational Risk Management (ORM). A CRMF includes processes for identifying mitigating, monitoring and reporting churn risks, as well as associated assessment and measurement standards.
A CRMF defines the churn risks applicable to your customer cohorts. Each risk is assessed by impact and likelihood. Velocity could also be used as part of the assessment. Controls are designed and documented in the CRMF to mitigate each churn risk. These controls exist/should exist in your adoption formulas and overall customer success strategy.
Test the controls on a regular basis. Any issues identified can be remediated to increase the strength of these processes helping prevent churn. Integrate executive visibility and action into the CRMF to instill a company-wide culture of customer ownership. Use the CRMF to define responsibilities and accountabilities in your churn risk mitigation strategies.
Celebrate when you retain a customer. Analyze, learn and take action when you lose a customer.
With only lagging metrics in their toolset, customer success leaders can’t really drive strategy at the executive level. Here’s Chris Hicken, former president at UserTesting, on how to change that.