High Churn Rate Got You Down? Your Sales Team May Be Your Problem
Promising more from your SaaS solution than it can deliver is a surefire way to ramp up your churn rate and affirm Don Draper’s observation that the day you sign a client is the day you start losing them.
Over-promise, underdeliver, and all those new customers you worked so hard to sign up may soon be running for the exit. SaaS expert and consultant Lincoln Murphy reveals why the roots of customer dissatisfaction, attrition, and a high churn rate can often be traced back to problems with your sales process.
Instead of going immediately back to the drawing board, you may need to consider that — whether it’s through miscommunication, misunderstanding, or desperation to make numbers — to some degree it may be your salespeople who are to blame.
In a recent conversation with OpenView (listen to the full interview here), Murphy, founder of SaaS consultancy Sixteen Ventures, explained that “mismanaging expectations in the sales process” is often what causes customers to leave (see Fred Wilson’s thoughts on Mark Leslie and Charles A. Holloway’s Harvard Business Review article The Sales Learning Curve for a similar take).
To avoid this fate in the future, you need to target a specific customer instead of promising everything to everyone.
Setting yourself up to fail
“If they’re not getting the value that you promised them, they’re going to leave.”
Before examining customer support and production during a spate of postmortems, take a look at your sales team. Murphy warns that “the seeds of churn are planted early,” and he recommends that you go over the sales process to ensure that your team is not “selling people a bill of goods that you can’t deliver.”
Are you a rookie sales manager?
To prove his point, Murphy describes the situation that the maker of an all-in-one email marketing solution faced. This company pitched a product that “would write the ad copy for you” and manage all the facets of an email marketing campaign. As the product took shape, however, “they weren’t able to deliver on that,” and customers “were leaving because they weren’t getting what was promised to them.”
Companies often look at churn as an “end of life issue,” Murphy says, but in reality, churn can be started at any point. By overpromising or miscommunicating a product’s features or capabilities during the sales process, your sales team may be the reason why customers are leaving three months or six months after signing. “If they’re not getting the value that you promised them,” he says, “they’re going to leave.”
Are you focused on your ideal customer?
“Out of everybody that you could possibly serve with your offering,there is probably one that is really ideal.”
To prevent sales from dooming your company to high churn, make sure they’re selling to the right kind of customer. Murphy stresses the importance of identifying your “ideal customer,” no matter how unpalatable it can be to feel like you’re limiting your opportunities.
The key to rapid, sustainable SaaS growth? Answering one simple but powerful question.
“Out of everybody that you could possibly serve with your offering,” Murphy says, “there is probably one that is really ideal.” He acknowledges that you can still realistically go after “three of four other types of customers” who are likely to respond to your product, but he recommends that you find and target the one “that would really benefit from your offering.” Not only will the sales cycle be shorter with the one type of customer who you know will benefit most from what you’re selling, but that customer will also “require less interaction with your support team.” In other words, he says, “they’re going to be more profitable.”
After you identify your ideal customer and bring them on board, Murphy points out that their feedback is going to help you build a better product. Early-stage companies focus inward, and tend to be “product-centric” and “function-centric” without a window into how an actual user comes into what you’re developing. “Your early adopters can help prevent you from developing in a vacuum,” Murphy explains. “And they can force you to ask the hard questions that can drive your overall product design.”
The Top Culprits for High Churn Rate
In your experience, which of the following is the most to blame for a high churn rate?
For tips on dealing with these culprits, see Scott Maxwell’s post “Are You Really Doing Something with Your SaaS Metrics?”
Do you agree a faulty sales process is often a top culprit for high churn rate?
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