“Churn” is a term we all use in SaaS as a core metric, but its roots, as near as I remember and can tell, come from our B2C colleagues. Folks churn out of their Verizon plan, their Netflix subscription, etc.
In a low-end subscription model for a tool, not a solution (e.g., semi-commodity storage, semi-commodity hosting, etc. etc.), the dynamics are similar. Individuals and small businesses, often paying on their personal credit cards, will often cancel the moment they aren’t using the tool anymore. And sometimes they’ll churn even just for a modestly better deal. Like Verizon.
Churn is a good term for your SMB and freemium customers. They will come and go, and their lifetime values often will be relatively small & short, so your customer acquisition strategies will have to be extremely precise. And you’ll have so many of them, you won’t even keep track of them as individual customers anyway.
The problem with the term “Churn” with Big Customers is that it makes the whole concept sound blameless and unavoidable. This isn’t what happens in the enterprise.
Big company churn is almost entirely avoidable, at least for products that are used constantly and are core to how at least some part of the business is run. No one at a Big Company wants to churn out a solution they use every single day, and spent a ton of time, money, and social capital implementing. The soft costs to deploy are so high, the last thing you want to do is incur those costs again — unless you have to. Maybe you re-evaluate the marketplace every 2-3 years to keep current, but real business process change is often only made once or twice a decade.
So really, at least for stickier products, the products used and relied on every day — Big Companies don’t churn. They Quit You. Big Companies take months, and often years, to make business process changes. Big Companies take months to train their employees on new processes and systems, and the last thing they want to do is re-train them every year. Big Companies want to dial-in processes that work, and then at least leave them in place for 3-5 years if possible, and move on to the next challenge they have to deal with.
So when you sign a Big Customer to a Reasonably Large Deal (even “just” $50k+), it’s yours to lose in the first 3-5 years at least. The customers want to stay at least that long. They plan to. Or they wouldn’t have bought your product in the first place. This is why, once you have a brand and some momentum, a lot of them will even agree to pay 3 years upfront for a discount and price protection. Because they know they’ve already made that long a commitment, anyway.
Given that, what’s actionable here? A few ideas:
- Set aggressive “net negative churn” goals. 120%+ for your Larger Customers. Every product and company is different, but as a rule, aim for 120%+ “net negative” churn in your larger, enterprise customers, at least 105% or so for mid-market, and 90%+ for small businesses. “Net negative churn” is defined as the growth in your customer base over a year, inclusive of both upsells and churn. So make it a top goal to turn each $1m in Big Company Revenue you have into at least $1.2m (inclusive of churn) every year.
- Do Structured, Formal CEO-level customer check-ins 60 days after Go Live. Peter Gassner, CEO of Veeva Systems, had a great discussion of how they do this multiple times after they sign their customers (all of whom are 7 or 8 figures). See more from that session below. You can’t do this for every customer. But you can do it for your Top 20% of Revenue customers at least, maybe more. You may find out you’ve already lost the customer at Day 60. But you can still save them 60 days in. The odds you can save them 365 days in? Close to zero.
- Map out every stakeholder, and get to know them all. Those of us who have been doing this a while already do this, but to many it’s something new. Just because Gary in finance was your champion and got the deal pushed through … so what? Gary might not even be there in a year. And Gary’s boss may prefer another vendor. And it may be Another VP that controls the budget. Etc. etc. You have to get to know all the stakeholders, ideally personally.
- Understand that products don’t jump Silos without help — not usually. If you close one group in a Big Company, they usually won’t recommend you to another group without a boost. At least, not aggressively. You need to make out the entire potential stakeholder map in your customer, and then work to get introductions to all of them. More here.
- Rank the Risk Level of each customer immediately after they sign, and update all your top accounts here every month. You’ll know. Yes, accounting will keep recognizing the revenue on an annual contract. It won’t show up as “churn” — yet. But you, your VP of Sales, and your VP of Customer Success should know which Big Customers are at risk almost immediately upon signing. Some are buying a product that isn’t quite there. Some don’t have enough executive support. Some are really in a glorified pilot. Some are looking for a use case that isn’t a great fit. You’ll know the ones that are at high risk, often almost immediately. Churn will happen. But there should be no surprises, at least.
- Get on a jet (when we can), or at least a Zoom. This is Broken Record Advice at SaaStr, but go visit at least all your top customers. All your Bigger Customers should get at least a quarterly on-site Customer Success visit, and ideally, a 2x year CEO/Founder level visit. Go review the roadmap. Go just get feedback. The agenda doesn’t have to be all that structured. More on how to do that here.
- Do monthly cross-functional (not just sales team) Lost Deals meetings. Not enough start-ups do this. Everyone in the company wants to know why top deals are lost. Doing this once a month in a structured fashion can radically improve engagement across the team in solving customer problems.
- The less your product is used, the more at risk you are. Period. Even Super High NPS products are at high risk of churn if they aren’t used that often. Get engagement up. There’s nothing easier to cut from the budget than a product few people are using, even if the ROI is proven. But there’s nothing harder to rip from the budget than a solution everyone relies on every single day to do their job.
If nothing else, for your biggest customers, over-invest in customer success. Hire more experienced talent. Get more coverage. Make sure no matter what, you at least have the resources in place to know exactly what your biggest customers want, and how they are doing. To know even on Day 1, what their odds of churning are.
And stop enterprise churn befire it before it happens.
(note: an updated SaaStr Classic post)
(note: an updated SaaStr Classic post)
Go to Publisher: SaaStr
Author: Jason Lemkin