Churn is the bane of a SaaS company’s existence. The beauty of a recurring revenue business is that once we sell a new customer we have the opportunity to enjoy an ongoing stream of renewal revenue. Year after year, SaaS businesses grow by adding to their base of recurring revenue from all of the prior years. Even with modest account retention, the renewal base very quickly grows to exceed net-new sales. Failure to renew is lost revenue that offsets the gains of new sales. Although we place a ton of emphasis on winning new logos, and we track bookings like a hawk, churn is the hole in the revenue bucket that can eat up all of our new logo successes.
To avoid churn, we talk a lot about driving customer satisfaction, but too many organizations look at customer satisfaction too late in the relationship. The trajectory of a new customer is determined within the first couple of weeks after they sign up. The day the buyer signs the paperwork they have the highest level of engagement and enthusiasm. If they are met with a high-energy, efficient implementation and training team, they are set on a trajectory for success. However, if the first couple of weeks go poorly, they are set on a very different trajectory, and the seeds of churn are sowed. It all happens within weeks of signing the deal.
As a new vendor, we have to embrace the customer’s perspective. They are about to move from their legacy platform to our new platform. In the process they may have to give up something from their old platform that they rely upon every day. Even though they clearly had issues with their legacy platform which led them to purchase our shiny new platform, change is hard. Often, they are particularly reluctant to change their processes, even if the new approach is more efficient, and do not forget that, there is usually a detractor on the implementation team who was not part of the purchase decision, or who preferred a different choice. They will be spreading discontent from the start. Our job is to quickly build confidence and smoothly transition the buyer’s team so that they can successfully launch.
The most important first step is to gain clear alignment on the definition of success. We need the entire team to agree on what features need to be up and running in what timeframe. If roadblocks were overlooked during the sales process, we need to face them head on. From day one, in addition to focusing on the immediate implementation job at hand, the vendor team needs to keep their sights on the contract renewal in 12 months. The most effective approach is to develop a full-year plan from the start. Differentiate the implementation phase from the launch phase and the operational phase. Collaborate with the customer to set meaningful measurable targets for every phase throughout the contract year.
Avoid the trap of setting vanity metrics and missing the real value metrics. A few years ago, I participated in a meeting with a huge client who had tens of thousands of potential users of our system. The junior members of the client team put forth goals to have dozens of users login to the new platform over the course of the next two quarters. I asked the senior person in the room if she was satisfied with the measure and the goal. I also asked what were her twelve month goals when she purchased the system. It turned out that she was measured on revenue that was directly generated using the new platform, and to achieve her goals, they needed to see thousands of active users within a few months, and not just logins but actual commerce. Logins were easy to measure, but that did not measure the leader’s value-driven goal, and the volume of logins the team was aiming for would result in revenues that were orders of magnitude less than what was needed. The lesson is to set goals beyond the short-term, and at least as far out as the contract year, but most importantly, measure what matters, not what is easy.
One more practice to avoid the churn trajectory is to establish a reporting cadence immediately following the purchase, and include the senior buyers right from the start. Often, the executive that recognized the need for a new platform, created the budget, and approved the purchase, hands the project to an implementation team and disappears. It feels like a fire and forget action. Periodically, they may check in, but their source of information will be the members of their team. If things are not going well, you as the vendor will always take the blame. The only way to head this off is to be a part of the conversation and to be the source of consistent, meaningful, and believable reporting. When you collaborate with the customer to set measurable targets, you also need to grab the initiative to be the source of reporting project progress. Most importantly, you need to include the senior buyer in your distribution from the start, and do not forget that the start means day-one of the project. If you ruffle feathers on the implementation team by communicating with their boss, seek forgiveness for over-sharing, not permission. Your renewal is dependent upon the senior buyer getting what they determined is valuable, so make sure they know what they are getting from day-one.
Recognizing that the path to churn is set within the first few weeks of a customer relationship is one of the most important lessons the post-sale team can learn. It is vital to establish clear, measurable, meaningful, value-based goals up-front, and plan for all phases of implementation, roll-out, and operation right from the start. And lastly, right from day-one, the post-sale team must establish a cadence of reporting with a broad audience that includes the ultimate decision maker. Tell them what you are going to do, do it, and tell them what you did.