Dan Martell - The 5 Reasons SaaS (Software-as-a-Service) Customers Churn

00:00:00.160 Tag them.

00:00:01.160 Monitor them.

00:00:02.240 They haven't logged in.

00:00:03.400 They haven't deployed.

00:00:04.560 They haven't responded.

00:00:06.800 Member at risk, Jared.

00:00:08.520 Member at risk.

00:00:17.360 Five reasons you have high churn in your product.

00:00:20.720 Now, if you're not a SaaS business founder,

00:00:22.800 churn is the amount of people that cancel every month.

00:00:25.200 You know, I have entrepreneurs reach out to me.

00:00:27.200 When they have like a $200 lifetime value of a customer

00:00:30.420 and if they're charging 100 bucks a month,

00:00:32.020 then that means it's two months and the person leaves.

00:00:34.720 I also get people that have a 10 month lifetime value

00:00:38.180 where essentially if they're at a 10 or 12% churn

00:00:41.300 every month, the customers, imagine this,

00:00:43.340 every 10 months they gotta go find 100% new customers

00:00:47.280 just to even keep, even keel.

00:00:49.560 It's crazy.

00:00:50.800 In the best products, I wanna share a strategy.

00:00:53.320 We talked to you about the five reasons

00:00:54.920 that customers are churning, but if you do it right,

00:00:56.580 you literally can have a product

00:00:58.280 that has an 8% annualized churn.

00:01:01.380 Most people are at 8% per month,

00:01:03.220 and I'm like, hey, where you at?

00:01:04.220 And they're like, oh, and I'm like, man, that's crazy.

00:01:07.000 Now, I know this firsthand

00:01:08.560 because when I was building my company Flowtown,

00:01:10.560 it was an email marketing SaaS product

00:01:13.200 that integrated social data and emails.

00:01:15.700 And I remember six months into the product,

00:01:17.540 we were starting to run a report,

00:01:18.540 because in the early days, you don't have a lot of data.

00:01:20.480 And when I pulled the report to share

00:01:22.080 with my co-founder, Ethan,

00:01:23.080 we literally had a 12% per month churn.

00:01:26.340 So the scenario I just shared with you,

00:01:27.580 a nine month lifetime value did not create

00:01:31.420 an incredible company.

00:01:32.420 Now the good news is we actually built

00:01:33.840 a marketing channel to support that.

00:01:35.720 So we were growing every month, 20, 30%.

00:01:38.560 But if you kind of looked at the top line growth

00:01:40.820 and the churn, you would have seen a huge fall off

00:01:44.960 on the underside of that chart.

00:01:46.460 So we sat down and we started looking through this

00:01:48.700 and it was through the actions I'm gonna share with you today

00:01:51.640 that we really dialed in what was missing,

00:01:53.960 what was broken in our product

00:01:55.740 to turn things around where we eventually got it

00:01:58.300 to about a 15% annualized churn.

00:02:00.340 Not great, not the eight, but definitely a huge difference

00:02:03.580 from where we started to where we ended up.

00:02:05.380 So the first thing you need to understand is

00:02:06.980 you gotta have great customer service.

00:02:08.580 I know a lot of you guys are like,

00:02:09.620 that sounds so trivial, Dan.

00:02:11.060 Of course, great customer service.

00:02:12.600 Here's what I wanna say, is it's about responsiveness.

00:02:16.360 You know, one of the things we did is

00:02:17.700 every time somebody would sign up for the product,

00:02:19.700 we would literally, we'd ask them, we had a little checkbox

00:02:21.760 and it said, click here for free phone support

00:02:23.760 because in that sign up form,

00:02:25.300 They would give us their number and we had two people,

00:02:27.800 technically they were sales, they didn't have quotas

00:02:30.140 but they had a certain level of expectations.

00:02:33.340 They were competing against each other

00:02:35.100 and their whole job was just to call customers

00:02:36.780 and make sure that they understood the product,

00:02:38.680 they understood how to get deployed

00:02:40.180 and they had a great customer experience level

00:02:42.340 and I think that is just responsiveness.

00:02:44.460 Have you ever emailed a company with a challenge

00:02:46.720 and nobody replied or two days later?

00:02:48.900 I recently signed up for this like obscure domain,

00:02:52.100 you know like those weird dot whatevers 0.99

00:02:54.600 and it was like this company in probably Europe or whatever

00:02:57.300 because it was one of those small countries

00:02:58.800 and it was three day back and forth interactions.

00:03:01.400 I'd email them, I'd wait for three days.

00:03:03.200 Those come, I ended up cancelling the domain.

00:03:05.040 I was like, I'd rather find somebody else

00:03:06.680 that I can feel comfortable with

00:03:08.340 than continue to deal with this

00:03:09.420 and they could have had me for a customer for decades

00:03:12.020 if they had better customer service.

00:03:13.680 So that's number one, make sure that's dialed in.

00:03:15.680 Two is ensure that your onboarding experience,

00:03:17.820 especially if you do a free trial to paid conversion,

00:03:20.760 like a 14 day free trial,

00:03:22.400 you need to make sure that your onboarding experience

00:03:24.600 gives the customer exactly what they expect and need.

00:03:28.480 Dials them right into what I call the core value

00:03:31.640 of your product so that they get activated.

00:03:33.880 If they don't get activated, they're literally,

00:03:35.580 they might stick around for a few months.

00:03:37.840 Many people when they sign up for products,

00:03:40.140 they have the need today but they're working on

00:03:43.060 solving it over a few months and they're willing to wait

00:03:46.020 and pay what I call the tax of a monthly fee

00:03:49.960 knowing that they're gonna jump back in.

00:03:51.400 But as soon as they realize that the product

00:03:53.160 isn't as good as they thought it was

00:03:54.600 or they find an alternative, they'll just cancel it.

00:03:56.500 So if you can get somebody deployed and activated

00:03:59.000 in that first trial, you're gonna have

00:04:01.100 an incredible reduced churn on your hands.

00:04:04.140 So number two is just make sure that people get onboarded.

00:04:07.040 Three is recurring value.

00:04:09.540 As much as you want people to pay every month,

00:04:12.480 recur, every month, you're like,

00:04:14.180 every month I want you to pay me money,

00:04:15.640 pay me money, pay me money.

00:04:16.980 The onus is on you as the company founder

00:04:20.420 to make sure that that product delivers value.

00:04:22.420 recurring value every month.

00:04:24.380 That was the huge problem in our company, Flowtown,

00:04:27.560 is that we had this great product hook.

00:04:29.500 We got them in with the social data on the email addresses.

00:04:32.060 We even had a few templates that we gave them,

00:04:33.900 but we didn't give them a reason to continue setting up

00:04:36.700 and automating their, essentially, outreach on social media

00:04:40.100 for their customers and their marketing.

00:04:41.700 So we had to look at the product,

00:04:43.540 make sure that the product delivered reoccurring value.

00:04:46.380 So if you're having that issue,

00:04:48.180 if you have like a two month kind of value and people churn

00:04:50.720 because they kind of get the need,

00:04:52.220 They solve it and then they move on.

00:04:53.660 You gotta look at what other features can you create

00:04:56.360 to really build that kind of value.

00:04:58.320 Here's a great question to ask yourself and your team,

00:05:01.060 especially for your customers, is what do you,

00:05:03.260 so I'm asking a customer, what do you do three minutes before

00:05:05.800 and after you use our product?

00:05:08.060 Because what they do, those actions will help me build a more

00:05:11.700 broad and attractive and ongoing value stream to my customers.

00:05:16.180 Number four is just a lack of customer success.

00:05:19.420 I really think that there's kind of three core phases

00:05:21.580 to the product.

00:05:22.480 There's attract, convert, and then expand.

00:05:26.400 Attract is just getting them to the site in the first place.

00:05:28.460 Convert is making sure that the free trial

00:05:30.600 or getting into your product or the demo does really well

00:05:32.840 to get them as a customer.

00:05:34.040 And then expand is not even just retain them.

00:05:36.500 It's literally look at opportunities

00:05:38.100 to expand their product usage.

00:05:40.540 Maybe there's certain features that you guys have

00:05:42.380 that they don't even know about and they're not using.

00:05:44.720 So your job is actually to map out all your customers

00:05:47.740 and ensure that they deploy and ingrain and leverage

00:05:51.020 the features you've built to get more value

00:05:53.520 from the product, okay?

00:05:55.080 Now, the fifth reason people are churning

00:05:57.140 is for natural causes.

00:05:58.380 And you need to understand that these are real things.

00:06:00.760 Number one is just credit card details expiring, right?

00:06:04.320 I don't know if you've ever dealt with that,

00:06:05.920 but it's literally, for most companies,

00:06:08.420 it could be like four or five percent

00:06:09.560 of your customer base every month

00:06:11.460 that it's just their credit card details expiring

00:06:13.500 and you gotta get them to update it, so that's normal.

00:06:15.740 The other one is they're downgrading,

00:06:17.200 So they might have been using a lot of features.

00:06:19.820 They had a big company.

00:06:20.660 Maybe their company kind of downsized

00:06:22.380 or they've kind of found another way to solve the problem

00:06:24.940 so they've downgraded their feature set.

00:06:26.640 So that's negative churn on the revenue side.

00:06:29.520 And then finally, it's just businesses die.

00:06:31.480 I remember talking to the CEO of Constant Contact, Gail,

00:06:35.880 and she was like, the challenge for us

00:06:38.020 being in the SMB space, or what she called

00:06:40.040 the very small business, BSBs,

00:06:43.340 is that there's a huge eight, 10% a year

00:06:46.900 kind of death rate of just small businesses.

00:06:48.960 So if you're in that market, you've gotta combat,

00:06:52.140 if you're trying to get 8% churn per year,

00:06:54.140 it's gonna be tough because you're gonna get

00:06:55.440 just companies, you know, going out of business.

00:06:57.840 So those are the five reasons.

00:07:00.020 Now I wanna give you a tip, okay, this is huge.

00:07:02.720 The way to kind of protect yourself is actually

00:07:05.460 to tag customers as Marr, okay?

00:07:07.680 And Marr is member at risk.

00:07:10.520 So it's very simple for you.

00:07:11.600 You understand what an engaged customer looks like.

00:07:13.720 These are your best customers, how they use the product

00:07:15.500 and they log in, what features they use.

00:07:17.700 You can literally just write some simple code

00:07:19.700 to monitor that and if somebody doesn't log in for two weeks,

00:07:23.100 if somebody is not deploying the features,

00:07:25.300 if they signed up and they haven't used the product a whole

00:07:28.100 lot, you can flag them as Marr and then have your customer

00:07:30.600 success team reach out to them to make sure they go from a

00:07:33.400 member at risk to a high retained customer.

00:07:36.900 That is your opportunity.

00:07:38.100 Number one, make sure your customer service is rocking.

00:07:40.600 Two, your onboarding delivers the core value your product

00:07:43.600 promises.

00:07:44.600 Three, make sure that your reoccurring value actually

00:07:47.800 is delivered and perceived from your customer

00:07:50.400 on a monthly basis, that's a product issue.

00:07:52.800 Four, make sure that you have a great customer success team

00:07:56.620 so that people not only retain but expand in their usage.

00:08:00.480 And five, just understand there's natural causes.

00:08:02.820 You can do your best to improve them,

00:08:04.780 but at the end of the day there are gonna be companies

00:08:06.960 that go out of business and downsize

00:08:08.720 and that's part of building a SaaS business.

00:08:11.860 So as per usual, I hope this video finds you well.

00:08:14.700 I also wanna challenge you to live a bigger life

00:08:17.000 and a bigger business and I'll see you next Monday.

00:08:19.300 If you like this video, be sure to subscribe to my channel

00:08:21.240 for other tips and strategies on how to start

00:08:23.000 and grow your business.

00:08:23.840 I'd also encourage you to join my newsletter

00:08:26.040 where I share community contests, exclusive invites,

00:08:29.680 and other free entrepreneurial training.

00:08:31.140 And if you're ready to get going,

00:08:32.120 I've got two videos queued up for you.

00:08:34.240 I'll see you next week.

Dan Martell - June 26, 2017

The 5 Reasons SaaS (Software-as-a-Service) Customers Churn

Episode Stats

Summary

Transcript