Halving churn: A few things I know about retention
You’ve walked into a churn problem. The team is small; they mean well, but they’re inexperienced. The broader team is predominantly sales-focused, and winning is by all means necessary.
What do you do?
I’m not a defender; in my opinion, focusing on defending churn is a miserable existence. You’re focussing on the absence of success, so even when you’re winning, you’re not winning, if you see what I mean. My focus is always growth, but you need to stabilise the status quo when you’ve walked into a churn problem before you can really go for growth. Top Tip: stop saying churn; switch it out for retention. Mindset is everything; focus on a net positive instead of the absence of a negative.
This is my experience. This is what I did to focus the team, set the direction and turn the ship. Churn decreased from >15% to <7% in a year.
These five steps aren’t exhaustive, but they are in order of importance. When faced with a retention problem, it’s easy to get overwhelmed and try and do everything all at once; that’s a recipe for burnout. It can also be easy to start gathering data and trying to change other departments first (support, product, etc). However, you need to get your house in order before you start on that path.
Control the controllable, and the rest will follow.
1. Focus on the team, their mindset and their goals.
First things first, what are your team spending their time focussing on?
It’s easy to hire a couple of CSMs to “look after the customers”, but without a strong functional leader, they’re often left to their own devices and fall into a crevice of “just trying their best to do everything all at once”. Often mistaken for support and shoved around by sales, CS teams without leaders don’t really know what the priority is and unless you’ve hired a seriously experienced CSM or two, often they don’t know where to start.
Here’s what I did, in order of importance;
Gave them an identity and a mission statement focussing on the business's needs. They’re not just there to organise meetings and answer questions about support tickets.
Stopped them from introducing themselves as “your primary point of contact” to customers and asked them to prepare a 2-minute “this is the point of customer success” pitch.
Guided and coached the team to prepare an internal value introduction, setting boundaries for other teams about what customer success does and doesn’t do.
Log their time for a week. Yes, it’s boring, but you can't change anything unless you can see where all that time is going.
Aggregated this data across the team and focussed the team on value-giving versus value-draining activities.
Customer Success teams who are trying to be “useful” by just getting stuff done without questioning whether they’re the right people to be doing the stuff often lack direction and focus. Giving the team an identity firmly rooted in the value they should be concentrating on for the customers is the first step in helping them understand the best use of their time.
This drives ownership, ownership of focus, time and value. Focus your team on their value and give them the space to own their own outcomes, whatever that means for your business. Often, teams without strong leadership feel like they’re at the behest of others, or they can’t set boundaries around what they’re doing and when. Give them this space and back them up. You’ll likely find that your team don’t need telling what to do; they need someone to give them permission and create the space to solve their problems and chart their own course.
2. Ditch stupid segmentation
Segmentation by ARR is utilitarian, but when you’re losing customers in double-digit percentages doesn’t make a whole heap of sense. Yes, you must ensure that the customers who pay the most get the best service; that’s just good sense. However, an over-reliance on ARR as a measure of which customers matter leads to only one thing: churn.
In all my years, I have rarely seen a company with an enterprise churn problem because most people segment by ARR. What sneaks up on you is churn on your low-tier or tech touch because you’re just not looking at it. One customer worth £100k churning is the same as 10 x £10k customers churning in terms of absolute revenue. However, a logo churn problem (even in the smaller ARR tier) will diminish your growth potential; you now have fewer customers to grow and more eggs in one basket; that’s just maths.
Segmentation is its own topic, and there are plenty of ways to do it; the way you pick depends on your business and your customers. The answer to how you should segment is in your data. If you’re actively fighting churn, I’d encourage you to focus on the highest common denominator rather than get stuck in the weeds.
In this example, I went for “actively unhappy”, “disengaged”, “stable” and “ready to grow”. Deciding which customer goes where is a matter of analysing your usage/engagement data and asking the customer. Many CSMs are afraid to ask hard questions, but asking a customer if they plan to renew is the easiest way to segment based on their intentions.
Once you know what you’re dealing with, you can strategise.
3. Harness the “Brilliant Basics”
Yes, paper processes are tedious, especially for people like me, but they’re essential.
Get your house in order and ensure your team is doing what they said they would. Meeting invites don’t go out without agendas; meetings are followed up with notes and action items. Those action items are taken care of promptly. All of this is documented in a system of record, or at least in a file which is accessible by everyone.
More than just setting expectations for your team, have them set these expectations of each other.
If something matters, it’s worth doing correctly. You’d be surprised how impactful promptly sending meeting notes or following up on questions is on customer satisfaction. When you’re frazzled, fighting battles on all fronts and not sure what the best use of your time is, the simple things go out the window first. Shut the window, do the basics brilliantly and get your shit together.
4. Fight every battle with commercial common sense.
Back to 10 x 10k customers being as impactful on your numbers as one big one. You are not too big not to try and retain every customer every time. If you think a customer is not worth saving, they deserve a better supplier than you.
I’m not advocating for massive discounts to keep customers; that will never be a long-term success strategy. What I am suggesting is that you should talk to your customers, find out why they would or wouldn’t renew and review all of their commercial frameworks with an open and collaborative mind. A 50% downgrade is better than a 100% churn at the end of the day.
Discounts will only devalue your product. Adjusting unit prices to reward loyalty or adding additional licenses makes good sense and builds relationships. Play with contract length and ask for marketing case studies in return for commercial flexibility. Building partnerships with your customers is about mutual benefit, so don’t be afraid to give when negotiating, but always ask for something in return.
Unpopular opinion - If your customer is asking for a volume downgrade, up the unit price. 50% of the time, it’ll stop a downgrade in it’s tracks and you’ll land a flat renewal. The other 50% of the time, you’re customer will better appreciate the value of your software.
Rule #1 of good negotiation - knowing when to walk away. So yes, fight every single battle every single time. However, commercial common sense is knowing when to leave an offer on the table and be prepared to go. Being flexible and open to ideas will build trust, knowing your value and negotiating from a place of strength will build respect.
5. Build a compelling internal change story with data.
You’re going to get to a point where:
Your team are focused on what they do and what they don’t do
You’ve taken your standard segmentation and optimised it to reflect your strategy for retaining customers at renewal in upcoming quarters
Your team have the basics down, and
You’re actively engaging with every customer who wants to negotiate at renewal.
As you go through the process of delivering all of this with your team, you’ll notice trends in the data. Churning customers will give you reams of feedback about your business and product, which your executives can’t afford to ignore. Product features that are missing, issues with your infrastructure, a poor support experience; all of these things should be important to your leadership, but unfortunately, none are within your purview.
And here’s the ultimate rub with chasing gross retention: retention is never just the responsibility of customer success. Sure, you might be losing customers who don’t see the value in your product, who don’t engage with you in your efforts to get them to adopt or who unfortunately don’t have the time to focus on what you want them to. Maybe you could have done something differently, found a different stakeholder to talk to, or told your story better, but you could have had a better product with more features and fewer outages. Maybe you could have had a more competitive commercial model or a better support experience.
Blinding customers with usage data doesn’t work. Similarly, blinding executives with data is less than optimal, in my experience.
Learn the stories, overlay the cohort data and focus only on what can be changed versus what is shit right now. You want to make improvements across the business to positively impact retention and growth; that’s kinda the point of CS. What you don’t want to do is start throwing stones.
Often, we look for “churn reasons” to absolve ourselves of responsibility. Sticking “product feature” in the churn reason box takes away the sense that there’s anything we could have done and it gives us a defence when we’re asked about churn rates. However, much like fighting churn is a defensive move, just throwing responsibility at other teams isn’t going to move the needle forward in a way that matters.
Turn your data into a story and tell the story of your customers to your exec and your board. Work out your magic 3, the top 3 challenges that, if you could solve them overnight, would drastically impact retention and growth. Communicate this with authenticity and compassion. Otherwise, you’ll look like you’re mud-slinging and nothing will change.
Crucially, you can’t do this to other functions or departments until your team have their shit together.
It’s a tough battle, probably the toughest; if you’re walking into a retention problem you didn’t create, working out how to fix it will be a rough ride. The most important thing is not to take it onto your shoulders; don’t take it personally or too seriously. Trust that everyone is trying to do the right things; you’re all on the same team. Be kind and compassionate to team members who are probably overwhelmed and trying their best. Focus on retention over churn, always. This is crucial to give your team the sense that you’re winning. Retention is a positive; you’re saving revenue; churn is always a negative number.
Don’t battle churn; chase retention. Trust me, it’ll be better for your mental health in the long run.
