Budgets of companies and customers alike have been tightening by the minute, causing many businesses to ramp up their customer acquisition efforts drastically. It’s an understandable reaction to tough economic news, even if it has been shown that the process of acquiring a new customer is at least five times as expensive as retaining an existing one, if not more.
But, the problem with this tactic goes beyond a misguided numbers game. Some part of the process might be turning customers away, and without an accurate understanding of why those customers left, the pattern is doomed to repeat itself.
Determining the causes of customer churn requires digging deep into internal processes and data collection to ensure the right measurements are being taken. It’s far too easy for companies to distract themselves from finding the truth — and taking concrete action — because the process can seem arduous for the organization — particularly upmarket, where thorough analysis is complex, costly, and requires significant effort from employees. But the rewards far outweigh that effort.
Looking at technology providers’ stats on customer turnover, or the rate at which customers leave a vendor’s platform, tell only part of the story. There is a huge difference, say, between a customer who tried a product once and formed a rudimentary evaluation and one who has been a loyal user for many years but left the platform unexpectedly. Sounds obvious, but many companies run customer success analysis that treats these two situations equally, often relying on a single data point to encapsulate what is a complicated and multifaceted statistic.
For a better understanding of why customers might leave, businesses need to identify, with precision, the types of customers whose behavior they want to evaluate, and produce statistics that reflect each one. For example, technology vendors interested in understanding customer success for long-term users might want to skip measurements around any of their freemium products, which are more likely to be used on an uncommitted basis and are thus more likely to be dropped at the slightest roadblock. They also need to be mindful of which apps they are monitoring and how often those apps are traditionally used during an average workday. Project management software might get put on the metaphorical shelf once that project is complete, but an email or video chat program is a staple of office life — data on turnover for the latter two are far more representative than the former.
Next, vendors can take a look at their clients’ timelines as a business when evaluating turnover statistics. At first, it may seem like most of the information gathered is irrelevant, but it’s worth trying to read between the lines. Consider a large, long-time account leaving a particular technology vendor with little notice because they hired a new CTO who advocated for a different CRM with which they had more familiarity. Some within the organization might know this already, but that information needs to be communicated and factored into any decision to modify customer success efforts.
The best thing anyone can do is eliminate those third variables as much as possible. Customers change their software for all sorts of reasons, and it’s best to figure out exactly why before attributing it to something having to do with the company. Perhaps they were acquired and forced to switch, for example. With so many clients on their rosters, enterprises would be forgiven if a customer’s use case fell through the cracks — now is the time to track it down.
Starting at the beginning
To stop customers from leaving, companies have to think about how they are arriving. Relay, a company that builds smart communication devices to be used by frontline workers in places like hotels and resorts, learned this lesson when it was in the market for a new CRM a few years ago. At the time, sales operations were suffering due to limitations on product offerings. The company does not offer many tiers of service, and thus was not afforded many opportunities to upsell customers once they signed. Additionally, it had always relied on a land-and-expand strategy for growing sales, meaning customers had to spend a decent amount of time with the product and receive the necessary support to keep them engaged.
The company ended up choosing a CRM that enabled deeper customer segmentation. For example, Relay could separate out customers who are using a free software trial so that salespeople could pay them special attention. This level of categorization enabled the company to achieve maximum efficiency, spending more time selling and less time tracking down the most salient customer information.
After getting its CRM in place, Relay was able to focus its efforts on retention rather than feeding the beast. What it found is that some customer exits were due to regulatory requirements out of its control; it was easy to eliminate this stat from the metrics so it didn’t sway decision-making. It also learned that the most important retention factor was how customers were being onboarded, and that the existing process of handling this on a one-to-one basis — a representative running a live training session — was not producing the desired results. With a bit of upfront effort, the company was able to integrate a training module into its CRM that standardized and streamlined the process for customers, who were free to train at their leisure.
Relay clocked some impressive results: customer turnover rates dropped to 1%.
A shift in perspective
When a customer leaves, it’s natural to wonder what went wrong to drive them away. But the answer might lie long before the customer even launched the application to begin with. Perhaps it was a decision the vendor made out of fear, such as enforcing strict subscription terms in an attempt to lock its customers in. In these moments, companies are setting themselves up for wasted time trying to retain a customer with no intention of sticking around because they’re turned off by an inflexible pricing model.
It would be wise for mid-market companies, if they haven’t already, to build out a dedicated onboarding and migration team. These folks will be able to identify, with precision, the factors that lead to customer churn and head them off at the pass — coming from a place of strength.