Executive Summary

Customers and vendors start off their relationship like two boats side by side in the middle of a lake. But if both boats are unoccupied, they will soon begin to drift apart. Over a longer period of time, it's highly likely that the two boats will end up very far apart. What would change that natural tendency? Simple. Put someone in one of the boats with a pair of oars. Better yet, put someone in each boat with oars.

Change is the enemy here. If nothing changed, customers and vendors might very well stay tight. But change is the constant. People change in both companies. Business models change. Products change. Leadership and direction change. And on it goes. Only willful, proactive interaction on the part of one or both companies will overcome the natural drift caused by constant change. This is why customer success organizations have come into existence. Customer success organizations and practices intervene to push the customer and the vendor back together. They get into one of the boats and start rowing.

The long-term health of your business is directly tied to your ability to retain customers and prevent churn. No other metric is responsible for more meetings or more sleepless nights. In a recurring revenue business, most of your revenue comes after the initial sale. In fact, in many SaaS companies, the expected lifetime value of a customer is 10 times the value of the initial sale. As a limiting factor to growth, churn negatively affects both growth and company valuation. It also has a terrible impact on morale. Everyone hates to lose a customer, but, in a recurring revenue business, the costs are acute. The biggest cost, as mentioned in the previous chapter, may not even be the value of the customer's contract, but the resources that were burned acquiring, onboarding, assisting, and often trying to save a customer who eventually churns. Churn increases with the size of your customer base, which makes it incredibly difficult to overcome.

Churn can be defined as the percentage of subscribers to a service that discontinue their subscription to that service in a given time period. Because all companies invest significant resources acquiring their customers, it's critical to be sure customers stick around as long as possible to generate the largest possible return on the initial investment. The longer your customers stay, the larger the return.

In a recurring revenue business the concept of partial churn is also valuable to understand. That is simply the loss of contract dollars in a situation in which the customer does not leave you. Partial churn can come from a product churning, unused licenses being returned, or customers negotiating a deeper discount because of challenges they encountered working with you or a perception of receiving lower value than they originally expected.

So why do customers decide to part ways with their established vendors in search of greener pastures? What triggers customers to leave the nest? Does churn result from predictable patterns or a series of unpredictable, random occurrences? Many hours have been spent analyzing this problem, and research and anecdotal experience tells us it's not random.

It might sound obvious, but if you want to stop your customers from looking at your competitors, you need to make them successful using your product or service. It's not as easy as it sounds. The definition of successful customers varies widely and depends on many factors. Most companies believe that successful customers are a direct result of product adoption, engagement, and product usage. It's also critical to make sure they are getting the business benefits they set out to achieve when they selected you as their vendor of choice. One thing to consider is that sometimes the most successful customers appear to be unhappy. This tends to happen when customers are pushing the boundaries of your product or your organization. Do not mistake demanding for unsuccessful. Oftentimes, the opposite is true. The traits that make a customer demanding are also likely to ensure that they are getting maximum value from your product and are simply asking for more.

While there are many reasons why customers cancel, most companies don't catch on until it's too late to save the account. This is especially critical for subscription-based companies. Here are some of the top reasons why customers churn. The real trick is putting measures in place to look for the warning signs and acting on the data when you see the signals.

Stalled or Prolonged Implementation

Customers are usually antsy to get started, but all too often, they lose their momentum or focus after the project starts. If customers can't get their products into production, they aren't seeing any value.

• Telltale signs: Customer fails to get the product in an operational production mode.
• Steps you can take: Define packages and services offerings that provide quicker time to value by getting customers started on the customer journey. This may include defining smaller phases that get the customer using your product for a subset of their overall scope.

Loss of Project Sponsor or Power User

The transition of a project sponsor or power user creates a risk for your long-term success. In some cases, all the background information about why your product was purchased and the keys to managing the application reside in one or two key people.

• Telltale signs: The customer goes dark. You can't reach the project owner or sponsor.
• Steps you can take: Offer training for new users to make sure that more than one person in the organization knows how to use your product. Strive to maintain or create high-level relationships to keep management on board and to fall back on when one of your key champions leaves or takes on a new role.

Low Rate of Product Adoption

Customers who are not using your product to support their business requirements are likely to find another option or go back to their old method of doing business.

• Telltale signs: Customers aren't using your product at all, or you have seen a decline in usage.
• Steps you can take: Develop programs to work with customers to assess their business needs, and guide them through a customer journey that outlines the functionality they can use in the product. Ensuring that more users are logging into the product and supporting a broader set of functions makes your product more sticky (and harder to replace). Also, building a library of customer ROI stories and testimonials for use when interest or momentum seems to wane can be really beneficial.

Acquisition by a Company That Uses Another Solution

Company acquisitions account for some degree of churn in most recurring revenue or pay-as-you-go companies.

• Telltale signs: Your customer contact tells you that the organization is being acquired or that the new company leadership is forcing another solution.
• Steps you can take: This is a tough one. In some cases, you may have the opportunity to present the value of your product or service to the new company leadership. This may give you a chance to maintain (or grow) your footprint. In many cases, however, the die has been cast and your product is not on the approved list, thereby creating uncontrollable churn.

Lack of Product Features

Competition is heating up for every product and company. The draw of new features, such as more intuitive UIs or mobile or social capabilities, plus the lure of lower prices, are driving many companies to switch vendors.

• Telltale signs: Your customer is asking for new features, more product enhancements, or more aggressive pricing.
• Steps you can take: Make sure your CSM is up to speed on your product road map and understands where you are making investments in the product. If you don't have a customer success team, find another way to communicate the positive future vision for your product and company to existing customers. Get customer feedback about product direction and ask customers what they think. Share feedback with your product management team to let them know what matters most to customers. Engaging customers and making them feel like they are part of your process can be a very powerful initiative.

New Leadership Driving Shift in Direction or Strategy

New customer leadership can drive a shift in direction or strategy. Sometimes leaders bring strong opinions or biases about the product they used in the past, and they force an evaluation or replacement of your product.

• Telltale signs: You are being asked to participate in a request for proposal (RFP) or solution evaluation process.
• Steps you can take: With the support of your project owner or sponsor, place a proactive call to the new leader. Offer to provide an overview of your organization, product, and value proposition. Reinforce value received and opportunities to get additional ROI from extended capabilities and usage. It's important to get ahead of this at all costs because the comparison of your existing installed product, with all its warts, does not usually stand up well against PowerPoint slides and demos from your competition.

Customer Affected by Poor Product Quality or Performance Issues

Product or performance issues can create significant pain for your customers and put them in a position in which they are looking for a better, more stable solution.

• Telltale signs: Your customer has logged an increased volume of support tickets or escalated cases.
• Steps you can take: First off, find a way to track early warning signs so you can get ahead of this before it becomes a crisis. An alert when a customer goes over a certain threshold of support tickets, maybe three in any given week, sets off an action plan, such as a phone call or an e-mail campaign. If you are in a high-touch or low-touch situation, you need to be knowledgeable and empathetic, offering solutions and alternatives in a timely fashion. Escalate internally and let your customers know that their issues are receiving the highest level of attention. Stay on top of issues and proactively provide updates on progress. Customers understand that software isn't perfect and they value the relationship and support they receive to get to resolution. Unfortunately, if the issues persist or create significant impact, you are at risk of losing your customer.

Your Product Is Not the Right Solution

Creative salespeople can find ways to sell products even when they're not the perfect fit for your customer's requirements. See the previous chapter and Law 1 for more insights here. In some cases, customers will buy your product to solve a need that doesn't match your sweet spot.

• Telltale signs: Your customer's understanding of your core product capabilities is not accurate or the customer is asking for features that are outside your wheelhouse.
• Steps you can take: Educate the sales team on the use cases and customer parameters that create the ideal customer experience. Partner during the sales process to help identify where prospects do not fit the ideal customer profile and offer alternatives to the way the customer is solving the business requirement. Teach the professional services team the warning signs and how to identify risks early in the project. Reread the previous chapter for more ways to avoid selling to the wrong customer.

The Human Factor

Even the best customer success professionals will occasionally not mesh with your customers. It's important to pay close attention to all the customer-facing people on your team and watch for the warning signs when the matchup might not be ideal.

• Telltale signs: You may receive less-than-glowing feedback from a customer on a call or in a survey about your team member. You may also get the feedback secondhand, through partners or individuals who are connected to your customer.
• Steps you can take: Don't ignore negative feedback. Proactively reach out to your customers and seek their input and opinion about your team member. You need to quickly determine whether the relationship can be fixed or whether you need to replace it. Delaying the need to replace a resource can bring long-term negative effects.

The bottom line is that you must put proactive procedures in place to monitor the health of your customers. The more you understand your customers, their business needs, and the ways they are using your product, the better off you will be when it comes time for them to renew their contract or decide whether you continue to be their vendor of choice. Whenever possible, proactive outreach from your customer success management team, or intervention through your tech-touch channels such as e-mail, webinars, or community, can make a big difference in your long-term relationships and overall customer health. A few great ways to maintain contact include:

• Proactive outreach from the CSM or an executive
• Timely, relevant e-mail content
• High-quality customer webinars that provide ideas about how to extend use of the product
• Updates and involvement from a robust customer community
• Regular user group meetings
• Customer advisory boards
• User conferences