Your Customer is a Churn Risk (And Here's How We Know)

Are churn risk signs hiding under your nose?
Patrick Icasas
July 12, 2021
Resources

First, what is churn? 

In an ideal world, our customers would stay with us for life. But as a CSM, you know that churn is a natural part of maintaining a customer base. Say your company has 1,000 customers on average. In the course of a year, you lose 100 customers. You are experiencing a 10% churn rate. 

To keep this rate from hurting your bottom line, your company can do two things: Work on gaining 100 new customers a year, or work on reducing the churn rate by making sure current customers are happy and don’t want to leave when it comes time to renew. 

Why should you care about churn risk? 

So you may be thinking, if churn is a natural part of a customer lifecycle, why worry about churn risk? Aren’t some people going to leave no matter what? It’s not a reflection on the services you’re providing, right?

Right? 

Well, yes and no. For some customers, you’ll lose them and you won’t be able to change their mind no matter what you do. However, for others, you may be able to turn the tide if you work to identify the churn risks when they first emerge. 

It’s been said that it costs 5 times as much to acquire a new customer than to retain a current one. While that particular figure is up for debate, it is safe to say that it will cost more in the long run to replace customers by seeking out new ones versus managing to keep current ones happy. What the difference in cost will look like for you comes down to the average lifespan of your client, their lifetime value, and the cost of acquisition. However, there’s no denying that the more you get your churn rate down, the more cost-efficient you will become. 

While we know some churn is inevitable, let’s dive deeper into a scenario where risks could have been identified, and the loss could have been avoided. Let’s look at some blaring signals and calls for attention you can pinpoint to change the mind of a churn risk. 

The Scenario

Let’s start with the case of RevolveCo., a totally made up company we’ll use to illustrate a completely realistic scenario (no sarcasm). 

They’ve been a solid customer for 2 years. During that time, you’ve had no indication that they’ve ever been unhappy with you. Sure, maybe you don’t have data that indicates their sentiments one way or another, but that isn’t necessary. RevolveCo. has never raised a fuss. At one point, you remember them calling to request some features, but when you said “no,” they didn’t seem to mind. Everything outside of that has been status quo. There was that change in leadership you noticed by browsing their LinkedIn page, but again, no worries. Your new primary contact even touched base already! They called to confirm how many licenses they’re paying for. Renewal time is coming up, and you feel like you’ve got money in the bank. 

Then, suddenly, disaster strikes. Your new contact over at RevolveCo. asks to cancel 30 days before renewal with seemingly no warning. 

Except there was warning. Plenty of it. You just didn’t see it in time. Let’s take this scenario step by step and talk about the red flags that were waving in front of your face the whole time, and where things went wrong. 

Problem 1: You had no data 

RevolveCo. never came to you with any problems, but you also didn’t have any data on their sentiments. You just assumed everything was good because they hadn’t complained about anything directly. That was your first mistake. 

If you don’t make it easy for customers to give feedback (positive or negative), it doesn’t mean that they’ll be magically happy with everything you do. It means the space where feedback should exist is instead a black box - devoid of information and open to any interpretation. If you aren’t recording the following, then every customer could be considered a potential churn risk:

  • Performance
  • Usage 
  • Survey data (including NPS) 
  • Roadmap requests

In short, if you don’t have clues about how your customer is feeling, you should assume the worst at all times. 

Problem 2: You didn’t investigate a feature request 

Notice how “roadmap requests” were listed above? Customers don’t just make feature requests at random. When’s the last time you reached out and asked about a feature out of pure curiosity? Never, right? You had some kind of driving force behind asking the question, a frustration or friction point you were trying to figure out how to smooth. 

Let’s revisit RevolveCo. You have a normally quiet client piping up and asking for a new feature. The reason for asking was serious enough for a customer who doesn’t normally speak up to do so. That should have been concerning to you. 

The mistake isn’t in denying the feature request - you can’t make every functionality a reality for every customer. However, not investigating the reason for the request in the first place as a CSM is where you went wrong. 

Problem 3: There’s a change in leadership or strategy 

While some things may stay the same during a changing of the guard, there’s bound to be some kind of shakeup under new leadership. A manager may come in, set in their ways with their favorite tools, and strive to use what they know best at a new company. Other times, a company will see a change in leadership as an opportunity to make other organizational adjustments that have felt long overdue. 

Regardless of the why, you need to recognize the what - that a change in who is in that role could mean trouble for you and the formerly reliable relationship with your customer. 

Problem 4: Out-of-character customer behavior 

Your main contact at RevolveCo. never used to pay attention to user licenses too closely. Last year, they even let the product auto-renew without any fuss. But this year, seemingly out of the blue, the new point of contact asks for the license count. Why? 

Take any change in behavior as something that should arouse suspicion. If you have an inquisitive customer suddenly go silent, they may have given up on you. If a customer unsubscribes from the same product newsletter they’ve been getting and engaging with for two years, they may be preemptively cleaning house. 

In the case of RevolveCo., they were likely doing the math on what they’re spending on their tool. The new contact is evaluating the value they believe they get out of the tool based on functionality and recent experiences (including that request about a new feature). 

The key is to stay alert. If you know what normal behavior looks like, it’ll be easier to spot what exists as an outlier.

Other potential churn risk signs 

While the Revolveco scenario illustrates many common signs of potential churn, there are others to keep in mind: 

Value perception drops 

Your customer could be experiencing a sudden or gradual decline in the value they’re getting, or what they feel they’re getting, out of your software. Customers hate wasting money, especially on high-priced SaaS products. They may give you this feedback during a QBR without any prompting, but it’s not always that easy to find out. You might have to dig deep into tickets with customer support, NPS scores, or comments they make on social media to find this out. The more vocal your customer is about the value they aren’t getting, the harder it will be to turn the churn risk around. 

Low or decreasing usage data 

This serves as another example of the importance of data. Viewing the usage of your customer can provide a window into their behavior, even if they aren’t communicating with you. If you are lucky enough to be able to pull usage data, examine it religiously. Low usage data can mean that your customer is struggling to get the rest of the team to adopt the tool. This can mean a slow and agonizing death for you. 

If possible, set up dashboards for your customers that measure their performance and usage data by their teams. Add flags or alerts that trigger when customers fall below a certain threshold. Usage data can serve as your litmus test for what’s really going on, even if your client is telling you things are the same as they ever were. 

Personal differences

No matter the tool, it’s important to remember the personalities behind the usage and the power of strong relationships. Personal differences may be what gets in the way of next year’s renewal, especially if something recently happened that caused some tension and the customer doesn’t feel like they’re getting enough value to see things through to the other side. If you feel like the relationship is a bad fit, mention it to your manager and get them to assign the customer to another CSM whose personality may mesh better with the client. 

In summary: Don’t leave churn risk up to chance. Know the signs to turn things around. 

While you can’t keep every customer from walking away, knowing the signs as they’re happening can help alert you to problems on the horizon and reduce your churn risk over time. Keep the following signs of churn risk in mind as you interact with your customers:

  • Not having data or feedback 
  • Customer asks for a new feature and you fail to investigate 
  • Change in leadership or strategy 
  • Out-of-character customer behavior 
  • Value perception changes 
  • Low or decreasing usage data 
  • Personal differences

It may even be helpful to jot these down and keep the list somewhere in your field of vision, especially when you’re having those QBRs and other regular meetings with customers. The better you get at identifying churn risks a mile away, the more likely you are to save a customer relationship from getting to the point of no return. 

Luckily, the fixes for most of the problems mentioned above involve two key elements - visibility and communication. Get clear visibility on numbers, behavior patterns, and desires that you may or may not be meeting at the moment. And once you identify potential problems, talk to your customer. Ask them what they need. A little bit of care and attention can go a long way. 

Better relationships. Less churn.

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