You love your customers.
So, when they decide not to renew, it affects your SaaS business. It takes a lot resources to acquire new buyers.
But is all churn bad? What are the underlying reasons for your customer’s departure?
Consumers churn for several reasons, including price and customer service. Therefore, it varies based on the sector.
“Customer churn rates that could be considered fantastic for one business might be atrocious for another. Why? Because not all business models are the same, and even companies with similar business models might define churn differently,” writes Dan Shewan, a web content specialist at WordStream.
Let’s explore when churn might be acceptable for your company.
Churn: Different Schools of Thought
In the
…show more content…
Managers possess multiple strategies to improve the metric. And on top of that, there are different types of churn.
Image Source
Top-level leaders perceive churn differently. Some experts believe churn is a natural part of your business operations. Customers will come and go.
They suggest setting a churn benchmark. Then, use it as a guide for future growth.
“[D]on’t try and compare the churn of your SaaS product to anyone else. Rather try and get a feel for what you think the ‘background’ level of churn should be within your business,” states James Barnes, co-founder of StatusCake.com.
Other thought leaders see churn as preventable. They advise that your team take a proactive approach to retaining buyers.
“Considering all the ways churn hurts a company, there doesn’t seem to be any reason... that you should sit back and just accept churn as either inevitable or a good thing,” writes Lincoln Murphy, founder of Sixteen Ventures.
So, it begs the question: Is churn always bad?
It really depends on the school of thought, the circumstances, and your company.
Examine these three particular situations:
1. Wrong Customer Fit
We assume that every buyer fits our SaaS ideal
With a high turnover, it can mean two things for a company. Panera Bread is either ineffective in
The first type is hostage, which is a customer who is stuck with a company even though they are dissatisfied. An example of this for me would be the water company that provides water to our house, WSSC. We have had many problems and slow service, but we are stuck with them because they have a monopoly over that service in our area. The second type is defectors, which means that you are not satisfied and you have the option to leave. An example of this in my household would be McDonalds because we don’t receive good service and there are other options that worth our hard earned money. The next type is mercenaries, which means you are only a little satisfied with the service and will leave if a better opportunity comes that is only slightly better than the one you are receiving. An example of this would be our service with Netflix because they do provide some good services but it is not excellent. If any of their other competitors were to offer the same service for a slightly better price then I would consider making the change. The last type is apostle, and this is the type of customer that all companies would like to encounter. These customers are very satisfied, very loyal, and very vocal about the great service they receive, which brings more loyal customers. Daymond John says “word of mouth is the most powerful ally you have on your side” (John, 2015) in his
Soman,D & Marand, S (2009). Managing Customer Value: One Stage at a Time.: World Scientific Publishing. p9-14.
Keeping a high turnover rate, companies will continue to lose money until they decide to deal with the issue. Through some adjustments and implementations of the programs to lower turnover rates, the company can see a significant change in their costs and what they might actually save.
...rs since the reward is tangible. Since 80 percent of profit comes from a small percentage of customers, programs should be developed to retain them. Companies will use resources that aren’t available to the entire customer base to ensure they are retaining their most valuable customers and offering incentives to encourage others to move up.
Other alternatives to predictive modeling in businesses are churn prediction and customer retention. Where the ability to anticipate their decisions; with for example, loyalty programs, ono-to-one marketing (personalized solution) or complaints management. Will allow companies to increase their profitability in industries such as Telecommunications where retention costs are lower as compared to new customers acquisition (Ngai et al., 2009).
Decades ago, companies worried about gaining a new customer. But today’s climate requires businesses to retain consumers. Therefore, nurturing the customer through the cycle holds greater purpose.
Slatten, T., Svensson, G., & Svaeri, S. (2011). Service quality and turnover intentions as perceived by employees: Antecedents and consequences. Personnel Review
Corporations continue to see customers as important assets and are increasingly devising ways and methods for estimating Customer Lifetime Value, which have been developed as a very important strategic marketing tool. The CLV Model has also been described in other management literature as ‘customer equity’ and ‘customer profitability’ which helps firms and corporations quantify customer relationships. Essentially, “customer profitability provides a metric for the allocation of marketing resources to customers and market segments.”
While some companies aim to grow their customer base, the successful ones recognize the importance of increasing customer lifetime value. Repeat loyal customers offer more value to your business--generating over 10x more revenue.
Size of current customer base and market share is small (potential growth and new advertising agreements)
A distinction should be drawn between low performing employees and top performers, and efforts to retain employees should be targeted at valuable, contributing employees. Employee turnover is a symptom of a deeper issue that has not been resolved. These deeper
673), retention management must be based on three types of turnover, voluntary, discharged, and downsizing. Not all businesses are freighted by turnovers, for some it is the way of life and cost is built into the budget. However, for others any type of high turnover can be detrimental for company profit, employee wage and benefits offered. First, let’s take a look at voluntary and involuntary turnover that affects retention. Voluntary turnovers are caused by many different reasons. Turnover may result from topics such as job dissatisfaction, job mismatching, knowing that job opportunities are plentiful. Two reasons that I will discuss more are micromanagement and employee loyalty. Like stated before in the introduction, when employees are dissatisfied, possibly due to being placed in an area that doesn’t fit with their skill set, one is more likely to seek new employment. Another part of turnover is discharging and downsizing. Discharge is just that, members being discharged due to discipline and job performance. While downsizing turnover is a result of business being overstaffed (Heneman III, Judge, Kammeyer-Mueller, 2015, pg. 675). There are also other reasons for voluntarily employee turnover, such as generation differences when it relates to employment. The current generations are more likely to see a job as one piece in their life puzzle rather than as the first, indispensable anchor piece without
Or how to keep the employees they currently have even if recruiting for more. Employers spend a lot of money to hire on individual, however if they are too able to retain them, then they have not only wasted that, but also have to spend the same again to seek and hire another. To keep employees, company’s need to try and keep them engaged, somewhat satisfied, and motivated. Without these items turnover rate can be very high, because these individuals also affect new and potential employees, through their direct attitudes and word of mouth. According to Gallup’s 2013 State of American Workforce report: 18% of employees are actively disengaged, dissatisfied, unmotivated workers with attitudes that can be contagious, doing minimum required to keep their job, but without any real connection to their work. Management plays a role in retention, if you have poor management with poor communication, and unclear expectations. One could also expect higher turnover due to dissatisfaction, and lack of
we would be tempted to believe that is a simple, linear relation between satisfaction and loyalty. According the research of (Jones & Sasser Jr., 1995) , relation satisfaction and loyalty is different according to time and circumstances. Unless they are totally satisfied, there is always a chance you will see your customers be lured away (Jones & Sasser Jr., 1995).