The Only Two Reasons Customers Churn

The Only Two Reasons Customers ChurnChurn is the antithesis of growth.

When you lose a customer, in order to grow by one customer, you have to first replace that customer you lost, and then add a new customer.

And when a customer leaves, they take the revenue they were paying you with them (often to a competitor!); but they also take other things, like negative sentiment, your employee’s morale, ammunition for the competition to use against you in future deals, and much more.

You know churn is bad, I don’t have to convince you of that. (Right?)

What’s even worse than having churn is not knowing why your customers churned. That’s why I say you need to know why each customer churned so you ensure no customer ever churns again for those reasons.

But I want to be clear that, whatever reason your customer gives you for why they churned, the details uncovered by your internal tracking, or (ideally) both, it all fits into one of two categories.

Let’s dig in…

There are only two reasons for customer churn, and only one is even slightly acceptable and that is…

1. Something Happened to or with the Customer

It could be that the customer goes out of business or they get acquired: death or marriage in industry speak.

Of course, if you do things right, when your customer gets acquired, they’ll bring you with them. In fact, you should look at a smaller customer of yours getting acquired by a bigger customer as a huge foot-in-the-door, land-and-expand opportunity for you.

And if you really do things right, the customer that goes out of business will either bring you into the next venture, individual users will bring you into their new jobs at new companies, or they’ll straight-up keep their account active for various reasons (winding down the company, to transition as part of a sale of certain piece of the business, etc.)

If the customer doesn’t go out of business but has financial issues, sometimes they have to make a decision – due to cash flow issues – about which vendor they’re going to pay this month. If you do things right, you’ll be at the top of the list of vendors that get paid this month. I’ve covered this – and how to avoid credit card or other payment failures in general – before.

Now all of this depends on many factors, but don’t just assume churn is inevitable even in the worst situations… a fun (and potentially super-valuable) thought experiment is to ask: “What needs to happen to get the users of our product to take us with them when they leave the company they’re currently working for?”

It’s easy to look at your churn rate and say “that’s just the way it is” but in reality – at least in my experience – the level of truly unavoidable churn is always lower than you think; sometimes dramatically lower. It just requires you to look at things differently.

Okay, so something happening to the customer is the only slightly acceptable reason for churn.

The other (far more common) reason for churn is that…

2. The Customer Did Not Achieve their Desired Outcome

Remember, Desired Outcome has two parts: Required Outcome and Appropriate Experience.

Simply put, Desired Outcome is what they need to achieve, and how they need to achieve it.

It’s very simple; customers that achieve their Desired Outcome tend to not churn. And remember, customers that are achieving their Desired Outcome aren’t just far more likely to stay, but stay longer, increase their usage/consumption and spend more over time, and help spread the word about your product.

But that means that both parts of their Desired Outcome must be met or they’ll be at risk for churn (if they haven’t already left).

The quickest way to lose a customer is when they fail to achieve their…

Required Outcome

Required Outcome is the thing your customer needs to achieve, the thing they are trying to accomplish; helping them achieve that is why you exist in their world.

Helping them achieve their Required Outcome is what gets you in the game. If you can’t help them achieve their Required Outcome, that’s a non-starter.

From a product standpoint, this is what gets you in the game; it’s table stakes.

If you don’t solve this for them, you aren’t even an option.

If you fail to deliver on this, nothing else matters.

But this thing that needs to be done can be done in myriad ways:

  • your product
  • a competitive product
  • open source software
  • homegrown solution
  • outsourced to humans
  • done by humans they hire

And that’s hardly an exhaustive list.

And when it comes to Required Outcome, it all about whether or not they can achieve what they need to achieve through your core product or service.

Can the customer do what they need to do with your product? If yes, you’re in the game.

If not, that’s a non-starter.

Now, some of the reasons a customer might not achieve their Required Outcome with your product are:

  • Your product is missing critical functionality required to do the thing they need to do
  • You have a poor (from absent to overwhelming) onboarding experience
  • The customer had a bad implementation / configuration / setup
  • The customer hasn’t adopted your product and isn’t using it (for whatever reason)
  • There are bugs and other stability / usability / access issues keeping the customer from doing what they need to do

Again, that’s also not an exhaustive list, but those are some pretty obvious reasons why a customer may not be able to do the thing they absolutely need to do with your product.

Of course, if you don’t claim in your sales or marketing efforts that they’ll achieve at least their Required Outcome, they won’t engage with you in the first place (which is actually good).

However, if you claim that they’ll be able to achieve their Required Outcome with your product and you do not deliver on that, they will churn… and probably churn quick.

Make sure you don’t do that… but also make sure you understand that…

Success Gaps Will Derail Required Outcome

Required Outcome is not the functional use of your product!

Your customer didn’t sign-up for your product so they can use your product (no matter how cool it is).

They signed-up so they can use your product to achieve an outcome.

You sign-up for an email marketing product not to send emails but to make more sales, get people to come to your events, etc. Emails enable that outcome.. in theory, at least.

And that’s where the Success Gap exists.

If you don’t know how to build a list, write compelling emails, craft strong calls to action, have a compelling subject, create a landing page that converts, craft an irresistible offer, etc. then the emails you send successfully through the email marketing product will probably not get you the result you’re looking for.

As the vendor, you need to be acutely aware of the gap that may exist between the functional use of your product and the customer’s true Desired Outcome. The best companies aren’t just aware of that gap, but proactively work to bridge the Success Gap.

But the reason they chose your product wasn’t because you could just help them achieve their Required Outcome. No, they chose your product specifically – against all those other options I listed before – because of the other part of their Desired Outcome…

Appropriate Experience

This is, well, the appropriate experience for the customer.

Some people or companies want to build things themselves or hire humans to do the work; others want a technology solution to their problem or to help take advantage of an opportunity; this is what dictates how they solve for their Required Outcome.

But after they have the baseline decision (some people don’t even know how they want to solve the problem; you have an opportunity to get them to see your way as best), the overall experience the customer wants or needs to have varies.

In fact, each customer segment, for each of your products, will have a uniquely appropriate experience. In complex customer segments, each persona will have different Desired Outcomes (but that’s a discussion for another day).

Desired Outcome - Product and Customer Segments

Desired Outcome Example

For an example, let’s say the required outcome is the validation of a mailing address.

From a required outcome standpoint, there are myriad ways that could be accomplished. But let’s assume the customer wants a SaaS solution to that problem.

If you’re selling to early-stage startups or technical folks like developers, you could probably go to market with an API, a self-service method of obtaining an API key, some lightweight documentation, and a Slack channel for community support. Feed in an address, get a result; done. That’s the Required Outcome and Appropriate Experience for that type of customer.

If you’re selling to Enterprise customers with business users, you might need to have a high-touch sales and onboarding process, complete with formal training, a full-blown UI, integration with their system of record (maybe providing the resources to make that integration happen), as well as offering 24/7 telephone support, committing to SLAs, etc.

The Required Outcome is the same – validate a mailing address – but the appropriate experiences for the two customer types are very different.

That’s good to keep this stuff in mind if you have one Ideal Customer that you’re focused on right now, or if you have multiple customer segments; there isn’t a one-size-fits-all experience that is appropriate for the customer.

It’s also critical to keep in mind that a customer will evolve over time and what they see as an Appropriate Experience will evolve, too. Most operationalized “customer success” models forget to take this into consideration and are built around the idea of a static customer.

Those examples above also show that “Appropriate Experience” isn’t just about the product; it’s about ensuring the customer has everything they need – in-app and beyond – to achieve their Required Outcome the way they need to achieve it.

If you fail to provide your customer with the Appropriate Experience, even if they are able to achieve their Required Outcome – they will not feel successful.

They didn’t achieve their Desired Outcome and they’ll either churn immediately or – if they’re able to at least get the Required Outcome, they may stick around until they find a vendor who can provide them with the Appropriate Experience. But don’t expect them to be an advocate for you while they wait.

Non-Technical Example: Commercial Airlines

I travel a lot so this one is on my mind a lot; it’s also a good non-technical, non-SaaS example most people can immediately understand (even if they aren’t as emotionally invested as I am in this example).

I got a real life reminder of Desired Outcome this week when my flight on American Airlines was canceled due to weather and, in scrambling to find a way to get to Charleston from Dallas on time, I ended up on Southwest.

Southwest is a no-frills airline, and while I made it safely and in just a couple of hours from DAL to CHS (my Required Outcome), the experience of not having assigned seats (you can sit anywhere, but if you’re not first on the plane and/or if there are passengers from a previous leg already on the plane, the good seat is generally already taken), basically no leg room, literally no room to get any work done, no wi-fi on the plane (it wasn’t out; this plane was not equipped with wifi), minimal snacks and drinks, and an overall unpleasant atmosphere was not appropriate for me.

So I made it safely to my destination, but I didn’t feel like it was a “successful” flight. I couldn’t work (I was forced to read a book on my phone!), it was uncomfortable, etc.

While I may have to occasionally fly Southwest when all else fails, I will always do my best to avoid them.

And you know what? For Southwest, that’s 100% okay… I’m not their Ideal Customer.

Southwest knows exactly who their Ideal Customer is and they know that, sure, every once in a while someone like me will use them, but they’re not going to change their ways to cater to me or worry if I feel like the experience wasn’t right.

This isn’t about ensuring every possible customer has an appropriate experience; it’s about ensuring your ideal customers achieve their Desired Outcome.

About Lincoln Murphy

I am a Customer Success Consultant focused on Customer Success-driven Growth. I wrote the Customer Success book which you can buy at Amazon. If you need help applying Customer Success-driven Growth principles in your company or would like me to speak at your event, please contact me. Also, connect with me on LinkedIn or follow me on Twitter or Facebook.

Comments

  1. I highly agree, it’s crucial for any SaaS company to keep a very close eye on their churn rate. In regards to the desired outcome, I would go even farther and say that if you want to achieve a great CX you should strive to deliver more than the desired outcome and exceed your customer expectations.

    • Exceeding expectations is fairly easy when expectations are low (which they are in many cases).

      If you can simply provide the appropriate experience for your customers – let alone exceeding what’s appropriate – you’ll be light years ahead of the competition.

      Gotta walk before you run… but I like where you’re going with that.

      • This is why I think managing expectations is one of the main challenges in the sales process (and onboarding). It’s up to you to set client’s expectations (as long as your unique selling point remains worthwhile) otherwise they will set them themselves based on their limited knowledge.

  2. Your article underlines why it’s so important to teach your salespeople who it is you don’t want as customers. Probably the most under-used approach in sales.

  3. Tania Shepparx says:

    This is excellent. I have invested a lot of time identifying reasons for churn, and this simplifies it beautifully. And, the focus on your Ideal Customer is so key, too. Thank you!

  4. An excellent article. We noticed churn and we immediately tighten our process for two areas – (a) Optimized our knowledgebase and customer service, and (b) Planned drip campaigns and one of the campaigns included *surveys*. It worked to an extent.

Trackbacks

  1. […] Lincoln Murphy of Gainsight says there are only two reasons customers churn, and only one is even slightly acceptable in “The Only Two Reasons Customers Churn” […]

  2. […] and noble intentions, customers that cancel (and didn’t get acquired or go out of business; the only slightly acceptable reasons for churn) churn out because they did not achieve their Desired Outcome through their interactions with your […]

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