As the SaaS industry continues to rapidly mature, more folks are looking at churn in SaaS companies – investors, analysts, executives, consultants, etc. – and more and more methods of measuring churn are going to surface… and that’s awesome.
Of course, the problem is that, while analytics and metrics and new ways of measuring churn are fantastic – and no matter how you slice it, accurately measuring churn is not actually that simple – ultimately it’s what you do with that data that matters.
So… even with all the different ways of measuring churn, how do you actively retain customers?
What methods, tactics, techniques, and ways of thinking will help you keep the customers you already have so you can more efficiently grow your SaaS business?
Enter… Growth Hacking.
Fundamentals of Customer Retention
How do you keep customers? Just have a great product, right?
Focus only on making the best product with the most features, slickest UI, etc. and you’ll do great.
And as you already know, it’s the companies with the best products and the most features that are the most commercially successful, so just focus on that.
After all, a great product will retain customers just like having the best product will magically attract those customers in the first place, right?
No. You’ll see that said a lot… but it isn’t a fact. It’s a wish.
It’s wishful thinking.
It’s… a lie.
It’s a lie we tell ourselves because we want to believe it.
And if we believe it… it isn’t a lie, right?
The Truth is Relative
Just like Growth Hacking – and Marketing in general – are required to build market share for even the best products, the same is true for keeping that market share.
So if it was true that just having the best product, most features, or slickest UI was all it took to be successful, things would look very different in just about every product category.
But that’s not how the world actually works.
Very often market leading products aren’t the slickest, aren’t the best, don’t have the most functions, aren’t the most extensible, etc.
And if your product is really the best or you’re trying to disrupt a category with a crappy incumbent product… I know this fact drives you freakin’ crazy.
But you can’t make it not be true by ignoring it.
You have to have a good product that solves an actual problem for your customers.
But that’s just the baseline.
That’s the starting point.
It’s what you do from that point forward that determines your fate, and that’s what I’ll cover in this post.
Growth Hacking Customer Retention
While most of the Growth Hacking stuff you read is focused on the Customer Acquisition side – Traffic Generation, Conversion Optimization, and Viral Expansion – what if you applied that Growth Hacking thinking to retaining customers?
It’s one thing to pull new customers in the front door, but if you’re losing too many out the back door, your growth could be severely hampered, could stall,… or worse.
Churn Kills SaaS businesses
Churn kills growth.
It kills profitability.
It kills hairlines.
It kills marriages.
It kills revenue.
It kills valuation.
It kills relationships with investors.
You get the picture.
Now, it’s true that many early-stage companies haven’t experienced this pain yet, but if they make it long enough, they will come to understand the soul-crushing impact of customer churn.
If your company is at the “churn doesn’t bother me stage” – well, good for you… enjoy it while it lasts. Think of this guide as something to help reduce the future pain of churn.
If you’re experiencing the pain of churn now, though, what I write here may just save your business.
It’s time to Change your Thinking
While I’m going to give examples of tactics you can use to Hack Retention, the purpose of this guide is to show how I’ve applied Growth Hacking thinking to Customer Retention and to help get your brain moving in the right direction.
Of course, before you go through this list, I need to once again reiterate that retention starts by having a great product that solves a real problem for the customers that are using it. That means that people could churn because your product sucks. In that case, fix the product.
That means also that your product might be fine but you attracted the wrong audience in the first place. In that case, fix your marketing.
But if you have a great product with the right customers, it doesn’t hurt to work harder to keep them engaged so they’ll stick around longer and grow your customer lifetime value (LTV).
What I’ve listed here is also not a replacement for a professional Customer Success organization… but could very well compliment that organization.
All that said… some of these might apply to you, some of them absolutely won’t… but all of them should get your brain turning.
And just to reiterate my definition of Growth Hacking, it’s about a mindset of understanding customer and user behavior as well as market dynamics and what’s technically possible – or should be – and using your imagination to make it happen.
Just like my other posts, some of these “hacks” I’ve used and have seen a big impact (such as an immediate 15% drop in cancellations), and others are just ideas I haven’t implemented yet but might if the occasion arises… oh, and some are just crazy ideas that I think would work if the situation is right.
Guess what? Just like my other posts I’m not gonna tell you which ones are which so use your imagination and a good bit of caution.
I’m also not going to show you live examples of what I’ve implemented or give you results. You see, I’ve helped my clients with these tactics and they’d like a little bit more time out in front of you.
And I have to say that a lot of what I’ve already talked about regarding Growth Hacking can be used to – or will already – drive engagement and therefore customer retention. This list is just an “in addition to” not an “instead of.”
Got it? Okay, here we go with Hacking Retention… starting with bigger-picture ideas then moving into tactics…
- Attract the Right Audience
- Real (Enough) Time Customer Segmentation
- Engaged… not Active
- No More Customers
- Member Exclusives
- Manage Expectations
- Position Customers for Success
- There are 5 types of follow-up emails
- Stay top of mind outside your app
- Infiltrate their Ecosystem
- Develop your own Ecosystem
- Introduce Cancel Flows
- Exit surveys
- Entrance surveys
- Track Pre-Cancel Events
- Always Drive ’em back into app
- Drive non-user engagement
- Don’t let credit cards expire!
- Professional Services
- Own the Industry
- Know what Retention You’re Hacking
- Use your imagination!
- (Bonus!) Let’s Grow Your SaaS Company
1. Attract the Right Audience
One of the most important things you can do to hack retention is to have good customers in the first place. Good customers are those that continually realize value from your product.
Good customers come from properly targeting and bringing the right audience to your marketing website or otherwise getting in front of them to sell ’em your stuff.
- Develop your Ideal Customer Profile
- Identify and Market to your Ideal Customer
- The Dark Art of Buying Customer Data
- Warm-Up Your Leads Before You Email Them
- SaaS Churn Rate Reduction Starts with Attracting the Right Customers
- SaaS Distribution: How to Get in Front of your Ideal Customers
Remember… churn is not just a customer “end of life” issue…. it’s a lifecycle issue, and the seeds of churn are often planted very early in that lifecycle.
2. Real (Enough) Time Customer Segmentation
I don’t care how you do it… use a 3rd party tool, roll your own, do it by hand… but you need to be able to separate the “active” (whatever that means to your company) from the in-active customers.
This way you can take those who are active and add some grease to the engagement wheel while you work harder on engaging those that have slipped off the radar… or never quite made it on in the first place.
Of course, you can further segment your in-active users by cohorts, those that are legit churn threats based on predictive analytics via historical data, etc. But don’t get overwhelmed by that… have a clear definition of “active” and two main buckets… active and not-active.
Work harder on the latter but watch the former to ensure they stay that way.
You want “engaged” users … not just active.
Remember how in #2 above I said “active” … I didn’t mean it. I don’t like the term “active” because it’s so one-dimensional and generic.
And this isn’t one of those “which term should we use” BS arguments… this isn’t semantics.
Engagement is simply different than active and is a lot more powerful.
Engagement is based on your customer… active is based on actions of your users. Ponder that for a bit.
While you can break down engagement into user actions, it’s the starting point for developing those – the context – that changes the game.
Get granular with engagement measurement.
Here’s a common definition of active: number of logins. Seriously.
That’s a lot more common than I wish it were, but that’s how a lot of SaaS providers measure “active.”
But from the customer POV – where you should be doing just about everything from – number of logins could mean several things, and none of those have anything to do with realizing value… which is what engagement is.
Consider a user with a lot of logins but no other activity. That could mean they want to get started but they can’t figure out how. They know – or believe because of your marketing – that your SaaS product should do what they need but they can’t figure it out.
So they leave. Then they come back later. And leave. Rinse and repeat for a while… until they stop coming back completely.
So what many naive SaaS providers would believe is an “active” user…is really a huge, ugly churn threat.
Yeah, I honestly hope you never get another customer…
… because I want you to succeed beyond your wildest imagination.
And that success starts with changing your mindset about the people that pay you for access to your SaaS.
Customers buy commodities.
Customers are short-term or transactional in nature.
Customers are fleeting, fickle, and price-sensitive.
But what if you just changed the way you talk about those people who give you their hard-earned (or hard-raised) money every month for access to your SaaS?
What if you stopped calling them customers and started calling them…
Clients? Clients rely on you for expertise and work with their best interest in mind. Clients have a formal, long-term relationship with their trusted advisor.
Members? Members belong to something, they get perks, benefits… privileges. Membership is meaningful, it’s scarce… it’s valuable.
What else could you call your members? Maybe something specific to what they do. Think about it, come up with something, and start using it in your internal communication.
Even if you just change the way you talk about your
customers members internally, it will change how you perceive your relationship with those people responsible – ultimately – for your success.
Oh, and this means you have to stretch beyond what is probably comfortable and get past the “software” and “user” mentality that you probably have.
What if people continued to pay you every month but never logged-in to your app? This might be a problem or it might be because they don’t need your app (or might even use a competitive product) but love the extras you give them because they’re paying members.
Offer Exclusive Content, Community, Tools, Webinars with industry experts, Meetups, Gifts, etc. to Members… next month, after the billing cycle. Moz is a great example of doing this with their Perks program.
I’ve always been a fan of the Wishlist Member model (they aren’t SaaS… but don’t let that distract you too much) where, if you join their Insider membership program they give you plugins for their WordPress membership program. The longer you stay, the more plugins you get… if you leave, they won’t work. Super-awesome engagement tactic.
Want to take all of this a step further? Tease the member-exclusive item right before renewal time. If everyone renews at the same time, this is super-easy… if they renew based on when they joined, this is a bit more involved to setup, but not that bad and totally worth it. In fact, this just becomes another reason to move beyond timed Autoresponders in your business.
Don’t over promise and under deliver. Manage expectations.
Properly manage expectations throughout the entire sales and on-boarding process… a lot of churn (especially in the first 90 days, or what venture capitalist Tom Tunguz refers to as “cliff” churn) occurs because of something in the early part of the customer lifecycle… most often during the sales cycle!
You’d be surprised (or maybe you wouldn’t) at what I’ve discovered as the culprit, especially in first 90-days churn… from promises of increased revenue to… well… promises of increased revenue is like the number one thing vendors promise that customers fail to realize.
Whether it’s more revenue due to better email marketing or higher conversions because of site speed improvements, one of the biggest expectations that is most often mis-managed is the promise of increased revenue.
You can do it… but it requires a light touch… something I’ve learned how to do well, thank you very much.
I once helped a done-for-you email marketing company deal with mismanaged expectations that lead to high churn… and I knew exactly what the problem was when one of the guys greeted me at the door wearing a “we send email, you make money!” t-shirt.
Set your customer up for success at every stage of their lifecycle, which means understand what “success” looks like for your customers and how that evolves over their lifetime as a customer.
Learn more about this here:
Tutorial, Educational, Aspirational, Transactional, and Personal
Which ones do you use? Know your customer and read this post.
Hint: It’s probably a mix of several types
Protip: Transactional emails are an absolute gold mine if used properly
Get them to follow you on Social Media (tip: follow them first).
Guess what? It’s not *just* about connecting on the various social media channels.
No, you want to leverage social media that leverages other media to stay top of mind
- Youtube Channel subscribers get emails when there’s activity on your channel
- LinkedIn sends emails for just about anything
- Slideshare says “XYZ Corp posted on SlideShare today…”
- Quora sends answers to questions, or questions for you to answer, etc.
All of these “social” channels push updates and messages to the subscriber/followers via email and/or other social networks.
So it’s more than just saying “I have a follower on my Youtube channel”… it’s having yet another way to get in front of them and stay top-of-mind.
Retargeting is another way to remind subscribers that you’re there… keep it subtle or get clever and do different campaigns depending upon where they are in your app (via tactical beacons) and get them to come back.
Since you know you have a valid email, doing email-based targeting & retargeting can also be used to stay top of mind, too.
Think about what you could do with Facebook custom audiences and the email addresses of your non-engaged users… hmm…
Get embedded with their partners and trusted advisers so they have no choice but to continue using your SaaS.
If your accountant recommends Xero, there’s a really good chance you’ll use it. You trust them, they know accounting, Xero is designed to make both of your jobs easier, so this is a no-brainer.
But even if you decide you hate Xero, guess what? Your accountant uses it, they trust it, you trust it (if for no other reason than they do), so you stick with it. Of course, it’s even better if you like the product, but never underestimate the power of their ecosystem to keep ’em using your product.
BTW, I’m just using Xero as an example here since I like their model and they’ve been public about how powerful their channel relationships are.
The obvious one is to cultivate a community of partners to build add-ons and integrations for your product or to build/create a community where people – your customers and prospects – commune.
Moz is great at this, too.
But also look to GrowthHackers.com, built by Sean Ellis of Qualaroo. While it isn’t a “Qualaroo” property, it is 100% designed to develop and enhance thinking around something their CEO “created,” to continue to elevate Sean as a hero to this community, and by extension… to – seemingly organically – build a community around Qualaroo without actually doing exactly that.
If anything, it gives Qualaroo a huge amount of data on what “Growth Hackers” are thinking and talk about, what their interests are, etc. so they can leverage that in marketing their product… one that is on the tool belt of Growth Hackers world wide.
The less obvious method is to seed underground / unsupported / TOS-violating uses of your app. What? I know… crazy.
I’ll let you use your imagination here.
Simply by giving people the ability to cancel from within the app, there is a psychological effect that seems to calm them down and make them feel more in control. If they decide to click the “cancel” button, remind them of the value they’ll lose (along with data, history, etc.) when they do.
And give them an option other than canceling: offer down-sells or the ability to hibernate an account for x months (especially good where there’s seasonal volatility).
When they don’t cancel, take note of the fact that they got to the cancel screen, mark them as a churn threat and reach out to re-engage.
I will say that we saw an immediate 15% reduction in churn for an email marketing system by implementing cancel flows… and that actually replaced the requirement to call in to cancel!
Capture value even if they leave in the form of an exit survey.
Normalize the data by providing several options for them to choose from and allowing them to then elaborate where needed.
My suggestion is to put this at the very end of the Cancel Flow or – even better – to send it a day later. While you should test everything, I tend to start with sending it a day later rather than include it in the cancel flow.
You could put several options in an email each with different links… all they have to do is click the link and you’ve got your feedback… on the page it links to, you can have a “more detail” form if you want.
Why send it later? You may just want to let them go and give them a cooling off period… what they tell you right when they’re canceling vs. even a day later may be quite different with the latter possibly being more useful.
You might have better luck actually calling or reaching out through a different channel than email
Oh, and don’t do an NPS survey at this point… probably a bit too late – and simply inappropriate – to ask them how likely they’d be to recommend your product to a friend. Of course, if you get high scores there… that’s maybe a result.
Finally, give them permission to tell you why they’re leaving and manage expectations that you might follow-up.
Entry surveys (explicit as a survey through Intercom, Qualaroo, or the like) or built into the on-boarding process, the latter being ideal) can help you close the loop with the exit surveys.
Knowing why they joined gives context for driving engagement, for following-up with them (automated or in-person), and for trying to save the account on exit (again, automated or in-person).
If they say when they come in “I want to improve the performance of my employees” and when they leave “it didn’t meet my expectations” but nothing more, we can assume it didn’t improve the performance of their employees, right? Probably.
BTW, I had a conversation with the creator of Retained, and he told me they’re adding this “loop closing” functionality to their product and it will be available at launch.
In game mechanics this is XED: eXit Event Distribution and helps game designers better understand what people were doing right before they either stopped playing or uninstalled the game.
In SaaS, you can start gathering information on XED by seeing what people did before they canceled.
So put on your data scientist smock, fire up Excel, and bust out some k-means clustering with Euclidean (or Manhattan?) distance to look for patterns.
Or if you’re new (i.e. a super-early stage Startup) and don’t have that data, think about what people might do to come up with a hypothesis to test.
Then monitor for/trigger off of those things and work to re-engage in whatever way makes sense. Whether it’s reaching out with a personal email, calling a customer, making them an offer, etc. using this data to trigger action to save the client can be huge.
As I said in the Cancel Flow process above, once they get to the point where they hit the cancel button, if they don’t cancel because you worked your retention magic, they’re still a threat and you need to work hard to re-engage them.
But your customer may do something prior to getting to the cancel button, right? They may be considering leaving and if you can intervene early enough you can save them. While the Cancel Flow will help… ultimately, we don’t want them to ever even get to that point, right?
What might these Pre-Cancel Events be? Well, they might download data, run some reports, remove users, etc. I don’t know what that might be… it’s different for everyone… but for email marketing, downloading the full list of email addresses seems like an obvious one.
OMG… this is so awesome I shouldn’t share this.
A “non-user” would be, in this scenario, people who don’t actively use the product. They’re likely not included in any sort of “per seat” or “per user” pricing model.
The most common example is a project management SaaS a service provider uses to communicate with clients. Their clients benefit from the system but (generally) aren’t paid users.
While this has a great benefit from a viral expansion standpoint (your clients introduce your platform to their clients who might subscribe, too), the companies that win leverage this as a retention tool.
What could you do to make your product super-sticky inside an organization? What could you do to encourage collaboration through your product with both internal and external stakeholders?
Think about ways your clients are currently sharing stuff (data, reports, etc.) with non-user stakeholders and engineer that into the system.
If you can get non-users hooked on what your SaaS provides, especially those up the chain of command from your paying members, the likelihood of them canceling their subscription to your SaaS goes way, way down.
Bonus! Get non-users hooked during the Free Trial and you’ll increase conversions, too.
What else do I need to say? If your clients or members pay you via Credit Card, you should probably do everything in your power to keep those cards from expiring.
Far too many SaaS companies – especially those dealing with SMB customers – get a substantial amount of churn from expired credit cards.
Many times the SaaS provider doesn’t want to “bother” the customer (read: wants to hide from the customer) to let them know the card is going to expire. Some might try to salvage the deal after the card expires… but even more will just let the customer go without ever “bothering” them.
Since credit cards typically expire every 3 years, or every 36 months, one could ascertain via simple math that roughly 3% of cards will expire every month… though obviously it’s not that evenly distributed… some months will have more, some less.
No matter what, it’s a big deal… and for the most part completely avoidable.
Don’t let it happen.
I understand that there are some credit cards that will expire or otherwise fail for reasons outside of your control.
Fine… but that’s a subset of overall credit card failure, and you should do everything in your power to keep as many credit cards as you can from failing or expiring. That’s pretty simple.
But you have to be proactive.
Find a billing system/payment processor/etc. that supports or provides credit card updater service. Use proactive pre-dunning to let customers know their card is going to expire and – if it does – use dunning messages to get them to fix that.
If you use Stripe, there’s even a nifty service called Stunning (by the same guy that created Retained, wild!) that handles all of that dunning stuff for you. No excuses.
Doing work for – or with – your clients around your SaaS that they spend time doing and pay extra for rapidly will (often) exponentially increase their investment in your SaaS.
And it makes leaving you a much less attractive option.
This is not the same as concierge on-boarding or high-touch Customer Success (which are fine). Rather, I’m talking about consulting, including best-practices implementation, custom integrations, building reports, optimization, etc.
For the longest time, SaaS companies were afraid to add non-recurring revenue to their books… and many stayed small and had high churn. So add a layer, add some revenue… and lower your churn!
When you own the industry association, the industry job board, and offer professional certification – in addition to your SaaS – you win.
When you own the industry association, the industry job board, and offer professional certification – in addition to your SaaS – you win
— Lincoln Murphy (@lincolnmurphy) January 7, 2014
Create power users who champion your SaaS in their current organization and take you with them when they change jobs? Yes please.
Also, if you run the job board for people that use your products / or aggregate jobs that mention your product, there’s probably a way to glean some really useful, actionable information from that.
Even if you do this internally, just gathering the intel might be useful. I’m just not sure how… hmm… what could we learn from this. Gosh.
One of my 5 Rules for Successful Growth Hacking is to know what growth you’re hacking.
And when it comes to churn, you need to know what retention you’re hacking.
Just as there are different methods of measuring churn, there are different methods of measuring retention. Are you looking to keep more customers or are you looking to keep more revenue?
This will really help you figure out what you need to focus on. You might want to work to actively retain only certain segments of customers while you work to actively jettison other, less-profitable customers.
Yeah, your churn is actually too low. Your unprofitable customers are sticking around too long and killing your business.
— Lincoln Murphy (@lincolnmurphy) January 28, 2014
Maybe you work to push away low-value customers while working to up-sell or expand usage of higher-value customers.
Here’s a hack: find a lower-price company in your product category and send them your low-value customers… get them to send you their higher-value customers that they can’t accommodate… win-win… but you go first to show good faith.
What we call Growth Hacking today, and what it’s been forever and what it’ll be later – Marketing – isn’t just about tactics. Tactics change. Tactics are different for every situation.
No, it’s about a mindset of understanding customer and user behavior as well as market dynamics and what’s technically possible – or should be – and using your imagination to make it happen.
There are no rules here… just a way of thinking about stuff.