There is a growing awareness in the SaaS/Cloud sector that the loss of a customer, whether from the simple failure to renew or from premature termination of a subscription, is a very serious matter. The most immediate effect is that the subscription income has stopped. Worse, if the CAC (Customer Acquisition Cost) hasn’t been recouped, the account instantly becomes a net loss. But the effects of a lost relationship are unlikely to be be limited to the ending of a single income stream. Depending upon the reason for the loss, there may also be a danger of bad publicity that could threaten other accounts, a larger industry trend emerging, or the arrival of a new competitive threat to even the viability of the vendor itself. The day in which all that was perceived as being necessary for success as a software vendor was knowing how to get the customer to sign the first contract is over.
The initial research survey of The SaaS & Support Project asked participants to identify and rate the common causes of churn in the Cloud. Respondents described their perceived key factors in a variety of terms, but the general categories were:
Disconnection. In general, disconnection occurs when the Senior Management team of the customer gets out of touch with the vendor. While the relationship between the vendor’s operations & support team and the customer’s IT team and users of the application can appear to be satisfactory, there may be a very different perception of value-received going on with the real decision makers at the customer end. Changes may have occurred in the Sr. Mgmt team, and those who originally understood why the contract was signed are no longer involved, or new strategic factors are being considered. Unresolved customer service issues can also contribute to disconnection.
Disengagement. When a customer does not begin to use the application, or slows in their progression up the adoption curve of the application’s feature set, loud alarm bells should go off in the vendor’s team. The account is now At Risk, and corrective action needs to be assessed and applied as appropriate. There can be a variety of factors that are causing the situation, including over-selling, user resistance, etc. Disengagement can also result from vendor operational woes such as outages or breaks in availability of key features.
Downturn. If the customers’ own business is not succeeding, their restricted income may cause them to end relationships or scale back numbers of active licenses, etc. They may even go out of business entirely.
Competition. New vendors are steadily entering the market, and the range of available choices for customers is constantly expanding. The barriers to exit in the SaaS sector have been falling for some time. Access to data, or lock-in, is much less a factor due to the presence of many data synchronization or migration firms. A vendor who fails to offer a vital feature may also lose to a competitor who does if the customer desire for it is high enough.
The Road to Zero-Churn
Understanding the threat of customer churn and its sources is only the beginning. The real challenge is to use that knowledge to effectively prevent the loss. A fast-growing number of SaaS/Cloud firms are taking strategic and organizational steps towards the goal of reducing or eliminating churn. The emerging new profession of Customer Success Management is being seen in all sizes of organizations, and there are a number of firms offering technologies specifically designed to alert CSM teams to at-risk customers.
As one SaaS professional noted recently, customer retention is a year-around commitment. What is your company doing to meet that commitment? For further discussion of this topic, please join us in The Customer Success Management Forum on LinkedIn.
Revised: January 21, 2013