Welcome back to our series on Cutting your SaaS app’s Churn Rate. This week we had the pleasure of interviewing Colin Nederkoorn, founder of super successful startup: Customer.io. Customer.io helps you send targeted human messages to your users, by utilizing their unique interactions with your business. In short, it helps you to retain your customers.
The growth of Customer.io is quite inspiring. It has grown 20x in 2013 and has over 500 customers ranging from small startups to enterprises. And, it just crossed $1 million in annual recurring revenue.
With monthly churn rate at a healthy 2-5%, Colin and his team must be doing some things right.
So, lets get straight to the interview.
What were the things that caused cancellations and churn at Customer.io?
Our most common reason to churn is that people are shutting down their product / business. Another reason are that people picked a paid plan and never got set up (we have an unlimited trial so I still don’t know why people do that). Every once in a while people churn because we did a bad job helping them get value out of the product.
One other thing was credit card related churn.
What was the impact of the churn and cancellations on the business?
Psychologically when people cancel, it hurts. The bigger your business grows the more people (in raw numbers) are going to cancel. You have to grow a thicker skin to deal with that. Churn also seems to come in waves in the early days. So you might be looking at your churn being at 1% and be patting yourself on the back and then 2 days later 3 people cancel and now your churn calculation is at 3% churn.
How did you identify the specific things that were causing the churn?
When people cancel, we always reach out to learn why they cancelled. That’s the first thing we do. We also take a look at our internal measurements about their account. Were they using the product successfully?
Can you explain a bit about the internal measurements that you do for cancelled customers?
For cancelled customers it helps us to get perspective by looking at things like — what plan were they on? How many people did they have in the system? How long were they a customer? How many emails a month were they sending through us? How many active campaigns were sending?
All of those little data-points help us build a picture of the customer that we can use to frame our questions to them.
Which measures did/do you take to deal with these specific things? Did they work?
Well, businesses closing isn’t something we have direct control over. But for the other reasons people cancel, we increased the free plan so people can experiment more with the tool before purchasing. We also constantly work on our documentation.
With credit card churn which is one of the easiest things to address, we started sending automated messages when we were unable to charge a card.
(Side note: Customer.io has done an amazing job on their documentation. Check it out here. )
How much time did it take for those actions to start showing results?
Credit card churn prevention emails showed results immediately since we could see that someone received an email and fixed their credit card. For the other things we’re doing, even at 500 customers, we really don’t have enough data-points to say with certainty that when we improve docs or onboarding that fewer people churn over the long run.
Were there any surprises along the way?
Once we started measuring credit card failures, I was surprised just how common it is.
What advice you would like to give to founders who are dealing with similar issues?
The simplest thing you can do is ask people why they churned. Don’t automate this message. Try to look at their messages to support and how they’ve used the app before reaching out and make it personal. Ask specific questions and you’ll get the best answers.
How did mitigating churn affect your acquisition efforts or growth numbers? In the short as well as long term.
There are 2 ways to grow your business – get new customers, or keep existing ones (and maybe have them pay more). There’s no point to aggressively find new customers if you don’t have a good process in place for keeping existing customers happy. What we’ve found is that if we do that, then the existing customers help us find new ones through referrals.
You have grown 20x in 2013, how the churn looks now as compared to what it was back then?
Churn looks about the same. We’re always hovering between 2 – 5% churn per month. All our customers have come in organically, but I imagine as we start experimenting with other acquisition channels that may affect churn.
In one of your blog post, you have mentioned how Concierge onboarding doubled conversion rate for Customer.io. Do you think the startups with product that needs bit of hand holding should actively consider concierge onboarding to reduce churn?
Yes, I think there is some give and take. It’s always good to talk to your customers. It especially helps to gather information so you can then go and take that feedback and improve the product/onboarding.
If you’re a new company, absolutely do it. If you know your product is challenging for people, balance concierge onboarding with trying to make the product easier.
How do you define customer success at Customer.io?
Customer success is having customers actively sending data to us and having emails going out through the system. If we can get people to that point, unless something goes wrong, or their business fails, they are usually very happy with the service.
Recently you wrote a post on your experience in expanding your customer segment with turn-keys. It wasn’t successful because of increased complexity & other factors, and you pulled it back. I think that similar situations happen with a lot of startups. In this case, did you let go of that type of customer?
After releasing software in to beta that turnkeys (people who couldn’t do a custom integration) would need, we had a few beta participants. When we realized there were still some challenges, we stopped promoting it, to work with just a few people. In the end, that should have been a warning and we didn’t shut down the feature soon enough. We had to tell a few people we were turning off that functionality but luckily it wasn’t a big part of our user base.
That’s all from Colin!
Here are some key takeaways that we’ve learned from Colin about reducing churn rate.
1. Set the right expectations with feature requests: if you over promise and under deliver, that can cause customers to be disappointed in you.
2. Surprise & Delight: It might just be something small like sending a postcard at a milestone, such as 6 months of being a paying customer, or giving people stickers and t-shirts.
3. Dealing with credit card churn: A product like Stunning can help here, but just letting people know that you can’t bill them is often enough if they like the service. Many companies don’t build features to address credit card churn.
4. Great customer support: If people have issues or frustrations, they often reach out to you first rather than just cancelling. Also, invest a lot in resources for self-help.
5. Beside impact on monthly recurring revenue, churn also hurts psychologically.
6. Churn from credit card expiry is the easiest to fix via dunning emails and the quickest to show results.
7. Don’t automate the process of getting feedback from churned customers. Talk to them, track their app usage and ask specific questions.
8. There is no point in aggressively acquiring new customers when you have no process to keep existing customers happy.
Hope you enjoyed the interview. If you have any suggestions or feedback, please send us an email at jit[at]pepnest.com
Also, please subscribe to our mailing list at the very bottom of this page to receive all of our upcoming interviews. Coming up next, Nick Francis of Help Scout will be sharing his insights on keeping churn rate low.