Have you ever wondered why your monthly recurring revenue never grew significantly despite growing 5% each month? If you have, a high customer churn rate is the likely culprit.
Keeping customer churn rate low is critical to the success of your startup. For instance, if you are losing 5% of your customers every month, you will lose half of your customers in one year. Also, the money they will take with them. That’s a lot. Here is a free tool to calculate how much revenue you will lose due to churn.
Now that we know what churn can do to our startup, let’s figure out how we can improve our churn rate (i.e. how we can reduce it).
We are kicking off a series of interviews with successful entrepreneurs about how they managed to improve their churn rate. I can’t think of a much better way to learn than to hear first-hand stories from those who have been there and successfully solved their churn problem.
We are very excited to do our first one with Ruben Gamez.
Ruben is the founder of Bidsketch, very successful SaaS application that helps freelancers and web agencies to create professional proposals in minutes. To give you an idea of its impact, thousands of businesses have earned over 261 million dollars by using Bidsketch. With some really cool tactics, he has managed to retain most of his customers.
Let’s go straight to the interivew. Hope you enjoy it. Also, don’t forget to grab the list of guidelines we created based on the interview. They will definitely help you improve your churn rate.
What were the things that caused cancellations and churn at Bidsketch?
The reasons for cancellations have changed over the years. In the early days, it was more about missing features and key workflows. That’s still the case today, just less than it was back then. Once we had people paying and using the product, I discovered new workflows from some of these customer segments. As you learn more from customers and add important features, this gets better. Another big reason why people churn is because of failed billing. At first, this was a huge surprise to me. At the time, there wasn’t much information out there about SaaS billing issues. But the more I looked into it, I realized that what I was seeing was pretty normal with SaaS (more on this later).
Other things that have increased churn:
- Failure to fully get set up and start using the product
- Not seeing results they were expecting
- Pricing too aggressively with certain customer segments (or badly structured plans)
- Targeting the wrong types of customers
- Infrequent usage
What was the impact of the churn and cancellations on Bidsketch?
Well, first it impacts your growth and revenue, which means it pretty much has an impact on everything else. In early days it’s relatively easy to grow, even with higher churn, but at some point you’ll plateau if you don’t take care of it. Even if your churn is low, if you have any churn at all (which most people do), you’ll plateau at some point. The lower the churn, the longer it’ll take for that to happen.
How did you identify the specific things that were causing the churn?
Over the years I’ve tried different things with different levels of effectiveness. Trying to get feedback through emails (automated and manual) was tough for me, but I’ve heard others have had good results. Soon after I launched, I had a conversation with Hiten Shah (of KISSmetrics and Crazy Egg) where we talked about cancellations. He gave a great recommendation to try adding a required comment box in the cancellation flow. I was hesitant because I thought this would anger people, but it worked great. No one complained.
I later improved feedback with a combination of radio buttons and freeform text. More recently, we’ve been doing phone calls with people that cancel. They’re usually about 30 to 45 mins long and they’ve been super insightful. It’s one thing to get a person to give you a detailed account of why they cancelled, quite another to have a question/answer session about their initial expectations, exactly how the product fell short, what they’re using now, and the tradeoffs at each step of the way.
Which actions did you take to deal with these specific things? Did they work?
We’ve tried a lot of things and changed the product in many ways. Some of these things are about improving the product, others focus on improving that initial onboarding experience (because churn often happens long before they cancel). These types of things take a long time to see the impact.
Email is probably one of the easiest and fastest ways to improve churn. Sometimes churn happens because of failed billing and they never update their info. So simply having a good process for sending them emails after their billing has failed is a huge help. We send these emails every three to four days, for almost 3 weeks after their account has expired.
Lack of usage is another big reason why people cancel in many products. We’re testing several ideas behind this at the moment, but it’s still work in progress, so nothing to report just yet. With lack of usage there can also be an interesting choice between serving the right type of customers, and your constraints around the type of business you want to have.
On the pricing side, yearly billing has also helped with churn (and revenue). I experimented with yearly billing as the only option, but eventually decided to bring back the monthly plan as well.
How much time did it take for the measures you took to start showing results?
We’ve seen immediate results with email. We’ve had some pricing experiments that have spiked churn, but didn’t know until several months in because you have to wait months to see the impact. It’s the same thing for most features we’ve added into the product to help with retention — it can take a while to see results (especially if split testing).
Certain changes in pricing can have a more immediate impact though. So can downsells or other offers in your cancellation flow.
You talked about people not doing the full setup was also one reason for the churn. This is a problem for a lot of apps. How did you address this particular problem? Did you educate via email or make the onboarding really easy with something like ‘ready to use templates’?
With onboarding we took an approach of reducing friction and educating people through email and interactive tours. There wasn’t any single thing that fixed onboarding, it was a combination of tactics that helped.
How did you deal with customers who were not able to get value out of BidSketch?
Sometimes the customer segment not seeing value in your product is the wrong segment. You can do things to be explicit about the value you’re providing (and we do), but if it’s too much of an uphill battle then it might be a good thing that those customers churned out.
You send emails for 3-4 weeks after the account expiration. Any particular duration in those 3-4 weeks where customers tend to come back more often than at other durations?
Generally in the first five days after expiration most customers will activate, and it tends to be stay pretty steady after that.
What really went wrong with just keeping annual billing?
We made more money this way, even though we lost conversions. I just didn’t like how we weren’t acquiring monthly customers anymore and our existing monthly customers were churning out. It was profitable, just not profitable enough for me to accept the tradeoffs.
Were there any surprises along the way?
The high percentage of people whose billing fails was one of the most surprising things to me. How pricing can dramatically impact churn is also interesting. Sometimes it only increases revenue and you see no impact on churn, but other times it’s the reverse. That’s why it’s super important to monitor those cohorts months after they’ve started paying.
What advice you would like to give to founders who are dealing with similar issues?
Do what you can to figure out why customers cancel. Try different ways of getting that feedback. Email can be tough so don’t be afraid to be more direct (and aggressive) with getting this feedback. Also, don’t just look at your product when trying to fix churn, look at your pricing and customer segments. Maybe you’re targeting the wrong people to begin with. Look at churn from many different angels (by plan size, company size, feature usage, etc).
How did mitigating churn affect your acquisition efforts or growth numbers in the short, as well as the long term?
Lowering churn helps when acquiring new customers. As churn goes down we’re able to spend more on advertising or content marketing. We’re also able to spend more time with people during the trial period, which can help increase trial to paid conversions. Also, if churn is too high, it’s probably not a good experience for customers, which can hurt word of mouth.
Lot of founders fall in the trap of adding new features (hoping it would bring more customers) instead of fixing things that can improve churn. Did that happen to you? Can you share a bit on your experience?
Maybe in the early days I was more focused on new features vs improving retention, though it’s a tricky balance when you have a brand new app that’s missing many features. Looking back, I think I did the right thing and had the right balance, because churn wasn’t too bad.
Let’s say you have a new app with 50 customers and 6% churn, where should you focus? 6% churn isn’t ideal but context matters here. How many new customers are you acquiring? How long will it take to see the impact from your experiments to reduce churn? Sometimes, you just don’t have enough volume (customers or trials) to get good feedback on what the real problem is. I think that’s when I’d lean towards adding more people into the funnel to improve (and speed up) retention feedback.
How do you define customer success at Bidsketch? Is it like customer should get X times revenue over what he paid to Bidsketch or X hrs of time saved?
Our definition of customer success comes directly from our customers. Some customers want to spend less time creating proposals, so if they’re not achieving that, it’s not working for them. Others want more clarity into the behavior of their clients. While others want to win more deals. Often, you’ll have more than one of these success metrics. We try to look at several key metrics like this, but we also pay a lot of attention to whether they come back and use the product again.
How do you get feedback from your customers? Do you have a clear way within the app to get feedback or feature requests?
We get feedback from customers mainly through support, surveys, cancel forms, onboarding walkthroughs, and customer interviews. Basically, we’re always getting feedback from customers through several different sources.
You mentioned finding the right fit in terms of customer segment. How did you go about deciding what the right customer segment was?
It’s subjective and depends on your goals. For some people enterprise customers are a good fit because they pay a lot more. But others don’t want to deal with long sales cycles and demos, so they’re going after a no-touch sales process. Even within each of these segments you’ll find other segments. So you have to decide what your constraints are.
Once you’ve figured that out, you also want to go after profitable customers that get the most value out of your product. I like survey.io by Sean Ellis and Hiten Shah as a way to figure that out — it’s a survey that helps you identify the people that get the most value out of your product.
Integrating Bidsketch with other apps like Freshbooks, Highrise has played a great role in bringing new customers. Do such customers tend to stay longer than who haven’t?
Yeah, customers that come in through an integration partner both convert at a higher rate but also stick around much longer than others. The more integrations they set up, the better the retention.
Can you tell the readers the apps you use to improve your Churn?
For surveys and recruiting customers (to interview) we use Qualaroo. It’s one of my all-time favorite apps. For messaging we use Postmark for transactional emails, or Intercom for most everything else. Interviews and walkthroughs are done with Skype. KISSmetrics and Google Docs to track and analyze everything.
That’s all. Hope you enjoyed reading it as much as we did interviewing Ruben!
Here are 10 extremely valuable guidelines from Ruben Gamez you should not miss.
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