Let’s face it: you’re probably uncomfortable with the idea of churn analysis.
You’re busy trying to grow revenue. There are a million fires to put out, and you have to keep your team focused on maintaining a healthy pipeline and winning more customers.
Ordinarily, this is the normal thing to do. However, focusing on customer acquisition when your churn rate is high is like trying to drive a car with a flat tire. Your journey isn’t going to be smooth, and you may not even get to your destination.
There’s no hard and fast rule for what constitutes an acceptable B2B churn rate. However, analysts generally agree that anything over 10 percent is cause for concern. If that applies to you, it’s time to hit pause and figure out why you’re losing so many customers.
You’re Probably Ignoring A Churn Problem
Any number of problems could be causing you to lose customers – but you may not be aware of them.
Customers could be struggling with your product’s features (or lack thereof). Your sales team might be annoying customers with overly aggressive tactics. That expensive customer relationship management (CRM) tool may actually be unreliable because data isn’t being entered properly. Competitors might be gobbling up market share. Chances are, it’s some combination of all of the above, and more.
More often than not, the reasons for churn don’t get the attention they deserve. In our 14 years of experience working with tech and SaaS companies, we’ve seen how often churn problems get ignored or distorted. Sales teams might try to find a silver lining in a lost customer that doesn’t actually reflect reality. Startups that believe they’re changing the world struggle to come to terms with the idea of a disloyal customer. Teams afraid of accountability fail to identify and fix their problems.
But an ignored churn problem rarely goes away on its own. It’s far more strategic to diagnose the problem and figure out how to course correct.
Beware The Churn Red Flags
The following are some common signals that you have a churn problem.
1. You see a spike in churn when you haven’t changed anything.
Based on your historical data, your churn rate should be predictable. So when a monthly report arrives and it shows an unexpectedly high number of customers leaving you, that’s a problem.
In our research, we typically associate spikes in churn with a competitor poaching your customers.
Or, there might be multiple competitors in your space gobbling up market share. Either way, your customers are being lured away.
Perhaps you have messaging issues, or suffer from poor brand perception or awareness. Alternatively, your product might lack the right features, or your pricing strategy is off. If your customers are leaving for a competitor, churn analysis can diagnose the problem and suggest remedies.
2. A pricing change causes more churn than expected.
Let’s say that your company implemented a change in product pricing. Features that used to be bundled are now pay-for-access. Come renewal time, you see an unexpected dropoff in customers.
Churn that arises as a result of a pricing change indicates that those customers have shifted in how they obtain value from your product. Customers might have wanted to keep certain bundled features. Or, the pricing change led to an unpalatable cost increase. Some amount of this kind of churn can be expected, but an abnormally high churn rate is an indicator that you’ve misread your customers.
B2B churn analysis can help you stem further losses. You’ll learn why customers left you, how widespread the problem is, and what you can do to retain the customers you still have.
3. Your sales team starts struggling to sell.
You might think of churn as a problem that only arises at the end of the customer lifecycle. However, you might be getting an early warning about potential customer dropoff from your sales team.
The conditions that make it tougher to sell also make it harder to retain customers. If there’s a new competitor in your market, or if current competitors have made changes to their product, your existing customers might be reconsidering their options.
If your sellers are suddenly having a hard time selling, you might be heading for a churn problem. Undertaking preventative B2B churn analysis can help you identify threats from competitors so you can defend accordingly.
4. There’s a change in market conditions.
Shifts in market conditions should spur you to undertake churn analysis immediately.
In a massive economic downturn, a churn study can reveal if customers are leaving you because of cost worries. If there’s a hot new technology (like artificial intelligence), a churn study will help you understand how likely your customers are to leave you for a company that specializes in that new tech.
Pay attention to the market context in which you make decisions. If conditions have shifted dramatically, it’s time for churn analysis.
5. You don’t know why customers leave.
Churn is a constant, and you should at least have an internal hypothesis about why customers leave.
However, your hypothesis might be different from what others in your organization think. Your sales team might argue that you charge too much for your product. The product team might point to flaws in account management. Executives might simply shrug and say “we don’t know.”
If you don’t know why customers leave you, or if your teams have different hypotheses for your churn problem, it might be time for churn analysis. At the very least, churn research will reveal precise reasons for your churn problem so your organization can focus on effective solutions.
B2B Churn Analysis: The Time Is Now
Ultimately, the best time to start a churn research program is before you have a churn problem.
You may be glossing over a churn problem because you’re afraid of confronting it. Changes in market conditions or customer acquisition patterns may already be affecting your organization. Worse still, you already may have seen spikes in customer dropoff.
In any case, it’s always a good time to start a churn study. It could mean the difference between a company weighed down by excessive churn and a company blasting off for orbit. Which would you rather be?
With more than 14 years of experience in the B2B technology sector, Cascade Insights understands the market dynamics that lead to churn. Learn more about our market research services here.
Special thanks to Sean Campbell, co-founder and CEO, and Philippe Boutrous, Director of Systems Design, for advising on this piece.