FIVE REASONS WHY SAAS CUSTOMERS CHURN

This article, first published on Linkedin has been substantially enhanced and will interest founders and sales and marketing leaders in early-stage SaaS companies.

Our biggest client is not renewing

I spoke with a scale-up SaaS sales leader last week, and they mentioned that they had lost a key client who decided not to renew.

A lively conversation ensued, and I made a couple of points that are worth repeating here.

Unlike traditional on-premise enterprise software sales, where the payment was received after the software was shipped, regardless of the end user's usage, a SaaS sale is an ongoing process, and there is no won-and-done.

SaaS sales must be renewed, and every quarter, we (salespeople) and customer success must meet with customers to ensure we continue to deliver customer value through using our products/services.

I asked a question that drew a long pause from the sales leader: "What is your customer's North Star metric that you monitor to measure adoption, product usage, and value creation?" Their answer was: "I don't know". This was a flashing red light to me, and I made them aware of why.

The following are five major factors affecting customer renewal decisions.

1. Not Knowing your North Star Metric

Knowing your North Star metric is critical for SaaS companies and sometimes needs to be clarified. You have to talk to your customers to learn how they derive value through using your products and how they measure and monetise that value internally, and it may be different from what you think it is.

Here's Matt Lerner's checklist from his terrific new (little) book, Growth Levers and How to Find Them, on stress testing your North Star Metric.  It is a quick read and is highly recommended for founders, sales, and marketing leaders. It offers insights on how to scale a SaaS business and grow profitably through finding your growth levers: "Where you'll see that 90% of their growth came from 10% of the stuff they tried"

1. Aligned Incentives: Does it increment when you deliver value to your customer? And if you are successful in moving it, will your company earn money and grow?
2. Full Funnel: Does it represent the results of optimising your entire customer journey from first contact through retention/churn? Or are parts of your operations left out?
3. Absolute Number: Can it keep increasing forever? Avoid ratios and percentages as a North Star.
4. Simple and Memorable: Will everybody in the company be able to understand and remember it and use it to guide their work?

2. Salespeople Not attending customer QBRs 

I asked the sales leader another question that drew another pause: " Do your salespeople attend QBRs along with customer success?" Their answer was one I have heard repeated several times since returning to the UK. "QBR's? Our salespeople are occasionally in touch with the customer, but customer success is regularly in touch with the key user." This was another flashing red light; CS was single-threaded through the key user.

• If you are not running QBRs where the sales representative and customer success meet quarterly with key stakeholders, it's time you did.
• During quarterly meetings, SaaS salespeople should ensure that key stakeholders are present, the North Star metric is understood and agreed upon, and any absent stakeholders know the value created.
• Additionally, salespeople should scan the organisation for new faces in the leadership team responsible for deciding on your software/service, look for potential threats, and meet and appraise newly hired executives on the value you continue to deliver and the metrics that prove it.

3. Not Running Annual Face-Face Meetings

Annual in-person meetings are highly recommended in the SaaS business, especially in the era of remote selling.

• It doesn't matter how great you are on Zoom; web meetings can never replace the value of face-to-face meetings and the opportunity to connect with key customer stakeholders over lunch or dinner personally. Building and maintaining relationships is crucial in business.
• Dinner is the perfect opportunity to invite one of your executive leaders and their key decision-makers. This can also prevent being blindsided by a mismatch in culture fit.
• Having a post-meeting meal with customer stakeholders over lunch or dinner and a drink is worthwhile as it provides a relaxed and informal environment to build trust and more durable relationships. The sales and CS teams their relationship, which may be critical when renewing.

4. Tangential use case

Software as a Service (SaaS) platform products have various use cases, depending on the industry and the specific needs of the business. Each use case requires specific capabilities and functionality to meet the needs of the core users who drove the sale. If you are not a "core use case," come renewal time, you are vulnerable to churn.

• With SaaS platform products, there is a difference between core "must-have" capabilities and "nice-to-have" capabilities.
• Core capabilities refer to the essential functionalities that make a product valuable to the user in running their business, they simply couldn't do their job without it.
• Nice-to-have or tangential capabilities are not critical to running the business, but important enough to justify the purchase at the time for a specific set of users.
• Salespeople and customer success teams should collaborate to develop a strategy to encourage customers to adopt essential features as part of their joint account plan. This will help them reduce the risk of losing customers to competitors who have focused on the core use case and successfully convinced them to switch.

5. The platform is not sticky enough

Stickiness is defined as the degree to which a product, service, or experience is able to retain its users and remain a valuable part of their lives.

• A sticky product is so compelling, functional, and engaging that it becomes difficult to replace. This can be due to factors such as convenience, personalisation, reliability, and emotional connection.
• When a product or service is sticky, it becomes a habit and a part of our daily routine. We rely on it to meet our needs, solve our problems, and make our lives easier.
• This creates a sense of loyalty and attachment, making it hard for us to switch to a different option. Even if a competing product is cheaper or offers more features, we may still choose to stick with the original because of the familiarity and trust it has built up over time

Stickiness can sometimes lead to complacency and a lack of innovation. Companies that become too focused on retaining their existing customers may need to pay more attention to attracting new ones or adapting to changing market conditions.

Therefore, it is essential to balance stickiness and flexibility and constantly evaluate and improve the user experience to remain relevant and valuable.

If you need help scaling your SaaS business, mastering your North Star Metric and growing your customer usage and footprint, we can help.