TL:DR – By asking for a Credit Card up front, you will get fewer prospects into your Free Trial with no guarantee of converting more paying customers.

Now, if you’d like to know why that is, read on…

Should We Ask for a Credit Card To Begin a SaaS Free Trial?

Okay, so I get questions like this a lot:

“Hi Lincoln what are your thoughts on requiring a Credit Card from new Trial users?

Right now, we do not require a credit card from folks who are signing up for our 14-Day Trial but I am beginning to rethink that strategy.

What are your thoughts? Should we or should we not?”

Without even asking them, I know that this SaaS provider is frustrated by the lack of conversions from Free Trial sign-ups to paying customers and they think requiring a Credit Card up front is the magic bullet that’ll fix everything instantly.

It won’t, and apparently I haven’t been clear enough in the past, so let me clarify my stance on this.

Asking for a credit card up front (an “opt-out SaaS Free Trial”) does little to help conversions and this is backed up by the fact that I routinely see SaaS vendors with < 20% conversion rates that ask for a credit card up front.

Even a 50% conversion rate isn’t great if – as you’ll read below – the overall numbers are terrible.

Clearly, asking for a credit card up-front is not a guarantee that you’ll get more customers.

It’s about Conversions… Not Conversion Rate

The only thing I can guarantee with an Opt-Out SaaS Free Trial is that you’ll get less prospective customers into your Free Trial than if you didn’t require a credit card to start.

Sure, you might raise your “conversion rate” – the percentage of those who start a trial that become customers – but you will end up with less actual new customers off the same amount of traffic to your site. At least that’s what I’ve seen in my experience.

Conversion Rate can easily become a vanity metric if you’re not careful.

But you know what? It isn’t about whether you ask for the Credit Card up front or not…

…it’s about everything that happens after they sign-up.

You’ve got to Trust the SaaS Free Trial Process

Most SaaS providers treat the Free Trial like a black box… literally, a box on a flow chart of the sales process.

They look at the Free Trial like this: “free users” enter and 5-10% magically appear 31-days later as paying customers.

That’s a stupid, silly, misguided, growth-limiting, and several-other-NSFW-words-way of thinking.

First, instead of “free users” consider those who enter your Free Trial to be… prospective customers.

That’s a difficult mindset shift, but one that’s required if you wish to dramatically improve the number of customers your Free Trial produces.

Yes, the Free Trial is part of the overall sales process, but the trial itself must be looked at as a process.

The first step is getting them to sign-up (with or without the credit card)… but that’s just one step in a process.

From there, the Free Trial process must be designed to get the prospect engaged and then to convert them to a paying customer.

Read this post about SaaS trials, especially the part about TRUST.

Then watch this quick video where I talk about how whether to ask for a Credit Card is a red herring issue that distracts us from the real issues.

And then watch this somewhat-longer presentation I put together on a Free Trial metric designed to increase conversions.

And of course…

Design Your Product As If You Actually Want Customers

You either want customers and to grow your business or you don’t; if you’re the latter, I can’t help you.

But if you’re the former, then pay attention.

If people can’t figure out how to get started once they’re in your SaaS Free Trial – easily – they won’t.

And it’s not because they’re stupid… it’s because they’re super busy and you’ve made them have to work to figure out how to use your product…. which, as I’ve already said, they won’t.

Or at least they won’t at scale.

Sure, some early adopters might take the time to figure out how your product can help them – in spite of your efforts to the contrary – but this won’t fly at scale.

You must have a process that’s repeatable and predictable if you want to scale your business… even if – no, especially if – there are Outbound Sales and Professional Services involved!

That’s why it must be SUPER EASY to get them started, to get them to take the second, and third steps, and so on…

…otherwise they’ll go back to doing things the way they always have, even if that is less than ideal.

Seriously…

Don’t Confuse Complex with Valuable

The status quo is hard to disrupt and your overly-complicated product isn’t helping things.

“But our product does so-many things, is so complex, requires multiple people, legacy data seeding, blah blah blah…” everything can be broken down into smaller steps and the process around that simplified (it’s a relative term, I get that).

Read about what happens when people are confused by your product and how that affects their ability to experience all those great features you want them to see.

Then take a step back from “functional on-boarding” and think “engagement”…

Then take “engagement” and break it down into quick wins.

Requiring a Credit Card Can Lead to Higher Churn

David Rowley, CTO at Get Satisfaction, said in the comments on this post that in his experience, requiring a credit card at the beginning of the SaaS free trial might result in more conversions, but some of those “conversion” might be accidental; the forced continuity and negative option ideas that I talked about in this post on why $1 trials are a bad idea.

David said that in his experience, requiring a credit card to start a trial “yields higher churn from ‘accidental’ conversions that later cancel” resulting in more churn, as those accidental conversions figure things out and cancel their subscription.

When I saw David’s comment, I assumed I’d covered this somewhere, but after scouring several posts I realize I only hinted at what David said, so it’s great that he brought that up and I thought it warranted an update to this post.

This is yet another reason why I often say “the seeds of churn are planted early.”

So, whenever I work with a SaaS provider that requires a credit card to start their trial, among other things, I look at retention past the first 60 or 90 days, as well as refunds & chargebacks. Generally, the latter is high and the former is low.

That’s why I advise my clients that require a credit card up front to only consider a “conversion” an actual conversion after at least 60 days… and for some, 90 days.

That’s 1 or 2 billing cycles beyond the first one when the trial ended and should indicate clear sailing from there. Consider this when figuring out compensation/payouts for sales people and affiliates, too.

More than anything, that in itself is yet another reason to not require the credit card to start the trial!

But the…

Biggest SaaS Free Trial Fail? Not Asking for the Sale

Yeah… this is kind of important… you must ask for the sale!

Remind people that they have only x days left (but be cognizant of “trial countdown blindness”) to increase the sense of urgency.

Then make it super obvious and easy for them to become a customer in a way that’s congruent with the way they want / need to buy.

Many SaaS providers forget to ask for the sale or they don’t want to seem to “salesy” or too aggressive… and that’s why most aren’t as successful as they should be.

Now…

Let’s Grow Your SaaS Business Together

There is only one of me, which means I can only help a limited number of SaaS providers at any one time. But if you’re serious about finally turning your SaaS Free Trial into a customer-acquisition machine, email me with the details of your situation and I’ll get back to you to setup a meeting.

- Lincoln

SaaS Free Trial: Require a Credit Card to begin? is a post from: SaaS Growth Strategies

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And in just about every instance I found myself asking them the same questions.

The fact that these questions were not easily answered or – if they were – that the answers were ignored, often shed light on the underlying cause of several different problems my SaaS provider clients faced.

From stagnating growth, to unacceptable churn, to a less-than-acceptable ROI on AdWords and other paid traffic spend, it became clear to me that we have a problem.

And this problem isn’t small or to be ignored.

To the contrary, it is resulting in SaaS provider executives – just like you – going back to their investors and board with less-than-stellar results, for Founders and CEOs of SaaS companies who know they have the best product out there pulling their hair out at the lack of new customers or the super-high churn rates.

And for the SaaS CMO and Marketing teams who have implemented rigorous A/B testing programs that are functioning properly but not resulting in statistically significant lift, the crisis is mounting.

What is going on here?!?!?!

Simple… you’re attracting the wrong audience and here’s why.

Attracting Your Ideal Customer Is Not an Accident

We know that attracting the right customers is critical to growing your SaaS business, and this includes reducing your SaaS churn rate.

The reality is, you’re not attracting your Ideal Customers, at least in the numbers you’d like, because you either haven’t identified your Ideal Customers or you have, but choose to ignore that fact and continue trying to be all things to everyone so you “don’t miss any opportunities.”

But you also know that’s wrong and goes against everything we know to be true in marketing, right?

And the rules apply to you just like everyone else, right?

Okay.

So, to ensure that you’re attracting the right customers, take some time with your team and answer these questions.

1. Who’s your ideal customer?
2. Would they know they’re your ideal customer if they looked at your marketing site?
3. Of your current customer base, what percentage does your ideal customer represent?

Question #3 is a super-interesting metric that few SaaS companies actually monitor (but should).

In fact, when I go through this exercise with a SaaS provider who is struggling to achieve the results they’re looking for, the answer is generally less than 10%, indicating that 90% of their customer base is made up of customers outside the “ideal” spectrum.

BTW, I’m very interested to see your answers (especially #3) so email them to me when you’re done.

Ugh… language!

Look… when you don’t know who your ideal customer is, you can’t talk to them using their language.

Whether on your marketing site, your ad campaigns, inside your app, through your email follow-up, or even your sales conversations, if you don’t know who you’re talking to you’re in trouble.

When you don’t know who your ideal customer is – or aren’t willing to focus on just them to, you know, avoid missing all those other opportunities – you can’t speak the language of that particular audience.

We can agree that HR Pros use different words than Chefs who use different words than Attorneys and so on, right? Maybe different tones, formalities, etc. Perhaps they even want different things, have different needs, desires, and so forth, right? Sure.

Well, when you try to speak to everyone, you can’t use the words of the HR Pro or the Chef or the Attorney…

… instead, you have to drop to the lowest common denominator among every potential customer, which means you aren’t saying anything of value to anyone!

Said another way:

People don’t buy from you because they understand what you do… they buy from you because you understand what they do.

— Lincoln Murphy (@lincolnmurphy) March 20, 2013

Oh… but the language issue that comes from not speaking to an ideal customer gets even worse for SaaS companies!

Because most SaaS companies don’t see themselves as “services” and instead hold on tightly to their technology pedigree, you often won’t stop at “lowest common denominator” language…

… nope, you drop even lower and stop talking about the customer at all, instead focusing 100% on your product, features, technology, APIs, and all the other stuff that doesn’t matter when you’re trying to connect with your potential customers (beyond early adopters).

And because you should extend your marketing/sales funnel into your app knowing who you’re attracting will help you create an in-app experience congruent with their needs/desires/expectations.

Zuora Puts Their Customers Front and Center

Look, I can tell when a SaaS company hasn’t identified (or chooses to ignore) their ideal customer before I ever talk to ‘em…

… because their marketing is all about their product!

Which means I’m not surprised when I talk to those same SaaS providers and hear that their business is stagnating, their churn is high, etc.

So it’s refreshing to see a company like Zuora take the opposite tact and really put their customers front & center:

Now, I’m not saying you have to go that far, but what a great example of using your (best) customers to help you resonate with more customers LIKE them.

And something to note here is that Zuora isn’t a small, vertical-specific company; anyone that fits into the “subscription economy” is a potential customer of theirs.

But they know who their Ideal Customers would be and they’re actively marketing to them so they (the ideal customer) will KNOW that they’re Zuora’s ideal customer, too.

Other customers who may not fit into the “ideal” mold aren’t prevented from doing business with Zuora, but by drawing a line in the sand Zuora is saying “these are the types of companies we most want to do business with.”

And, frankly (these are my words… Zuora hasn’t been and isn’t a client), Zuora is – by identifying with certain customer types – also subtly pushing less-than-ideal customers away.

Zuora, without saying it directly, is indicating that early stage startups and smaller companies might be a better fit for less-complex billing solutions like Chargify or Stripe.

But I also happen to know that some companies are starting to outgrow those smaller billing solutions and, as one of the companies I’m working with recently said about Zuora, “we want to be a $250M/ARR company, so we want to use the systems a $250M/ARR SaaS provider would use.”

That’s what I call an aspirational customer.

So just because you draw a line in the sand and actively try to resonate with your ideal customers, doesn’t mean you won’t get customers from outside that ideal spectrum… it just means you’ll DEFINITELY get customers within that spectrum, predictably, which is probably different than what you’re experiencing now.

Get Crystal Clear and Take Action

So we know a picture is worth a thousand words, right? Well that product screen shot on your main marketing page is speaking to me loud and clear… you don’t know who your Ideal Customer is or you’re unwilling to draw that line in the sand.

And it should be speaking to you, too… but are you listening?

You can make some quick changes by simply taking your existing product-centric “sales copy” and replacing it with customer-centric, value-based, actual “sales copy”

Remember… What’s In It For Them (WIIFT)?

What will your ideal customer get from your offering?

Make that your headline and bullet list, instead of you-centric messaging and lists of features.

Then you can evolve from there and spread that messaging throughout the rest of your sales funnel.

But it’s at least better than what you have today…

…of course, to do that means you have to know who your ideal customer is!

So…

Who’s your ideal customer?

That’s one of the most powerful questions you probably don’t have a clear answer to.

It’s time to get clear.

Let’s grow your SaaS company together

There is only one of me, so I can only help a limited number of SaaS providers at any one time. But if you’re serious about finally drawing a line in the sand and accelerating your growth, email me with the details of your situation and I’ll get back to you to setup a meeting.

- Lincoln

Who’s your ideal customer? is a post from: SaaS Growth Strategies

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What if that thing you’re doing was standing in the way of driving higher levels of engagement and was reducing the amount of expansion revenue you’re generating while potentially increasing churn?

What if I said there’s a very good chance you’re doing it right now and don’t even know it?

What if I said that it’s easy to fix if you just keep reading?

Eliminate ‘Dead Ends’ and Improve Engagement

Why do I think you’re doing this thing? Because every SaaS provider I’ve worked with has been guilty of creating “dead ends” for their customers… so you probably are, too.

Whether it was during the Free Trial, the on-boarding and engagement (first-use or first in-app experience) phase, or during regular use, “dead ends” were everywhere.

A “dead end” is anytime you tell a user something – a status update or a metric – but don’t tell them what to do next to improve or capitalize on what you told them.

+ You had 25 less views this week than last.

+ Your last campaign resulted in 19 unsubscribes from your mailing list.

+ You made 5 more sales this week than you did last week.

Okay, but now what?

Whether it’s good news or bad, don’t just tell them something happened… tell them what to do with the information you’re giving them so they can improve their position… even if their position is good.

Help them Improve Their Position

What if your email or in-app message said:

+ You made 5 more sales this week than you did last week.
==> Activate the XYZ module and double your sales next week

Even if they got a great result this week, that’s a pretty compelling next step (and up-sell opportunity; though only promise what you can deliver, obviously).

Actively Drive SaaS Customer Success

If you can help your customer achieve better results (they don’t have to be sick to get better), they’re more likely to continue to use – and expand their use of – your SaaS.

I originally sent this to my mailing list (you should sign-up and get exclusive SaaS Growth Strategies content before everyone else) and one of the SaaS providers on the list sent me this:

Great advice, as usual. What you wrote below really struck a chord so I had to drop you a note of thanks.

My team and I were just fawning over HelloBar’s performance update emails and considering the same approach – let customers know how they are doing.

As if it would be some sort of ‘crack’ that would make them want to do better and engage more with the Friendbuy platform. In light of the article below, our copycat strategy would have been a bit idiotic. Your version – to give customers some idea about what they could do with that information – is much more enlightened.

Dead ends hurt engagement and lack of engagement is the number one reason customers leave; eliminate dead ends and watch your business grow!

Let’s Improve your SaaS Customer Success

There is only one of me, so I can only help a limited number of SaaS providers at any one time.  But if you’re serious about driving engagement – perhaps through eliminating dead ends, email me with the details of your situation and I’ll get back to you to setup a meeting.

- Lincoln

SaaS Customer Success: Eliminate ‘Dead Ends’ to Drive Engagement is a post from: SaaS Growth Strategies

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I was in Silicon Valley recently and I found myself talking about this idea of “Quick Wins” several times within the context of SaaS Customer Success and I wanted to share this idea with you, too.

This idea of “Quick Wins” is really just an evolution of the Common Conversion Activity (CCA) metric, but adapted for use beyond Free Trials and presented in a way that’s more palatable to… just about everyone, really.

Kickstart SaaS Customer Success with Quick Wins

So the “Quick Wins” idea is a simple concept, but like most simple concepts, it isn’t easy to figure out how it – or in many cases even that it – applies to you.

The need for “Quick Wins” is predicated on the idea that you need to get your (prospective) customer to realize value from your SaaS as quickly as possible, whether it’s their post-sales initial use or during the Free Trial.

To do that, think about “Quick Wins” – positive results – that your customers can quickly achieve by using your SaaS.

You’ll probably struggle with the idea of “Quick Wins” at first, as you grapple with just how much your SaaS can do, and how much on-boarding, seeding of data, or integration is required for full adoption across the client enterprise.

The first thing to note is that “Quick” is a relative term, so if it normally takes 2-months before your customer gets a “Win” what could you do to get them a “Win” in the relatively “Quick” time of 2-weeks? If it takes 2 days normally, what could they do in 2 hours?

SaaS Customer Success from the Customer POV

So, as you think about how to come up with “Quick Wins” do so from the customer standpoint – not yours or your product’s. Using this perspective, you should be able to come up with a few bite-sized actions your customers can take that will result in a fast, positive outcome for them.

For instance, do you really need end-to-end adoption out of the gate or can you activate usage of just one module and give them immediate value? And think about this even if they bought the whole package; this isn’t about how little you can sell them!

Or, perhaps your SaaS can integrate with and pull data from their on-premises ERP to produce forecasts for the next 7 years.

That’s great, and probably what is needed long-term, but could you get an immediately positive result by using a small, user-generated dataset instead?

The Psychology of SaaS Customer Success

To come up with these “Quick Wins,” think about customer segments based on different use cases, buyer personas, or even pricing levels.

Lincoln Murphy and Dr. Robert Cialdini at a Principles of Persuasion Workshop in Arizona (March 2013)

We know all customers aren’t created equal, so the “Quick Wins” for one customer segment might be different than for other segments.

And of course, once they get one win, you move them to another, then another until they’re fully engaged… it’s a process and you should ensure it is fully orchestrated.

There is some real psychology involved with this “Quick Wins” method, including the activation of several of the Principles of Persuasion put forth by Dr. Robert Cialdini: Reciprocity, Liking, and Consistency.

But where Psychology is the reason to employ this “Quick Wins” strategy, the data should be the catalyst, as it generally shows that customers who realize value quickly are the ones that stick around the longest.

Let’s Develop your Quick Wins Strategy

There is only one of me, so I can only help a limited number of SaaS providers at any one time.  But if you’re serious about developing some “Quick Wins” for your customers, email me with the details of your situation and I’ll get back to you to setup a meeting.

- Lincoln

SaaS Customer Success: Start with Quick Wins is a post from: SaaS Growth Strategies

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SaaS churn threats aren’t just a signal that you have an at-risk customer; these are literally threats to your business, your revenue, your valuation & your ability to grow and they should be taken very seriously.

And since churn is a customer lifecycle issue, not just something that happens at the end of the customer lifetime, the seeds of churn are often planted early and they actually start to sprout over the course of the customer lifetime.

If you aren’t looking for it, you could miss that your customers are telling you that they’re going to stop paying you at some point very soon.

They’re telegraphing their next move and it’s up to you to read the signals and jump into action.

Get Proactive on SaaS Churn Threats

The beauty of the SaaS business model is that you have visibility into the behaviors of your customers… and you should use this to reduce your SaaS churn rate.

Specifically, you should be looking for signs that your customer is getting ready to leave and then do something to stop it.

However, what you do to stop it – and how you do it – depends entirely on your relationship (or the relationship you should have) with your customer.

If your customer (segment) requires high-touch – perhaps you sell into a relationship-driven market – then make how you reach out to deal with a SaaS churn threat high-touch. You could use a system like Woopra and set it up to ping your Customer Success team when certain behaviors are detected so they can pick up the phone, move the customer onto a path of realizing value again, and maybe even get the up-sell to expand revenue!

On the other hand, if your customers – or certain customer segments – prefer a self-service model, then how you reach out can be automated… trigger an email to get them to take a particular action – roll your own, use Vero or USERcycle, or use Intercom’s in-app messaging to communicate directly with the customer inside your SaaS.

Continuing the theme from the last post on monitoring, measuring, and encouraging Customer Engagement, you can see that everything from the high-level strategy around SaaS churn reduction to the low-level tactics we use are all customer-driven.

In fact, keeping a customer-centric approach to everything you do will eliminate…

The Biggest SaaS Churn Threat

The biggest churn threat you can monitor for is when your customers are not fully-engaged with your SaaS.

My definition of engagement is “when your customer is realizing value from your SaaS‘ so in my book, the biggest SaaS Churn Threat is lack of engagement at any point in the customer lifecycle.

No matter where they are in the customer lifecycle – during their Free Trial, in their first 90 days when they’re just getting started, on day 366, or on day 578 - when your customer fails to realize value from your service – when they aren’t engaged – they’re actions are telling you they probably won’t be sticking around much longer.

But if you don’t know what Engagement looks like for your customer or that it is 100% unique to your customer at their specific point in the lifecycle of using your service and aren’t proactively monitoring for that, you might miss it and lose a customer when you really didn’t have to.

So lack of engagement is the absolute top priority Churn Threat to monitor for and take action against to move your customer back on a path to value recognition.

Once you’re monitoring for – and reacting to – the biggest SaaS churn threat of them all, you can expand your Customer Retention campaign to include monitoring for these…

Common SaaS Churn Threats

While Engagement is 100% specific to your customer, your SaaS, and their position within their lifecycle as your customer, there are some common threats to your company that every SaaS provider should monitor for and react to.

Now, in addition to some of the more well-known churn threats – like customer-wide usage drop-off  or low scores on a Net Promoter System (NPS) survey - here are four examples of common churn threats to monitor for:

1. Gaming the System – If you charge for storage (way to commoditize your valuable service, BTW) and people start deleting files, records or other objects to keep from moving to a more expensive pricing tier, they’re likely just buying time until they can find a better solution (perhaps one that gets them better than you do)… Sure, you didn’t get your pricing right to begin with, but maybe you can still salvage this customer by reaching out and getting them on the path to value realization.

2. Downloading their Data – They might be backing their stuff up… or they might be packing up and heading out of town… you should probably find out what’s going on. Might be worth a phone call.

3. Credit Cards Expiring – Far too many SaaS companies – especially those dealing with SMB customers – get a substantial amount of churn from expired credit cards. Many times the SaaS provider doesn’t want to “bother” the customer (read: wants to hide from the customer) to let them know the card is going to expire. Some might try to salvage the deal after the card expires… but even more will just let the customer go without ever “bothering” them.

Others might try offering a substantial discount to get customers on an annual plan, but fail to realize this just cuts their Customer Lifetime Value (CLV) down substantially and prolongs the inevitable (the card will probably be expired when you try to run it 12 months from now, too…)

Bottom line, once the card is expired the chances of getting ‘em back is much worse than getting them to update the card ahead of time.

It’s a big psychological difference… once they aren’t a customer anymore they have to make the decision to once again become a customer rather than just updating some information.

So start communicating 60-days out, letting them know the card is going to expire. Call ‘em, email ‘em, put a notice on their invoice or receipt… include a notice in every email you send out to them – both marketing and transactional – that their card will expire soon.

Do something – anything – to keep the card from expiring… unless you don’t care about saving the customer.

If you can, subscribe to – or use a payment processor like Braintree that offers – credit card updater services (Visa/MC/Discover offer these – Amex just does it for you)  and where you can’t – get proactive with your communication.

Some cards can’t be updated because they didn’t just (or only) expire… they were cancelled. Those will have to be dealt with manually for sure, but how great would it be to only have to deal with those and not all of the other expired accounts?

Look, this is all very simple and there is simply NO EXCUSE for not at least trying to get the card info updated before it expires.

4. Visiting the Cancel page - If they get to your cancel page but don’t take action that’s a reason to reach out… did they accidentally get there or were they foreshadowing a future action? Step up and reach out or next time they might hit the cancel button and it’ll be too late.

Sure, you can always make that last-ditch phone call to try to save an account (usually by providing some type of discount) after they cancel, but by recognizing behavior early and stepping in to help move your customer to a position of value recognition, you save the customer before they even become a serious churn threat.

Okay, those are interesting and could probably save several customers every month if you only implemented those four ideas…  but what about some super-ninja, data-driven, but…

Less-Common(ly Monitored) SaaS Churn Threats

These are SaaS churn threats that are less commonly monitored for, but are fairly common (depending upon product category & market position) and just as detrimental to your customer retention rate and bottom line.

1. Trigger Events  - The worth of a specific customer to you – either on a monthly basis or over their lifetime – will dictate how much you want or need to invest in this type of thing, but you should at least keep this type of customer intelligence gathering in mind.  It’s often said that the only acceptable churn is when a customer goes out of business or is acquired.

Well, acquisitions aren’t always the kiss of death for your relationship with your customer, but M&A activity often requires you to work hard to stay in the mix and that means getting in early. If the first time you hear that your customer is being acquired is when they give that reason for canceling their account, it’s probably too late and that’s your fault. You had options.

Look to something like Dow Jones Factiva Companies & Executives to actively monitor Company-level activity, M&A, good news and bad – they can feed that directly into your CRM or you can hook in via API – to give your Customer Success team a heads-up on what’s going on with your best customers. Or your worst customers so you can just let them go!

2. Your Users Leave the Company – Factiva will show you when a high-level executive is moving to a different company, but what about the lower-level executives or departmental heads. While those departures are not likely to make news, they are more likely to directly affect your relationship with that company.

The person that brought your SaaS into the company might leave, or your internal champion could move on and you are now at risk of being ousted by the person that takes over… they might have a favorite SaaS and that isn’t yours. The problem is you don’t know this because the new person takes over for the person that left and is using their account!

But if you leverage a service like FullContact, InsideView, or NetProspex you can be notified when a person associated with a customer account changes companies. If Sarah is now at ABC Company and her account is still being used at XYZ Company, now’s the time to reach out to XYZ and see what’s going on.

Oh, and ABC Company is now an opportunity because Sarah – a longtime user of your SaaS – is now your foot in the door at ABC, right?

3. Account Owners / Administrators Change - This is different than #2 above because it is a transparent event that takes place completely within your SaaS. And it could be nothing or it could be bad. Does the new owner/admin have experience with your service? Are they an existing user that was promoted to admin or a new addition? Do they have the same level of passion and trust for your service as the last person or are they going to start looking to bring in the SaaS that they’re used to using?

How you handle a situation like this could dictate your future with that customer… no matter what, never forget you sell to people – human beings – even in Fortune 500 companies.

Oh, and if you see that the person that was replaced is now at a different company because you are using one of the services I mentioned in #2 above… there’s also a new opportunity for you to pursue!

4. Widget Removal – Many SaaS providers have some type of widget or logic payload that their customers can embed in their site – chat, surveys, opt-in forms, pop-overs, bars, analytics/tracking objects, etc. – and almost all require that this is completed to get to 100% in the on-boarding process.

And for many of these companies, this is their entire business model… if a customer deactivates or removes the code from their site, the customer is no longer realizing value from the service and is definitely a churn threat. But few of these companies actively monitor to see if their widget/code is still being served and the ones that do rarely do anything with that knowledge. Don’t miss out on taking action on this super-obvious churn threat.

And of course you can take it further by seeing what – if anything – they replaced you with by either directly checking or using something like BuiltWith. If they did that before they canceled your account, you’d have more intelligence to leverage to save the account when you talk to them.

And if they’re too far gone, well… knowing what they replaced your SaaS with would certainly add some much needed context to their exit survey responses, right?

I hope I opened your eyes to some of the things you can look for if you’re really interested in keeping your customers.

Of course, if they are determined to leave,  you have to let ‘em… but successful SaaS companies create Exit Funnels to extract value from their departure…

… and I’ll show you how in an upcoming post.

Let’s Improve Your SaaS Churn Rate

There is only one of me, so I can only help a limited number of SaaS providers at any one time.  But if you’re serious about finally fixing your high SaaS churn rate by getting customer retention in check, email me with the details of your situation and I’ll get back to you to setup a meeting.

- Lincoln

SaaS Churn Threats: Identify and Retain At-Risk Customers is a post from: SaaS Growth Strategies

The post SaaS Churn Threats: Identify and Retain At-Risk Customers appeared first on SaaS Growth Strategies.

In this post, I’m going to go deeper, and share some awesome methods for improving customer retention by leveraging the power of the SaaS business model, specifically the ability of the provider to monitor for and drive Customer Engagement.

Engagement is Key to Reducing Your SaaS Churn Rate

While this post by Help Scout has some pretty great Customer Retention Strategies – including some links to awesome customer psychology research – it is somewhat typical of churn reduction posts.

Everything Help Scout said in that post was awesome and true… I just want to dig deeper into what it really takes to retain a SaaS customer.

First of all, you want customers that will actually use your SaaS… this isn’t a gym; the best SaaS customers actually show up and use your service!

And successful SaaS providers want ultra-engaged customers and users…

…but what is “engagement” in the first place?

Define: Engagement

Engagement is a term that get’s thrown around a lot these days in the context of SaaS customer success, but if you ask 10 people to define it you’ll likely get 10 different definitions.

While I don’t expect everyone to agree with me, I want you to know how I define Engagement so you know where I’m coming from.

Engagement is when your customer is realizing value from your SaaS.

When you look at engagement that way, it completely changes everything because you look at everything differently.

Instead of thinking about engagement as a “product” issue, you can see that it is actually a customer issue.

This is what I mean when I say functional on-boarding and “engagement” aren’t the same thing; on-boarding doesn’t require engagement, but engagement probably requires functional on-boarding; it’s required but it’s not enough.

Going through the motions and taking some specific actions might be what is functionally required for the customer, but if it isn’t congruent with your customer’s success map (I’ll touch on this later), you don’t have engagement – you have a functionally on-board churn threat – and you’re in trouble!

Also, instead of thinking that engagement is this one solitary event, you can see how the customer will change what the value they realize from your service will be over time and you can adjust your “engagement process” over time, too.

It makes sense that engagement in a Free Trial is different than engagement after 6-months as a customer, right?

So once you understand what engagement is, now you need to…

Measure Engagement to Improve Your SaaS Churn Rate

Now, to measure engagement means understanding what will make the customer find success with your SaaS and ensuring they’re moving along a path that is aligned with their definition of “success” both initially and over the course of their lifetime as a customer.

While we might still measure “they did this action” or “they used this feature” at a functional level, if we look at engagement from the customer value realization standpoint, we know why they’re doing those things and that tells us whether or not they are engaged.

Just as we look at customer segments and perform cohort analysis to attract the right customers through the best channels, we need to segment customers at this stage, too, so we can accurately measure engagement.

But remember, not all customers are created equal, so what “engagement” is for one type of customer may not be the same for your other customers; it’s up to you to clearly understand the differences between customer segments!

When you look at it that way, you can see that a login, for example, is not engagement.

Engagement as a Metric to Reduce your SaaS Churn Rate

All of this means that the number of logins – often floated as a measure of “engagement”- probably isn’t a meaningful measure of engagement, right?

Well, it means that engagement might include 3 logins, but without the context of the customer’s success in mind, we can’t look at individual user activities and say that’s “engagement” or not.

In fact, with context, you might discover that 3 logins with no other activity is a potential churn threat (or a potential customer that’s not going to convert) and likely means the user wants to –  but can’t figure out how to – get started!  This is probably a good time to reach out or as a trigger for an email or in-app message that can help them get started.

But if you think number of logins itself – as many do but might not admit after reading this – is the same as engagement, you’d overlook a big churn threat and an opportunity to move the customer on a path to realizing value and you’d lose the customer.

And that would happen while you think that everything is fine, but still wonder why customers churn out after a short amount of time!

But just measuring engagement isn’t enough, you need to…

Drive Engagement with a Customer Success Map

The key take away from everything I’m saying here should be to focus on the customer and not your product, functionality, features, etc.

That means the way to figure out what true customer engagement looks like – and what you need to monitor, measure, and encourage – is to map out the path(s) that your customer will take during their Free Trial, over the first 30, 60, 90 days, and continue to map it out from there, keeping it tightly aligned with your customer’s idea of success.

And take it further out from there… 6-months, 1-year, etc.

No, it’s not supposed to be easy. Yes, it will require a lot of work, including digging through historical data if you’ve been in-market long enough and/or talking to customers, prospects, etc. to glean this information.

Look, if you have an estimated (or hopeful) Customer Lifetime of 36 months, how do you expect to get there in a predictable manner at scale (rather than by accident and in-spite of your efforts) if you don’t know what success looks like for your customer 35-months into their subscription?

It makes sense, right? If you don’t know (or can’t even make a realistic hypothesis about) how your customer defines – and will define – success over time, how can you actually monitor, measure, and encourage it?

You can’t, so you end up looking at events that mean nothing or have no meaningful context and trying to “improve” the process – or just ignoring it and hoping they’ll stay – all while you continue to wonder why your SaaS churn rate isn’t getting any better.

Tools to Drive Engagement: the Build vs. Buy Question

The decision to build your own system in-house to manage the process of measuring, monitoring, and encouraging engagement across the customer lifecycle vs. leveraging a third-party commercial offering depends on many factors: your available resources, the time you want to invest, what methods of communication your customers will want/respond to (email, in-app messaging, etc.), to name a few.

The beauty of third-party systems is that they get you to a live, actionable system faster; the downside is that you often have to rework your requirements to fit what is available…. but the latter is becoming less of a problem as more and more commercial offerings hit the market to tackle this opportunity.

I’m sure there are others out there – feel free to let me know what they are in the comments – but these are the providers I’m familiar with either because I’ve used them or I’ve gotten to know the company on my own to better understand what they offer.

• USERcycle
• Woopra
• Mixpanel
• Intercom.io
• Totango
• Evergage
• Klaviyo
• Userfox
• Customer.io
• Vero
• Sailthru

So you have commercial options – or you can build your own – but here’s the absolute reality…

You can spend all the time, effort, and money in the world instrumenting your SaaS, hooking into third-party APIs to report on engagement, or building your own from scratch, but if you don’t have a clear picture of what actual engagement is for your customers in your SaaS and how it should change over time, it’s all for naught.

Get clear on your customer’s Success Map and then figure out what the right solution is to measure, monitor, and encourage engagement.

Then, once you’re measuring and driving engagement, you need to monitor and get proactive on Churn Threats… which I talk about in great detail in this post titled SaaS Churn Threats: Identify and Retain At-Risk Customers.

Let’s Improve Your SaaS Churn Rate

There is only one of me, so I can only help a limited number of SaaS providers at any one time. But if you’re serious about finally fixing your high SaaS churn rate by getting customer retention in check, email me with the details of your situation and I’ll get back to you to setup a meeting.

- Lincoln

SaaS Churn Rate Improvement: Monitor and Drive Engagement is a post from: SaaS Growth Strategies

The post SaaS Churn Rate Improvement: Monitor and Drive Engagement appeared first on SaaS Growth Strategies.

Over the next several posts I’ll outline five methods for churn reduction and customer retention that fully embrace the power of the SaaS business model…. let’s get started.

The Fallout from a High SaaS Churn Rate

When most people write about reducing churn in a SaaS company, it seems they’ve never actually had to deal with customer retention issues.

It seems they’ve never been frustrated by increasing customer acquisition spend, but finding year-over-year revenue stagnating because too many customers are leaving out the back door.

Or they’ve never been in a board meeting with investors ripping them a new one encouraging them to fix their freakin’ churn problem.

Or they’ve never tried to raise a series B round only to find valuations are a bit less than they (and their original investors) would like because their churn is too high.

Oh, and they certainly haven’t been there when the executive team returns from those meetings!

That’s why I get tired of reading the same old churn reduction stuff… talk to your customers, create good FAQs and content, do better demos, blah blah blah.

And while the actual number of SaaS companies with a real churn “problem” varies depending upon the data source and how they determine “acceptable SaaS churn rate” new data is always coming out to help us get a clearer picture.

OPEXEngine just published some churn numbers on Sandhill.com that shows the average churn (from their 2011 survey) was 22% annual customer and 13% annual revenue churn (though some of the top companies did have negative revenue churn, which is cool).

I see the findings of OPEXEngine as further indication that the average SaaS churn rate among private companies is higher than the 5-7% annual churn Bessemer Venture Partners says is acceptable (investors understand the financial impact high churn can have on a company very well) and that churn is still very much a problem that needs to be addressed.

Which is why I put together several posts that contain…

Actual, from-the-trenches Methods to Reduce SaaS Churn

But before I get started, I need to set the tone.

First… churn is a customer lifecycle problem, not a problem to be addressed only at the end as the customer leaves.

Second… churn is your problem, not a customer problem. If you want to blame your customers because they don’t “get” your software or blame the universe for conspiring against you… stop reading right now because I can’t help you.

Moving on,… if you want to improve your SaaS business (and it’s valuation), then you need to…

Attract Better Customers to Reduce your SaaS Churn Rate

Customers rarely wake up one morning and decide to leave you… in fact, chances are the seeds of their churn were planted before they were even a customer.

In my experience, churn is often correlated to things that happen early in the sales process… and this starts with attracting the wrong customers.

SaaS CEOs that bring me in to help fix their churn problem are always surprised when we start going through the customer acquisition process… but that’s where many churn issues begin!

You hear this all the time, but you have to know who your ideal customer is so you know how to reach them, what they need or want, how to position your offering for them, etc.

But it goes deeper than just being able to write better sales copy to convince them to use your SaaS.

It means understanding what a successful Free Trial is for them, how they procure services, who all is involved in the sale, what functional on-boarding really means, and how to get them to start realizing value as quickly as possible.

Knowing your ideal customer isn’t marketing fluff… it’s at the core of building a successful SaaS company, and it actually starts with customer segmentation.

Customer segmentation allows you to not just know who your best customers are based on their profitability, (estimated) lifetime, characteristics, actions, demographics, etc. but allows you to perform further cohort analysis to determine factors at play when they signed-up, what channel they came in from, etc.

I frequently find that the ideal customer for a SaaS provider makes up a small portion of the overall customer base, but because we can look at customers at a cohort level through advanced segmentation, we can get a better idea of who they are, where they came from, etc. and ramp up the acquisition machine with them in mind.

Oh, and a great side-effect of knowing exactly who your ideal customer is, is that you also have some idea of who your less-than-ideal customer is (these are the ones that complain a lot, don’t pay much, feel entitled, and don’t generate any profit) and where they came from, so we can work to push them away rather than attract ‘em.

So, get the good customers in – the ones who’ll be profitable and stick around a long time – and work to keep the bad customers out, and many of your churn problems will get resolved before they’re actually churn problems.

But, even if you attract the right customers in the first place, you still need to…

Manage Expectations to Improve Your SaaS Churn Rate

I can’t say every problem you’ll experience in your SaaS business is because of mis-managed customer expectations… but I’m confident 92.7% of them are!

When you incorrectly manage a new customer’s expectations during the sales process – like an email provider who promises “you send an email, you’ll make money!” and that doesn’t pan out – sure, you’ll sign-up new customers, but they’ll quickly find out you were straight-up lying and leave… probably telling their friends and colleagues on the way out.

But if you said “grow your business over time by nurturing your customer base through strategic email marketing,” you wouldn’t have customers expecting that each “email blast” will result in a bunch of immediate sales and being super disappointed when that doesn’t happen.

Over-selling and under-delivering is not a recipe for long-term success and is a huge reason for high churn rates among B2B SaaS providers even though it might not rear its ugly head for a few months after the initial sale; though when it does, there are some interesting ways to correlate that churn back to a promise… I’ll cover that in a future post.

Now, once you have the right customer with the correct expectations in your SaaS, you need to monitor and manage Customer Engagement…

… which I cover in this post called SaaS Churn Rate Improvement: Monitor and Drive Engagement.

Improve Your SaaS Churn Rate

There is only one of me, so I can only help a limited number of SaaS providers at any one time. But if you’re serious about finally fixing your high SaaS churn rate by getting customer retention in check, email me with the details of your situation and I’ll get back to you to setup a meeting.

- Lincoln

SaaS Churn Rate Reduction Starts with Attracting the Right Customers is a post from: SaaS Growth Strategies

The post SaaS Churn Rate Reduction Starts with Attracting the Right Customers appeared first on SaaS Growth Strategies.

I honestly believe that fully grasping the power of these two concepts could change your SaaS business forever.

No pressure… but you might want to read this post carefully.

First, as far as I know, David Skok of venture capital firm Matrix Partners popularized the term “negative churn” in one of his fantastic SaaS metrics posts.

In that same post, David used the term “expansion revenue” to quickly identify any revenue generated in excess of the initial selling (or sign-up or contract) price.

And since Expansion Revenue is the key to Negative Churn, I’ll start there…

Offset SaaS Churn Rate with Expansion Revenue

As I said above, any revenue generated in excess of the initial selling (or sign-up or contract) price is considered Expansion Revenue.

Expansion revenue should be something you consider – and strive for – at every stage of your sales process, the Free Trial, during and immediately post-conversion, during on-boarding, and of course as the customer continues to use your service.

Remember, it’s a lot easier to get more money from a customer who’s happy and already paying you than it is to get money for the first time from non-customers. #fact

Whereas far too many SaaS marketers think “can I get someone to sign-up for a year in advance at a 50% discount” I would advise you to think more like “can I get someone who was going to sign-up at the $20/mo level to instead convert at the $30 or $40/mo level?”

In addition, consider how quickly you can get someone who converted at $50/mo to move up to the $100/mo level and be clear on what the path to that expansion revenue looks like.

BTW, at a high level, that path is: engagement ==> investment ==> offer ==> conversion ==> rinse & repeat.

Expansion Revenue Examples

When a customer initially signs-up at the $100/mo level but at the beginning of the second month of the subscription moves up to the $200/mo level, you now have $100 in expansion revenue every month.

And using that example, over the next 35 months of their 36 month estimated lifetime (eLT) would equal $3,500 in expansion revenue in addition to the $3,600 in base revenue for a gross Customer Lifetime Value (CLV) of $7,100.

That is unless you move them to the $300/mo level in month 6 as you have mapped out, right?

Look at what email marketing provider GetResponse shows when I logged-in to the dashboard… an up-sell for a 30-day trial of their $15/month Landing Page creator add-on.

For GetResponse, this add-on is worth an extra $180/year and is congruent with the needs of their customers (you need to send clicks from emails somewhere, right?). But wait… it gets better.

By providing a tool for their customers to create high-converting landing pages, the hypothesis would be that GetResponse customers will get more out of the core email service because their emails will be more effective, which also means they will stay around longer (reducing SaaS churn rate and resulting in a longer Customer Lifetime).

This success will also encourage the customers to actively grow their email lists (which is what the core GetResponse pricing model is based on), resulting in significantly expanded revenue and an increasing Customer Lifetime Value (CLV). Nice.

Other things to consider about expansion revenue…

If a customer enters your Free Trial having selected the $30/mo plan but converts at the $50/mo plan 14 days later, I would consider that expansion revenue from the beginning.

Since the higher initial selling price is directly attributable to your efforts to drive engagement and investment during the trial – making the up-sell compelling enough for the customer to take action – considering this expansion revenue makes total sense.

This, by the way, is just one reason why you should link every free trial sign-up to a pricing tier.

Of course expansion revenue doesn’t have to be recurring revenue.

For instance, if you offer a done-for-you report for $500 and the customer buys it, but remains at the $100/mo level, the expansion revenue is $500 and that figures into their total CLV. What else could you offer that is beyond the core service to expand revenue?

That all said, let me be clear… Expansion Revenue isn’t necessarily free money – there may be a cost, perhaps a substantial one – to create and deliver the additional service, but as long as the desired margins are there, not having a plan to expand revenue is quite simply a wasted opportunity.

However, expansion revenue – done correctly – can be very high-margin revenue because it’s just an up-sell to a higher priced tier that itself has a low cost to deliver.

So expansion revenue is awesome and should be the goal every step of the way.

In fact, expansion revenue is so awesome it can even lead to what is called “Negative Churn.”

Achieve a Negative SaaS Churn Rate

So having a Negative SaaS churn rate might seem like a confusing – almost counterintuitive – idea but it makes sense if you really understand what it is… which I hope you will after I’m through with you.

First, to get to the concept of Negative Churn we have to move from customer or “logo” churn – counting the number of customers that leave – to revenue churn, counting the number of dollars that leave.

I know the next question you’re going to ask… which is best to measure, revenue churn or customer churn? I’ll cover that in another post, but since revenue is always a key indicator of the health (along with profit) of your company, revenue churn should always be measured. And as you’ll see in a minute, dropping logos might be a way to restart a stagnating business!

Another distinction we need to make is gross vs. net churn, and it’s simple, too.

The number of dollars you lose – without regard for new, reactivated or expansion revenue – for a time period or cohort would be referred to as gross churn.

Net churn is the amount of dollars lost after taking into consideration new, reactivated, or expansion revenue for the same time period or cohort.

A great way to think of this is if you lose $100 through customer attrition and non-renewals (gross churn), but you gain $150 for the same period or cohort through expansion revenue (up-sells, cross-sells, higher usage, etc.) you have negative (net) churn of $50.

On a customer-basis (but still considering revenue), if out of 100 customers, you lose 10 (gross), but you are able to up-sell, cross-sell or drive additional usage from the 90 customers that are still there allowing you to generate more revenue from the 90 than you did the original 100, you have a negative net SaaS churn rate.

So even though you have churn, your revenue goes up. This is very good.

An Interesting Negative Churn Scenario

Here’s a scenario where Gross Churn is high but your overall SaaS Churn Rate is Negative… and it’s all orchestrated.

I frequently work with SaaS providers that don’t know who their ideal customer is… but they’re pretty sure none of their current customers fit that bill.

Typically these SaaS providers used the “everyone is our potential customer,” product-centric approach to marketing that for some reason is popular with SaaS providers.

Consequently, they’ve achieved the results that come from having no real plan; they’re not failing, but they’re not growing, either.

A little more bluntly… whatever growth they’ve achieved thus far is in-spite of their efforts rather than because!

So when they bring me in to help, the first thing we do is figure out a way to flip the script on that.

Initially, their “marketing strategy” attracted the wrong audience (low-end customers) and that isn’t good for anyone.

So after we’d do some buyer persona development and empathy mapping work and have a clear picture of their ideal customer, we’d change pricing to align with the value perception of the higher-end customers, change the sales funnel to match the way the ideal customer tries and buys, etc.

Then we’d figure out a way to market to the ideal customer correctly (this really is so much easier when you know who your potential customer is!) – even if in a smaller niche – and lo and behold we’d start getting “good” customers.

And since we know the customers better than they know themselves at this point, creating expansion revenue maps to move customers up the revenue ladder is much, much easier.

Now, depending on how “bad” the original customers were, we might actively jettison them or just allow natural attrition to occur with the initial less-than-ideal customers.

In this scenario – which may last a few months or more – you may find a substantial amount of gross churn (which you could even be promoting), but because you’re actively bringing on new customers at higher price levels and doing up-sells and cross-sells (where appropriate) early in the customer lifetime this expansion revenue will substantially offset the loss of revenue from the churn.

One note though before we move on… non-orchestrated churn is almost always bad. The ideas I’m putting forth here – especially around Expansion Revenue – are even more powerful if you have a low gross SaaS churn rate!

Okay, so this is all interesting… but what about Negative Churn in everyday operations?

Common Negative Churn Scenarios

First, the good news…

The most successful SaaS providers out there operate with a negative SaaS churn rate.

But let’s be absolutely clear… these companies have a low gross churn rate to begin with… the best companies operate in with less than 7% annual churn.

Their negative churn comes from their aggressive methods of getting customers engaged & invested in their service, driving initial use and expanding internal adoption. Yammer is a great example of  well orchestrated “internal corporate virality” and Huddle is an example of a company that works hard to drive internal adoption and backs that up with a “100% Adoption in 90-Days” guarantee.

A Negative SaaS churn rate for these companies is possible because they’re really good at promoting additional use that requires more resources or additional functionality which expands revenue, as well as using up-sells and cross-sells to grow per-customer revenue.

Salesforce.com is a great example of a SaaS provider that scales its feature set with customer success and effectively cross-sells adjacent products and services like Data.com.

Okay, now the bad news…

In my experience, since SaaS providers with high churn rates simply don’t do the things necessary to reduce churn in the first place, they rarely do things necessary to expand revenue at all, let alone enough to overcome what is lost through churn.

From what I’ve seen, providers with an unacceptable SaaS churn rate don’t know how to – or for whatever reason simply choose not to – leverage up-sell, cross-sell, or even down-sell opportunities, so their churn rate is rarely offset by expansion revenue.

Of course, it doesn’t have to be that way…

Let’s Expand your Revenue!

There is only one of me, so I can only help a limited number of SaaS providers at any one time. But if you’re serious about expansion revenue, up- and cross-selling, etc., email me with the details of your situation and I’ll get back to you to setup a meeting.

- Lincoln

SaaS Churn Rate: Go Negative with Expansion Revenue is a post from: SaaS Growth Strategies

The post SaaS Churn Rate: Go Negative with Expansion Revenue appeared first on SaaS Growth Strategies.

SaaS customer onboarding starts with the welcome email, so when I saw this great post over on the Vero blog called 5 Conversion Optimization Experts Weigh In On An Email Remarketing Campaign I was excited to see people talking about this important – and often overlooked – element.

In the post, 5 copywriters – arguably the best in the business – analyze and offer suggestions to the welcome email of HipChat.

I agree with just about everything the panel of experts said, but I think they missed a couple of points.

While Sasha Gilberg from 2xconversion.com touched on a couple of these, I think the panel missed these points not because they don’t understand email marketing and copywriting, but because these points are fairly specific to SaaS and Cloud providers – like HipChat.

If you don’t think the way I do – or the way those companies I’ve worked with do – you might overlook these things, too.

Since I don’t want that to happen, I decided to outline how to create an effective welcome email to kickoff the SaaS customer onboarding process.

Email Marketing Best Practices

First and foremost, the welcome email must be built off of best practices and should be expected by the prospect or new customer.

Be sure to tell ‘em after they sign-up that they’ll get an email, what the subject is and who it’s from so they’ll be sure to look for it and open it.

From there, the welcome message should speak to the reader (direct marketing), be personalized, have a compelling subject (headline) & copy, from a real person (as opposed to “noreply@” – I like what Peep Laja from ConversionXL said… “PleaseReply@” might be better), etc. For more on these best practices absolutely read the post on the Vero blog and checkout my 5 Tips for SaaS Providers to Successfully Use Email post.

SaaS Customer Onboarding: Create a Successful Welcome Email

Now, once you have a clear understanding of the core requirements for any SaaS marketing or transactional email message, you can apply these ideas specifically to your welcome email.

1. The Email Must Be Part of a Well-Defined Process

Remember… while engagement includes onboarding (the welcome message would be the first step in the SaaS customer onboarding process)… onboarding doesn’t necessarily require engagement.

But when you’re bringing a new customer or prospect into the fold, you’re shooting for deep engagement here… not just functional onboarding.

Why? Because Engagement leads to Investment (time, resources, energy, data, etc.) and Investment leads to Conversion and long-term Retention.

I developed the Common Conversion Activities (CCA) set of metrics as a way of developing a path to drive conversions through Free Trials that allows you to accurately measure engagement in a meaningful way.

Whether you use CCAs or not, just ensure you have a specific goal (conversion, perhaps) and a map for your customer to get there.

The welcome email should get them to do the first thing on the map… get them to take the first step in your CCAs. And that’s all!

If you adhere to this approach you keep your message clear and eliminate confusion for your prospective or new customer (because confused minds don’t buy… they bounce!)

Applying this approach means you will not have a “create a project” link and also a “download our iPhone app” and “Upload your logo” CTAs, too.

Those things might also need to happen, but at the right time and in the right sequence.

Also, I would caution that “add coworker” (and other “viral expansion”) steps are likely best moved to at least a little later in the process (create a hypothesis around this and test, of course) because at first you have a fragile relationship that your prospect or customer might not be willing to bet their social capital on.

If you have a product – like HipChat – that is social in nature and really doesn’t allow someone to recognize value from it until they bring in coworkers, figure out steps they can do to become engaged, invested, and comfortable with the service before they invite others. Maybe even suggest they bring in just a couple of other folks to help setup the network.

You might need to put on your creative thinking cap to come up with what they need to do, but it could be a very worthwhile thought experiment.

Also, as Sasha says, the follow-up to the welcome message ideally is a triggered message based on the action the customer or prospect took.

2. There Should Be a Single, Clear CTA

Your welcome email (often sent separately from an email containing login credentials, but not always) should have one Call to Action (CTA)… one singular goal to get the prospective or new customer back into the app to do the first thing they need to do.

Multiple links are okay (though as Paras Chopra from Visual Website Optimizer says, there is such as thing as too many links), but the links should all go to the same place.

And while these can be both links and a “Big Orange Button” as Sasha called it in the Vero post, the design doesn’t matter if everything else is wrong… once you get the structure right you can enhance it with a compelling design.

I’ve seen a lot of very pretty – but very ineffective – designs used by overly clever SaaS providers.

Tear it down to the basics, get that right, then start designing around that.

Now, just to be clear, you can include other links – perhaps to support and of course to unsubscribe (which should lead to a page that warns them about doing so, perhaps provides options to throttle messages, but ultimately allows them opt out) – but I suggest you keep those below the closing and keep the body (and PS:) for the main CTA.

3. Link Directly Into Your App

The single CTA should lead them directly to the thing they need to do inside the app.

If you have a Getting Started PDF they should read… well, you shouldn’t. Your App should walk them through the process of getting started. No excuses there. Though if you still have that pesky PDF, don’t link directly to it.. link back to the app and let them download and read it from there… but you need to get away from that if you want your app to sell itself.

You should build your URL & redirect structure in a way that allows you to link directly into your app from both marketing & transactional messages and, this is key, if they are logged-out, allow them to login and redirect them to the original destination.

So let’s say I have a CCA – Create a Project – that I want to get my prospective customer to do.

I’ll craft a compelling email and the CTA will be to Create a Project. That CTA will link to this:

http://myapp.com/project.new

So when they click on that link it takes them into the app to the Project Creation area (which is hopefully super-intuitive, easy to use, and walks them through the process).

But what if they aren’t logged-in?

Well, the app should redirect them to a login screen that, once they log-in, should redirect them to their original destination. Password recovery/reset should do the same thing upon successful completion and login.

This is so much better than explaining in an email “Go to this site, login, click on ‘Dashboard’ and then click on ‘New Project’.”

You need to make it AS EASY AS POSSIBLE for your potential and new customers to get moving in the right direction as possible.

And since email will likely be a large part of your Engagement Engine, allowing deep linking directly into the app so your customer can take action is required.

Of course,… if your app isn’t built to handle this, then do the “login, select ‘New Project’” stuff because that is all you can do right now… but work on fixing the problem ASAP!

Let’s Fix Your SaaS Customer Onboarding

There is only one of me, so I can only help a limited number of SaaS providers at any one time. But if you’re serious about finally fixing your onboarding and Engagement process, email me with the details of your situation and I’ll get back to you to setup a meeting.

- Lincoln

SaaS Customer Onboarding: 3 Steps to a Successful Welcome Email is a post from: SaaS Growth Strategies

The post SaaS Customer Onboarding: 3 Steps to a Successful Welcome Email appeared first on SaaS Growth Strategies.

As a consultant to SaaS and Cloud providers that are looking to grow, I get asked what an acceptable SaaS churn rate is all the time.

As I stated in my Sandhill.com article SaaS Providers: Growth Requires Proactive Customer Retention the answer is you want a churn rate that is “as low as possible.”

Acceptable Churn Rate

In line with my experience and as I cited in my Sandhill.com article, Bessemer Venture Partners says an acceptable churn rate is in the 5 – 7% range ANNUALLY, depending upon whether you measure customers or revenue.

And BVP’s assertion is backed up by Pacific Crest in their Private SaaS Company Survey Results that show roughly 70% of SaaS companies in their survey had annual churn in the < 10% range, with 75% of those at 5% or under.

The way I read the results of Pacific Crest’s survey is that 30% of SaaS providers surveyed have an unacceptable level of churn.

Now what about the SaaS providers that aren’t included in surveys like that one or who don’t appear in the logo list of the top investor portfolios and who are just trying to grow? Are they doing better or worse?

In my experience, it’s quite often worse… and sometimes much worse (as you’ll see in a second).

Honestly, for those companies, it isn’t a lack of customers in the front door that is stopping their growth; it’s the constant flow of customers out the back door that is killing their business!

Monthly vs. Annual Churn Rates

Now, just so we’re on the same page, 5% – 7% Annual churn – the good churn rate – translates to 0.42 – 0.58% monthly churn.

This means companies with acceptable churn only lose about 1 out of every 200 customers (or dollars) per month.

Now that’s a solid platform you can really build a high-growth company on.

On the flip side, a high churn rate is the reason you ended 2012 with a whole bunch of new customers… but had about the same amount of revenue.

Churn is the reason that – though you acquired a lot of new logos in 2012 – you had no significant year over year growth from 2011.

Is 5% Monthly Churn Good?

To really hit this point home, here’s a story from a conversation I had last week.

The CEO of a cloud provider who competes in an extremely crowded SaaS product category (and hasn’t figured out why they exist yet) contacted me.

His goal is to double his business over the next 12 months… to 2x their current revenue.

To help reach that goal, he contacted me because he knew I could help with the things he thought were key to reaching his goal.

He knew that I could help increase customer acquisition by improving the quality of traffic to their site, improving the number of prospects entering his free trial and, of course, improving the conversion rate to paying customers of those that enter the free trial.

But as part of trying to get to the bottom of things, I asked him what his churn rate was.

Since he didn’t contact me to talk about churn he wasn’t really interested in discussing this (this, by the way, is always a bad sign; as the CEO of a SaaS company you should be open to discussing ALL ASPECTS of your business when you’re looking to grow).

He reluctantly told me he had a 5% churn rate but that it is “just fine.”

I asked him if that was 5% per year or per month… one is great the other not so much.

He confirmed it was 5% per month but reiterated that “it is fine.”

No, 5% Monthly Churn is Bad!

Now, just so you and I are on the same page… 5% monthly churn IS NOT FINE!

It means that if you didn’t add any new customers (which is unlikely) or measured on a cohort basis (this is a very accurate way), you’d see that 5% per month leads to ~46% churn. Read on.

Put this in a spreadsheet cell and hit enter: =(1-.05) ^ 12

The output is something like: 0.540360087662637 (see my over-simplification disclaimer at the end)

Make it 54, subtract that – which is the retention rate – from 100 and you have the annual SaaS churn rate: 46.

Turn that into a percentage, and the annual churn rate is: 46%

A 5% monthly churn results in… a 46% annual churn rate!

Let me add some color…

Having 5% monthly churn means if you started January with 100 customers you’d have 54 customers left at the end of December.

If you started with $100 in Monthly Recurring Revenue (MRR) you’d end up with $54/MRR at the end of December.

Think about it this way… over the course of the year where you start with 100 customers or $100/MRR but have 5% monthly churn, you’d need to acquire 46 customers (or $46/MRR) just to break even with the beginning of the year.

To grow by just 1 customer you’d have to acquire 47 customers!

To grow by just $1, you’d have to acquire $47 in new business!

If you start the year off with 100 customers, and you add 100 customers per month (and depending upon where the 5% churn from; cohort or total), you’ll end up with 25-29% annual churn.

If you add 1200 customers over a 12 month period and end up with a little more than 900 over that same period, that is probably not good.

Of course there are several factors to consider here, but in B2B SaaS where we’re looking for customer lifetimes of at least 36 months (and likely spending more than in B2C to acquire customers), this is clearly working against our goals.

Okay, so…

Why Do SaaS CEOs Ignore Churn?

Why this was not shocking to him I’ll never understand, though I can assume it was for at least one of these two reasons…

1. His company continues to acquire customers at a rate that is fast enough to break even or show some slight growth (which is why they think they just need to ramp this up)
2. He assumes a high churn rate is the norm; it’s expected and just fine.

What this really means is that with 5% MONTHLY churn, the CEO who said “it’s fine” is running a company with a 46% annual churn rate!

It means his company, the one that is “just fine,” is losing 50% of their customers or revenue every year.

At first I was happy to hear he has no Board of Directors to report to (so we could just get to work), but after hearing him say 5% monthly churn is “fine” I wish he did have someone to hold him accountable!

Now, while it’s not impossible to double your business in a year with such a high churn rate (this isn’t unheard of in the B2C world), it is hard.

And in our world “hard” means expensive and time-consuming.

It means running backwards on a treadmill blindfolded while lighting $100 bills on fire… eventually you might reach your goal weight, but you look like an idiot and waste a lot of money in the process.

The reality for this SaaS CEO I was talking to – and anyone else with a high churn rate – is that this is not a solid foundation to build a business on.

Rather than a solid foundation, you have a super-porous, extremely brittle wafer – like a piece of shredded wheat – that you’re going to try to build a business off of.

Or a dry sea sponge. Or a structure made from dry angel hair pasta. You get the picture.

Negative Churn and Expansion Revenue

Yes, you might have “negative churn” or “expansion revenue” where you lose some customers but the ones that stay pay you more over the course of the year.

That’s awesome! Expansion revenue is the best.

Unfortunately, in my experience, SaaS providers with high churn rates often don’t know how to effectively up-sell, cross-sell, or even down-sell so their churn rate is rarely offset by expansion revenue.

And the cost of acquiring more customers – especially when accurately figuring in all sales, marketing, on-boarding, and support costs – will frequently do more to offset what expansion revenue they have than the other way around.

As well, their pricing models are usually such that they don’t effectively move customers to higher pricing tiers and, in fact, often have non-value differentiators (like storage) separating pricing tiers so that customers game the system to avoid paying more (a major churn threat, by the way).

That said, assuming you’ve got up-sells and cross-sells that work and you have a pricing model that encourages customers to use more so they pay more to drive expansion revenue, how much better would it be if you could expand revenue over a larger customer-base by keeping more customers?

Right… so even when arguing for expansion revenue, I’m also arguing for lower churn.

Not all SaaS are created equal

Of course – like everything else in SaaS – lots of other market, category, and company-specific inputs come together to drive the churn that is outside of your control.

For instance, in the email marketing category – where I’ve worked with seven providers over the last year – there seems to be a much higher propensity for churn, especially at the lower end of the category.

However, the companies I’ve worked with – even in a market where the expectation is high customer turnover – we’ve been able to reduce the churn rate and extend customer lifetimes significantly.

How to Reduce Churn

Honestly, there’s nothing magical to reducing churn, it’s just ensuring that your customers continue to realize value from your service.

First, though, you have to get them to start using your service – either through a sale or in a free trial – but without over-promising and by otherwise managing expectations properly. I’ve actually seen a large amount of customer churn directly correlated to missteps during the sales and on-boarding phases, by the way, so keep that in mind.

Then, once the customer is up and running your only job is to ensure they keep realizing (more and more) value from your service.

While you may not add years to your customer lifetime or eliminate churn entirely, what could you do with an extra 6 months of revenue from your customers on average? What would that do to your company valuation?

A Complete Over-Simplification of Churn

Let me be clear… I’ve way over-simplified how to calculate churn for this post because I want you to start thinking about how churn can affect you and not get caught up in the details or turned off by crazy math.

The reality is that while churn is often seen as a linear function, customer retention is generally charted as a curve with actual losses – both customer and revenue – progressively decelerating.

But rather than going into how to waterfall out monthly revenue from the declining customer base, using cohort analysis, determining estimated customer lifetime, measuring revenue vs. customer (logo) churn, etc., I just wanted to present the simplest of real life examples to get you thinking.

What would you do today if you realized you had a churn rate that was too high? If you don’t know, that’s what I’m here for.

Let’s Fix Your Churn Problem!

There is only one of me, so I can only help a limited number of SaaS providers at any one time. But if you’re serious about finally fixing your high SaaS churn rate by getting customer retention in check, email me with the details of your situation and I’ll get back to you to setup a meeting.

- Lincoln

SaaS Churn Rate: What’s Acceptable? is a post from: SaaS Growth Strategies

The post SaaS Churn Rate: What’s Acceptable? appeared first on SaaS Growth Strategies.