DON’T BE A BYSTANDER
Maybe you were blindsided, or maybe you knew it was coming. Despite a well-structured customer success team and process, every company encounters the dreaded situation: a high-value customer indicating they are likely to churn. This piece focuses on what to do when you encounter the at-risk customer you didn’t plan for: how do you reactively save a customer?
We will have a follow-up perspective on “preventative maintenance” to address “at-risk customers.”
QUESTIONS THIS BLOG POST WILL ANSWER
- Why is it worth the effort?
- How do I know my customer is at-risk?
- Who is responsible for rescuing at-risk customers?
- How do I convince an at-risk customer to not churn?
- How do I prevent this in the future?
THE CASE FOR RESCUING
When at-risk customers ultimately churn, it’s easy to look at these situations and blame them on variables in or out of your control: turnover of your executive champion; onboarding was longer than ideal; the account is getting acquired by a company that isn’t a customer. It’s easy to look at these situations and blame them on variables in or out of your control: turnover of your executive champion; onboarding was longer than ideal; the account is getting acquired by a company that isn’t a customer. However, we prefer to look at the variables as within your control—in many cases, it is within your power to turn the situation around.
If you’re an enterprise B2B SaaS company, this principle becomes even more paramount: 2 accounts each worth $500K annually that churn can mean $1M in ARR lost. If you are a $20M ARR business, this translates to 5% of annual ARR.
Let’s assume this $20M ARR business continues at 95% net revenue retention, while adding $5M ARR in new bookings per year: after 5 years, you’ve lost nearly $7M in ARR due to the loss of 5% in net retention. Compare that with a company with 115% net retention (down from 120% from a few big losses) and the lost ARR is $13M – despite the same new ARR ($5M) being added in both businesses.
As depicted on the chart, the gap between 95-100% net retention ($7M) and 115-120% ($13M) compounds over time. Assuming a 10x ARR multiple on the business, it becomes the difference of $70-130M in enterprise value as you boost net retention by 5%.
The point is, those few high-value customers really matter!
HOW DO I KNOW MY CUSTOMER IS AT-RISK?
- Explicit feedback or RFP (note that for larger deals, you should be aware of this ~6-12 months in advance – we detail this further in Part II of this piece)
- Declining usage
- Support or other service incidents
- Executive champion changeover
- Failure to hit implementation timeline or ROI/business value goals
- Poor end customer health (e.g. struggling stock, declining sales, change in CEO, activist investor, major shift in competition)
- Competitive solution presence
- Economic/financial challenges
Refer to our Growth Hack, “Boosting Revenue Growth By Scaling Customer Success” for a more comprehensive discussion of measuring customer health.
WHO IS RESPONSIBLE FOR RESCUING AN AT-RISK CUSTOMER?
The bystander effect is a claim in psychology that the greater number of bystanders present, the less likely that one of them will help. The most important challenge with at-risk customers is that you need one person who will quarterback and have ultimate accountability for saving that customer.
Typically, this is the executive sponsor, account manager (AM), or customer success manager (CSM) assigned to the account. Beyond this quarterback, a focused cross-functional team (ideally of 5 or less individuals) should be created with clear responsibilities on addressing underlying customer challenges. These team members will typically be cross-functional, and include resources from services, product, and engineering. Some organizations call these cross-functional teams “SWAT,” and are trained to diagnose situations and respond appropriately. Many cases also warrant the CEO getting involved – the CEO can be helpful as a strategic and powerful stakeholder.
HOW DO I RETAIN AT-RISK CUSTOMERS?
- Once you know a customer is at-risk, structure a plan for execution.
- As discussed above, clearly define the team and responsibilities.
- Schedule frequent check-ins, both internal and ideally with the customer, with a defined agenda and reporting cadence
- Gather and analyze data to diagnose the root of the issue: usage data (and other variables that comprise the customer health score), support tickets, etc.
- Conduct 1:1 conversations with contacts at the company (users and buyers) to listen to their concerns. Often, concerns have layers and need to be investigated thoroughly. In many cases, they tie back to something you have done wrong or accomplished sub-optimally. Typically, their dissatisfaction relates to things that are either in or out of your control; focus on things in your control, which will generally relate to the following factors:
- Product – oversold (product features promised but not delivered), functionality
- Pricing and ROI – paying for features not delivered, lack of ROI
- Success, Support, and Service – delayed implementation; lack of attention; low usage; unresponsiveness, lack of knowledge, or inability to help by customer success, account management, customer support, etc.
- Conduct: a meeting with both users and executive sponsors at the customer to present learnings and go-forward changes.
- Share: the diagnosis, recommendations, and plan moving forward.
- Offer: measures to meet and exceed their needs. What will it take to have them stay? Unless their needs are completely unreasonable and go against your long-term strategy, put resources into helping them.
- Aim: to come out of the meeting with an agreed-upon plan.
Some example solutions to potential issues:
- Track weekly execution against plan: monitor the customer’s health score.
- As needed, re-evaluate response team members and adapt as needed.
- Expect iteration; continually improve response methods.
HOW DO I PREVENT THIS IN THE FUTURE?
- Apply what you have learned from this process
- When you identify an at-risk customer or when a customer churns, keep track of which of them were in the red versus yellow versus green (RYG customer health score ranges). Through the tracking, analyze the accuracy of your health scoring methodology and churn predictors. Conduct a regular (e.g. monthly) review of this analysis, as well as rescue attempts for churned clients.
- Ensure you have a strong customer success organization. Our Growth Hack, “Boosting Revenue Growth By Scaling Customer Success” elaborates more on this topic, giving tips on CSM/AM responsibilities, measuring customer health, maturing the success function, compensation, and more.
We look forward to your feedback on this piece and your growth journey. Stay tuned for Part II of At-Risk Customers: “Value Every Day Keeps the Churn Away.”