This article is part of The Survival Stage section of 📕 Zero to Sold: How to Start, Run, and Sell a Bootstrapped Business.
Retaining a customer is easier than finding a new one. You already have an open communication channel. They’re already interested in hearing from you. You also know their behavior patterns, and you can infer how much and how effectively they use your product from your metrics.
On average, a 5% increase in customer retention leads to a 25%-95% increase in profits. So keeping customers retained sounds like a great way to keep your business on the right track. If it can impact revenue so significantly, it is definitely worth your time to build a company that focusses on customer retention.
So how can you make sure the customer sticks around? What are the goals that you should have to make sure that as few people as possible ever cancel their subscriptions? You’ll learn how to focus on the preventable churn and how to keep those customers around. You’ll see which kinds of churn are dangerous and which can actually be beneficial to the bottom line of your business.
Why Retention Has Such a Striking Effect on Revenue
The obvious goal is to continuously provide customers with a valuable product throughout their whole journey. The moment your product does not solve their problem anymore, they will find another solution. So to prevent them from leaving you for a competitor, you need to solve their problem for them consistently and perpetually. Existing customers get used to the value you deliver; in fact, they start expecting it. That makes them appreciate new features and start complaining when the product doesn’t keep up with their critical problem. For as long as you do that, you have a long-term relationship, an ongoing sale.
After all, it’s so much easier to sell to a customer you already have. The chance of selling to an existing customer is 60%-70%, whereas a new prospect only buys 5%-20% of the time, according to Marketing Metrics. So you’re looking at three to eight times as high a chance to profit from an existing customer. You’ll really want people to stay.
But sometimes, your customers will quit. This can happen for many reasons, and only a few are in your control.
Generally, there is voluntary churn (e.g., when a customer terminates the subscription) and involuntary churn (e.g., when a subscription is terminated due to lack of funds).
Some kinds of churn are preventable. Sometimes, a customer leaving is not the end of your relationship.
Reactivation: How to Talk To Churned Customers and Not Mess Up
To get such a customer to come back to your product, you can employ reactivation strategies. After customers have quit, an automated email offering them a free month or a discount is dispatched. That will allow you to reconnect with undecided customers. Often, a conversation with those churned customers will be very enlightening, as it will surface reasons for churn that are still fresh in the minds of your customers. Mainly, in the beginning, reaching out manually will be extremely fruitful to find and resolve the issues that motivate customers to leave.
In some cases, you might get customers to return to the product by reaching out. Don’t force it, though. You don’t want them to vent their frustration with your forceful attempts at getting them back to their peers, who are very likely potential customers. Respect the choices your customers make, and even though the paid part of the relationship is over, they will continue to talk positively about your product. A business relationship is never really terminated, and if you rely on word-of-mouth for your marketing, you want all of your customers to feel valued and respected.
Payment Churn: How to Recover Failed Charges
There is also payment-related churn. Credit cards expire every few years, so unless you’re using a payment provider that automatically updates credit cards through the Credit Network as Stripe does, you will eventually attempt to charge an expired card. When that happens, you can either integrate a recovery solution like ProfitWell Retain or Baremetrics Recover. These dunning solutions reach out to your customers, promoting them to update their credit card information right after the failed charge occurs. They are, however, not completely customizable. If you’re a non-US company, you might run into blocked charges due to your geographical location. Implementing a custom messaging system that tells your customers how to get their bank to unblock the card will eliminate a large percentage of this involuntary churn.
The Surprising Kinds: Empowerment Churn, Temporary Churn, and Welcome Churn
Not all churn is created equal, either. Companies go out of business, or pivot into different fields. A company canceling their subscription with you might just be tying up loose ends and stop operating altogether. This happens particularly often in the freelancing world, where people stop their freelance work to take a full-time job or found a business.
You might even be seeing a consequence of how much value you’ve been providing. Your tool might have enabled someone so much that they are now moving up-market, taking a wholly new and higher-paying job. If you set out to help and lift your customers, this might be a bittersweet sign of the real impact of your business.
Some churn is also just temporary. At FeedbackPanda, a large percentage of our customers were young mothers. Inevitably, they would go on maternity leave and would want to pause their subscriptions for as long as they were not going to work. Offering a “pause and pick up where you left off” solution was a clear path for us, and something similar might work if your business is in a similar niche with expectable temporary periods of non-use.
Some churn is also welcome. Imagine you have customers who continuously complain or request features you’re not willing to accommodate as they don’t fit into your vision. As Seth Godin says, these people are not the audience for your art. You should not force a relationship with them just to get some money. Be happy to see them go, and invite the people who like what you do to become your customers instead. They will amplify your voice in their communities; they will rave about the product that you built instead. Toxic customers should be encouraged to churn. Do it nicely, in a friendly fashion. But make sure you don’t bend your product to accommodate needs that you are not aligned with.
Customers with short-term needs also don’t hurt you when they churn. In the membership economy, you’re looking to build long-term relationships. You want a customer lifetime value that is significant, as you invest a lot of time and money into acquiring the right customers. If a customer jumps ship almost immediately after subscribing, and you’re sure they made this choice because they don’t need your product after, don’t worry. Their customer segment is not relevant to your long-term success, and catering to their needs might lead the product astray from being as valuable as possible for your more important customers.
Value Nurturing: Farm, Don’t Hunt
But there is also something you can do to prevent churn before it happens: Value Nurturing. It’s all about showing the customer the value they’re receiving from your product while they are using it. Show them how much time using your product has saved them this week. Slack sends out an aggregate statistics email every week, making it clear how much using their tool impacts your teams. Find something that reminds your customers of why your product is great, and make sure you periodically visualize this to your customers.
The book Farm, Don’t Hunt (on the Bootstrapper’s Bookshelf) by Guy Nirpaz describes the concept of value nurturing in great detail. If you want to work on showing your customers how much value you provide, it will give you many great insights and actionable ideas.
Value Nurturing: Engage and Educate
For example, regularly talking to your customers will help keep your product on their minds. Sending out a newsletter every week with news from the industry, a few tips on how to use the product more efficiently, and sharing a couple of interesting articles will contribute a lot to customer retention. Your brand will be elevated from a product provider to a trusted source of information. When it comes to canceling a subscription, it’s much easier to cancel something that is solely providing a tool when you need it compared to a membership in a community that regularly keeps you educated and informed.
Encouraging Annual Plans: Fostering Commitment
A great way to prevent churn is by making the billing cycles longer. If you can churn twelve times per year, the chances are higher than if you only have one payment. It’s also a highly psychological issue: annual plans are usually discounted and therefore non-refundable. Purchasing such a plan will make your customers want to get value from their subscription immediately and as fast and long as possible. There is a sense of commitment to spending a year’s worth of money on a single purchase. While you have to provide the same value you would provide to monthly subscribers, your annual subscribers will feel a stronger commitment to your product and their choice to use it.
Note that a discounted plan or an incentivized early renewal option will cut into your profits. Whenever possible, offset that with expansion revenue, by selling upgrades or one-time-products to your customers when there is a chance. Or price the yearly plan at sustainable levels and charge a premium to your monthly subscribers.
What Can Be Done?
There are a few things you can do immediately that will build customer confidence and trust in the future of your business and your product.
Customer Feedback Tools and Public Roadmaps
Ask your customers methodically. Using a tool like Canny.io allows your customers to suggest features and vote for the ones they find most relevant. It will enable you to figure out which issues are common, and generate a product roadmap from there. Sharing that roadmap will then show your customers where the journey is going. For some, this will be enough to commit to a long-term relationship. Others will give you valuable insight into their specific needs and requirements.
Intensify Your Onboarding, Find the Magical Moment
Potential long-term customers that churn quickly after adopting your product are your most significant loss in terms of unrealized customer lifetime value. Making sure as many new customers stick around during their trial and after subscribing will significantly impact your bottom line. Spend some time to find out which metric can be used to find out if a customer will stick around or not, and then optimize your onboarding to get your new customers to that point as quickly as you can.
For FeedbackPanda, that metric was writing and using your first feedback template. Users who had created their own templates and generated feedback with them were almost guaranteed to stick around and convert into paying customers. So we focussed our efforts on getting the user to that magical moment when the a-ha effect kicked in. We wanted them to experience this as soon as possible. Once they did, the “got it.” And we got them as our customers.
Thank Your Customers
Sometimes, a Thank You note can make a difference. Particularly at the beginning of your business, when you’re struggling for survival, take the time to reach out to every single customer and say thank you. Thank them for being part of your journey. Thank them for making it possible for you to help them. Be grateful, send them a hand-written postcard if you can. This is particularly powerful when you’re selling to a tight-knit community. Seemingly random acts of kindness, particularly when they’re not aimed at creating a viral sensation, will make a difference, and your customers will feel valued and respected.
As you can see, most customer retention strategies are focussed on showing your customers that they are not just an account number with a credit card attached. Give your customers the feeling that you value them as people, as humans, and they will make sure to repay the favor. Make them feel comfortable and appreciated, and they will stick around.