7 Proven Strategies to Reduce SaaS Churn and Give Your Retention Rate a Boost | Verifone VP, CS

Hi everyone, welcome to Saastr Annual. We're thrilled to have Deborah Preston, Vice President of Client Success at Verifone, here joining us for the session. She'll be discussing 7 proven strategies to reduce Saastr churn and give your retention rate a boost. There will be time for Q&A, so please make sure to drop your questions throughout the session down at the Q&A bottom. Please join me in welcoming Deborah. Take it away.

Thank you. Thanks very much for having me. Um, great to be joining all the way from the UK. Would rather be with you in San Mateo, but, um, okay. So churn, what's it all about? Let's kick off with a few facts. Uh, it can cost you 5 times more to acquire a new customer than to keep an existing one. I think as a software or SaaS company, you're constantly in the impossible position of having to balance growth, retention, which one is more important? Obviously, depending on where you are as you start out, growth is often the top priority as you need the numbers to hit KPIs, milestones. However, a growth-only model is not sustainable, so you need to be able to focus on customer retention to really keep and increase the value of the customers you acquire. So if you keep In mind, it can cost you 5 times more to acquire a new customer than keep an existing one. Focus on the retention. Okay, another fact: your repeat customers are likely to spend 67% more than your new ones. I think we all know returning customers have a higher spend. And another fact to get us going: increasing customer retention by 5% can increase your company's profitability by 75%. So retention is clearly what continues to pay the bills, keep the lights on once the growth stabilizes. So it's something we really, really need to focus on. I think if you look at a typical SaaS customer lifecycle. You know, you reach the high growth rate, your hard work, that acquisition has to be complemented by the retention efforts. These efforts are essential for driving the customers further into the SaaS lifecycle as it evolves and, you know, really takes all the efforts you put into acquiring them and helps them pay off. So it's, it's a loop, and your ability to generate future growth depends mainly on your ability to retain existing customers in the long run. So you've got to figure how do you measure customer retention, and I think depending on your business, really, there are many, many metrics that people favor. You can obviously measure retention rate, renewal rate, churn rate, number of churned customers, but at what stage, you know, do you count them as churned, net promoter, CLV, CAC. Yeah, so I mean, I think, you know, we could, we could keep going and probably talk about that the whole time, but you need to understand what is right for you, what is right for your business. But retention, as I think we probably all know, is a measure of product engagement, customer experience, and the value that is perceived. So part of the difficulty with with, you know, moving a needle on customer retention, it's a huge number of metrics and formulas actually available to measure. So it's really worthwhile to find out which one works for you and then, you know, really stick with it. People talk about churn all the time and, you know, why it's important to look at it and How do you define churn? Is it the points when the customer stops renewing their subscription? Is it the point where the customer stops paying? You know, at what point has the customer actually churned? Is it the point where, you know, one of their subscriptions has churned out, um, but another is still running? You know, it, it really depends. But the customer churn rate represents a number of subscribers that stop paying for their subscriptions over a given period of time. So it's obviously one of the main causes of lost MRR, ARR, that all-important metric. So it needs to be on your list of priority issues to fully address. For subscription businesses, there's always been a fight between acquiring new customers and working on retaining existing ones. And, you know, churn isn't, isn't a new hot topic. It's always been a hot topic because obviously as soon as a customer has churned, they've gone. But I think its relevance has grown significantly in the current pandemic situation because it's really causing a lot of subscription-based companies to focus much more on the retention than on the acquisition, you know, due to a lot of what we talked about prior. So turn rate— what, what is deemed an acceptable turn rate? Um, looking at, um, you know, certain sizes and, uh, and certain companies, obviously churn rate varies, but an acceptable churn rate is in the 5 to 7% range annually, depending on whether you measure customer— number of customers or the revenue. However, only 1 in 4 SaaS companies with more than $15 million in annual recurring revenue are maintaining a low average annual churn rate of about 6.3%. So clearly the importance of churn as a KPI metric is coming, you know, more and more into focus. The fundamental truth is that the smallest reduction in churn can have a significant impact, and we have seen examples where an incremental 2% increase in retention can lead to a 20% higher valuation of your business. So how, you know, can you reduce churn? And it— that's what we're going to take a look at. So there are two types of churn: involuntary churn and voluntary churn. Involuntary churn happens when subscriptions are discontinued for reasons independent of the customer, mostly due to failed payment attempts. Involuntary churn just creeps into your subscription business silently, so you need to be able to make sure that you have an awful lot in place to be be able to understand where it's going, what's going on. So the main aspects of involuntary churn or failed payments are hard declines, which are permanent authorization failures that cannot be recovered and shouldn't be retried. They might be stolen or lost cards, invalid credit cards, account closed, whatever it might be. But we also have the issue with soft declines, which are temporary authorization failures. They could be successful after another attempt. So it's important to make sure you have more than one attempt. The reason for the soft decline could be insufficient funds, you know, limit on the card activity which has exceeded, processing failures, timeouts, you know, there's a plethora of reasons. But then the other aspect of churn is voluntary churn, and this happens when a customer actively decides to stop using your product or wants to downgrade back to the free version. Maybe they don't see the value. So voluntary churn is particularly— it's noisy when your customers are leaving you. It's really hard not to notice, and so it really demands your attention and to understand why they're leaving, listen to them, and make sure you've got everything in place to prevent them happening. So the good news is reducing churn and increasing customer value, whilst hard, it's not impossible. And the best strategy with customer retention, as with most things that are hard in life, is to start small and get the items sort of that are easy to accomplish. So I think we're going to just have a quick look at some strategies that SaaS and software companies like yours could use just to move the needle a little bit on the retention strategies and, you know, really keep the numbers. So the first one is to encourage your customers to auto-renew. Auto-renewal is a really good strategy to help prevent voluntary churn. Customers are not required to have to make an effort or go out of their way to continue their subscription, unlike manual renewals which require the customer to get their credit card out, place renewal order, you know, you know, all the kind of noise. So in general, as long as everything goes right, auto-renewal subscriptions have much higher authorization rates, they have increased customer lifetime value, and generally result in greater customer retention. So if you are able to encourage your customers to auto-renew, do, but do it completely clearly, not stealth, not hidden. Make sure it's absolutely transparent to your client. When using auto-renewal, you've got to make sure you're communicating with customers before the renewal date so you allow them to easily cancel their subscription should they wish. That way you will avoid any frustration that can result in, you know, a bad reputation, refund, or, you know, even a chargeback, which nobody wants. So you can see a couple of examples in the slide here. We have one from Grammarly, a tool our marketing department uses internally, and they have auto-renewal enabled because they want to make sure they constantly have access to the subscription. And then another example is of OWLA, where they've communicated ahead of time that the current subscription is going to— is set to auto-renew soon. So it tells you, you know, they understand that you're probably seeing good value in the product, but they will tell you. Because it's really important as you are going through any sort of renewal, whether it's manual or auto, that you are sending email offers and reminders. And depending on which one it is will depend on the flow and the succession around the number of emails. For manual renewals, example, the timing and frequency are really important because you need to be able to send them 30 days, 7 days, 1 day, you know, maybe all of those prompts to make sure you encourage the customer to do a manual renewal. You might also want to do some significant marketing when you're doing the email communication, so perhaps You can lock in a friendly discount for the customer, maybe move them on to auto-renewal through a manual renewal email, you know, and make sure you get some of that longer-term loyalty with the customer. With auto-renewals, it's a little bit different because the flow should be very simple yet effective. So we would recommend our clients to include one notification for the expiration date. This is sort sort of really in line with the strategy of having the customer in control and you showing them that you care what— how they feel. Because should they not want to continue with your service, automatically renewing without notifying them will, you know, cause frustration and will increase, like we said earlier, refunds and chargeback rates. But if you actually have clarity, transparency, and an honest practice, This should really build trust and decrease churn over time. The third recommendation would be to offer flexibility and value. And what we talk about when we say flexibility and value is, you know, offer different billing lengths, enable people to downgrade or upgrade subscriptions. Really give them the choice and always make sure they continue to see the value of the product. So if you're looking at different billing lengths, you might want to consider monthly or yearly offerings with incentives to subscribe for the longer term, but, um, a fit for everyone depending on their current needs. I mean, the example shown on the screen now shows how easy you can change your plan at any time from annual, which is the current one, to quarterly or even monthly if that's more appropriate for the user. It really is just making sure you're offering the flexibility for them to feel the value. To keep customers who don't use all of the features, it's great to have an upgrade path, but also to have a downgrade path. And you know, you could offer them— it's still a paying subscription, but it's possibly less feature-rich because they are not using all of the features. In the more expensive one. And rather than churning, they'll just buy a cheaper option. And, and I think as you, as you think about that, you can really make sure that if you are understanding customers aren't using all the features, you can communicate to them that either they're paying for features that they're not using and to encourage them to use it, or they aren't using them, would they like to downgrade? And again, you know, you're, you're enabling the customer, you're giving them trust, you're allowing them to make a choice. Yes, there's a small risk that you might leave money on the table if they go for the lesser option, but quite frankly, you know, they're going to remain a customer, which is the most important, and they might well upgrade again at a later stage. Something that's relatively new is the concept of pausing subscriptions. So instead of cancelling and watching the customer churn completely, just put them on an almost holiday, so enabling them to have a time where they're not paying, but it will automatically resume and it will reduce the likelihood of churn. So perhaps if you have a product where someone can, you know, only might use it when they are in a different country, let them put it on pause and then come back again when they need it. Grace periods are really important to ensure service continuity. So if you are enabling a subscription, it's a good idea to have a grace period at the end of it to give customers a bit of extra time to fix any clerical issues or pay issues so that they're able just to pay their subscription. And then I think the other thing which is really important is make cancellation simple. So the fourth point, be transparent. It's very clear that customers prefer to feel that they are in charge of their accounts and they can choose to leave whenever they want. It might seem counterintuitive, but to be sure to incorporate a very clear cancel flow or a clear path within your application where the customer can choose to leave, because at the same time you'll remind them of the great services and growth opportunities, not to mention the possible discounts that they will miss if they leave. And we have certainly found that when customers have a clear exit path, they don't feel trapped. It shows that you're confident in your product and focused on treating your customers right, which builds trust and ultimately will stop people churning. Always offer the right incentives to customers so they want to stick around. Free trial upgrade, upgrades for a predetermined period of time, discounted upgrades to reward loyal customers, discounts for converting to a recurring billing plan. You know, all of this transparency is really helpful in, in building trust and reducing churn. So we talked a little bit earlier about involuntary and voluntary churn and some of the involuntary churn being, you know, failed payments. So a lot of the payment companies out there are using smart payment tools to reduce involuntary churn, and we would highly recommend, you know, getting— making sure that you have access to all of this because with more than 1 out of I think every 6 card transactions failing for one reason or another, implementing strategies to reduce or recover declined authorizations is a really good investment for any SaaS business. So smart payments contain tools to combat both hard and soft declines, and the most proven ones that we have certainly seen for our customers is to offer them multi-currency management, so access to local billing currencies, we've seen authorizations jump by up to about 25%. Intelligent payment routing, so routing card transactions to the payment gateways which are best equipped to handle them. Again, we would see an uplift in authorization rates between 2% and 5% globally. Dynamic 3DS, obviously mitigating fraud The Account Updater service, which will ensure billing continuity for active subscriptions, and this can increase retention by up to 40%. Expired card handling, increasing the authorization rates for expired cards by 4% again. And then configurable retry logic, recovering up to about 20% of failed transactions due to soft declines. And then dunning management, which, you know, if all else fails, send, send emails and, and try to recover even from the hard declines. But this should be fully accessible to you, and I would highly recommend if there's anything missing that you actually go and make sure that you work with your payment provider or whoever it is to, to get all of this in place. And then I think another point is to follow up with the churn customers and to really learn why they have left. That way you can continually improve and make sure that you are not going to make those same mistakes again. And hopefully, you know, if you get the communication right, your customers will be honest with you. I think it's really important to have a customer success program. I mean, you know, if you're in SaaS, you're all likely to certainly have a customer success team or a customer success function. But Jason M. Lemkin, obviously a Saastr founder and client success, you know, very, very vocal. He says it's where 90% of the revenue is. So, you know, software usage utilization is closely correlated to customer retention. And it's a very simple fact that the more time a customer spends with your application, and uses more of its features and capabilities, the more likely it is that they'll renew and expand their usage. So helping customers get the most out of a SaaS product or service is so important. You know, we have a whole industry here to support it. And, you know, you can, you can make sure that your customer success program is set up. So before, during implementation phase, make sure that onboarding is seamless, And then obviously as the client goes on and grows and develops, making sure there's regular check-ins, QBRs, because that way you are, you're bound to have a customer happy right from the word go all the way through their life cycle. So in summary, I think what's really important is to understand the value you bring to clients. And understand your SaaS retention metrics. There are hundreds to choose from, and you've got to make sure you're mapping and measuring what is right for you. Differentiate between voluntary and involuntary churn and make sure you've got everything set up to enable, you know, your, your very best of both. Engage with your customers to reduce voluntary churn. Be flexible. Be transparent. Use the smart payment tools to reduce the involuntary churn, and we talked a little bit about that. And implement a client success program. I'm sure you all have, but it's stating the obvious. And then of course, test, iterate, optimize, and iterate again. So I think with that, we probably have 5 minutes for questions.

Yeah, thank you so much, Deborah. We've already seen a couple questions come through. Reminder, if you do have questions, feel free to drop them in the Q&A Q&A at the bottom of your menu bar. So first question: are there any standards, legal agreements, or important considerations when having a customer sign up for auto-renew?

That is a good question. Legally, I won't want to answer on that, but I think that you cannot certainly opt them in without their knowledge. There will be certain checkboxes depending on what country you're in, that they will have to follow. So I would definitely make sure you are, in whichever country you are signing them up, you have legal advice. Great.

And then another question: can you recommend any smart payment companies that make the process easiest?

I can, but I'm not sure that we're allowed to mention names, are we? Certainly, certainly if we can, I can give our company a plug. So Verifone Payments 2Checkout can help you, but there are plenty of others out there as well.

Okay, great. And then are there any pause request best practices you'd recommend?

Any— sorry, repeat that question.

Pause request best practices that you would recommend.

No, not really. I think you've got to work out what works for you in terms of being able to do the revenue recognition as well as, you know, make sense in terms of payment pause. I know that certainly one of our clients did a 3-month stint and then the pause came off and it was automated again, and they found that really helped them and their churn rate reduced significantly just by having a 3-month pause. And I think that they enabled their customers to do that twice. So that could be something, but I mean, we can, we could, we can come back to you. Whoever asked that question, please follow up with me on LinkedIn or via the chat, and then we can get some more best practice for you from our client base.

Great. And then another great question came through. As my company's only CSM, I have 100+ accounts 100 accounts to manage, what advice would you have for engaging with customers most efficiently? This person currently has them segmented into 3 tiers by ARR.

Okay, and she's the only one or he's the only one with 100 customers?

Only CSM.

The only CSM. Well, good luck, first of all. But yeah, I mean, I think you need to look at it in a couple of ways. Segmenting by ARR is certainly the easiest option. But you want to make sure that you're not focusing too much time just because they're— they've got a lot of revenue. They might not need a lot of help. There might be some guys in the lower tiers who actually right now aren't producing revenue but have huge potential to, to make sure there is. I think 100 CSMs, just one person, probably isn't enough. I would speak to your CEO and get a team of 5 at least on that.

Great. And then is there anything you have implemented that you thought would reduce, reduce churn but had the opposite effect?

Oh, that's a good question. Um, no, no, not really. But I do think that something that, um, that is really useful, uh, which I implemented was the concept of health checks. And just making sure that every month you'll make, you know, and there are automated tools that do this like Gainsight or, but we didn't have that and we did it more of a, on a manual setup through Salesforce. And we'd work with our customers every month and then we would put them in buckets, whether it was product support, you know, their CSM relationship. And if anything was orange or red, we would then obviously work really hard to make it green. I don't think it reduced, I don't think it had the opposite effect on churn, but certainly it's very eye-opening. Something that you might think is good when you look at it across the spectrum, you know, the client might have a real issue with something in particular, which you might not have noticed. So I would highly recommend doing something like that.

Awesome. And then we have time for one more question. How long do you wait to re-engage your churned customers?

Uh, there is no set timing. We will work with marketing if we see any activity within Salesforce, and we will have a sales rep reach out. Um, if there is something perhaps that we know a customer churned because there was a product feature missing and then we have it built, we will reach out. But we don't have a set cadence of, you know, one month after they've churned then we'll get back in contact with them, because I think, I mean, I don't think that would help us at all.

Great, thank you so much, Deborah. Thanks for the wonderful session, and thank you to everyone for your questions and for tuning in. We have lots of great content to follow this week, so hope to see you all throughout the week. Thanks, Deborah.