The Current State of SaaS Companies, Subscriptions, and Retention in 2021 | ProfitWell Founder & CEO

And without further ado, I'm going to pass it over to Patrick. Patrick, thank you for joining us today. Thank you. Yeah, excited to be here. Excited to talk a little retention. Let's get the chat going. Where's everyone calling in from? We got Stacy from Atlanta, Patricia from Brazil, Elliot from Paris. Bonjour. That's all the French I know. And then for those in Brazil, I only know obrigado. That's basically it. Oh, Poland, ni mo wej popowska. That's all the Polish I know. I know a lot more English, obviously, but all right, cool. We got a lot more folks trickling in here, excited. But we are gonna be diving deep on retention today and some benchmarks. Now, I'm gonna go through a little bit of background on where these benchmarks come from, but just to give you a little bit of background on me, I'm the founder and CEO of a company called ProfitWell. My personal background's in econometrics and math, so I started my career working in US intelligence in DC. And then I left one bureaucracy for another and went and worked at Google, basically doing kind of the same sort of value modeling. So hunting bad guys and gals over at the NSA, then hunting money over at Google. And then I decided to kind of march out on my own by starting ProfWell about 7 years ago. And the main focus that we're going to be going deep on and the reason that we're gonna be talking today is to really give you kind of this framework to reevaluate your retention strategy. And the reason that I chose to talk about retention, and some of you that already know me, you know, Oftentimes I talk about pricing, but the one thing that we found when we studied the market data, especially in the last 12 months, is that the best companies out there, and even the companies that shouldn't have done well in the past 12 months but did end up doing well, they really, really doubled down on their retention. And to give you a little bit more of a concrete kind of outcome for today's, uh, talk, um, the material we're gonna go through, and we're gonna go pretty quickly today, so you'll get the materials. Don't focus so much on like every little nitty-gritty detail. Focus kind of on the story and the narrative here, but the details that we're gonna talk about, the tactics and strategies, have the ability to increase your lifetime value by anywhere between 10% and 60%. And so we're going to make sure that we focus in on helping you very tactically, but also giving you some, a little bit strategic tidbits to make sure you're kind of moving that retention forward. And, you know, I get some of the reaction here, like, who the heck am I? Well, I already gave you my kind of personal background, but you really shouldn't care about me as much as the actual data. And where this data comes from is that ProfitWell, we build kind of revenue and retention automation products for subscription companies. And so we have a couple of different products. One where all the data comes from is something called ProfiWell Metrics. So you plug it into your subscription billing system, Stripe, Braintree, Zora, whatever you're using, and you get free access to all of your financial metrics. Everything from churn cohorts all the way through to your unit economics. We enrich the data for free with Clearbit and FullContact. And right now, which is kind of cool, not only because we focused really, really hardcore on accuracy and depth, but also because it's free, we actually have about a quarter of the entire subscription and SaaS market using the product, everything from Johnny and Jane startups all the way up to Fortune 500, you know, companies. And so what's great is when we look at the data here, it's really coming from this bevy of companies that we've been able to study essentially in aggregate. And then for those interested, this is not a good sales pitch, but just to give some context, we make money by, you know, different products that optimize retention as well as optimize pricing. So with that introduction, just for context, you know, let's jump in. And so I always like starting off with a little bit of a quote to kind of set the mood. And this is from David Kinsella, the founder of Drift, um, good buddy of mine. And he has always focused from a product perspective on this whole concept of retention. Because when you think about what you're trying to do as a recurring revenue business, and it really doesn't matter if you're enterprise, mid-market, serving SMBs, it doesn't really matter where you are on the spectrum or what you're selling. Fundamentally, what you're doing is you're taking advantage of the fact that the recurring revenue model is the first commerce model in the history of humankind where the relationship with the customer is baked into how you make money. You don't have to give discounts to try to trick someone to come back next week to get that discounted milk and then get all the groceries from your store. You don't have to, you know, be the corner store that everyone comes to. Instead, every single month or every single year, you're essentially on a term where that relationship comes into play. And so we've had to kind of shift how we grow as subscription and SaaS companies, where it's not just about that acquisition, but it's also about monetizing and retaining and then kind of getting that nice little growth flywheel. A lot of people talk about moving. The issue is, and this is why we're putting a very, very kind of good microscopic look at retention, is that we spend very, very little time and budget on the relationship. And this is cultural. This comes from the very fact that a lot of times when you're building a company back in 2005 and even 2010, you weren't necessarily focused as much on these other areas of growth. But we did do a study where we essentially looked at the budgets of about 1,300 SaaS companies, and we categorized every single expenditure. And we found out, which is really kind of fascinating that when we categorize all of these expenses, about 57%, at least that was the median, was going to acquisition. So sales folks, marketing folks, building features for acquisition, all of these different pieces. And then when we looked at other pieces such as monetization, basically no budget, no time, no headcount was going to, to pricing. And then ultimately retention was a little bit better, about 5 to 10% of a budget. But again, everything was going to the world of acquisition. And this isn't to say that you're not going to spend half or more of your budget on acquiring customers. But it is to say that in this new world, as more and more pressure and more and more density starts to happen, as we've seen over the past 5 to 10 years, we're living in an environment where these other pieces of growth are becoming more and more important. Um, and just to support that a little bit, um, I got some data obviously on where acquisition has essentially gone. Um, and this is again, not to say that you're not going to spend half that budget. It is to say though that when we look at an actual balanced growth, some of the best companies in the world, they're taking advantage of all of these growth levers. And so what we did is we built a little model for about 1,500 SaaS companies, where we essentially isolated these three main growth levers: acquisition, monetization, and retention. And we wanted to figure out if we improved each of these by the same relative amount, what would be the impact on revenue? And we found that if you increase your leads or your, your conversion volume by about 1%, you can actually expect about a 2-3% boost in your revenue. And this is essentially going down over time as we take different snapshots, you know, a decade ago or even further ago. But if you improve your revenue per customer, your monetization, or your overall retention by about 1%, you're actually going to see about a 4 to 8x impact on your revenue. Now, again, I want to be clear, this isn't to say you're not going to spend half your budget on acquisition. This also isn't to say that 1% gains in monetization and retention are the same as acquisition gains, which tend to be much, much easier to get. But it is to say, if we really evaluate what's going on with these other two growth we're probably missing out on some, some substantial gains. And we're heading into a market where you need to be good at acquiring customers, either through touchless product-led growth, or through sales just to survive, not, not to actually get those growth kind of effects that we're looking for. And so with that kind of background, let's get a little bit more into the how, like, how can we actually focus in on retention and improve retention? And let's start going by deep. And what I want to start off with is kind of setting the stage a little bit on retention, because I think we have a very harmful misconception when it comes to keeping customers around longer. And this mainly just comes from us, you know, not going deep enough. And what I mean by that is we have this conception that retention is only solved through value and customer. And it's not that this is wrong, it's just not nuanced enough. It doesn't go deep enough. And to kind of illustrate this, here's, here's a little bit of a visual. Your customers, no matter the type of customer you have, whether they're small businesses, enterprise customers, whatever it is, they're on a spectrum, right? You have some that are super, super hardcore advocates. These are people that are bringing you more customers, hopefully paying you more in expansion revenue. On the other end, you have these critics. These are people who might have churned out already, might have canceled already, and maybe they're, you know, talking, you know, poorly about you to other folks as well because they didn't have a good experience. And then somewhere in the middle of here is where there's this point of cancellation. Now, when we talk about retention, oftentimes we're talking about kind of the ends of the spectrum. And this is very much the strategic retention. This is where your product team spends 95% of their time. This is where we're trying to get people to go from not quite advocates to hardcore advocates, or from kind of critics and bringing them back into the fold by focusing on our product, focusing on, you know, our strategic vision and our segment that we're targeting. I think where the misconception faults us is there's this middle part here, which I like to call the tactical retention zone. And this is essentially the zone where you can actually influence things through different nudges, through different kind of playbooks, and ultimately through getting that customer to kind of move from, oh, I'm about to cancel, to, oh, we're gonna stay, or, oh, we're about to stay, to, oh, we're actually getting into a high NPS or very, very happy. And so when we go through the rest of the, the, the really kind of actionable pieces in today's presentation, I'm gonna kind of bifurcate what the advice is around— is this for strategic retention or is this for tactical? Because I think it's really, really important to understand that there are things that you're missing out on implementing because you simply believe, oh, well, the product team will have to figure this out, when in reality the product team is going to take years to make sure that they're going after every single paper cut. Now, from a numeric or kind of a quantifiable perspective, how does this split? Well, if you have a bad product or a poor customer base and you're kind of in those early product-market fit stages, None of the tactical pieces are gonna matter. But let's pretend you're a little bit further along, you're scaling up. What we have found in actually looking at the data, and I can share this afterwards with anyone who's interested, is that the strategic retention typically accounts for about 60 to 75%, and the tactical piece is about 25 to 40%, depending on the type of company. Now, again, you're gonna spend most of your time on the strategic bit. That's gonna take a while. It's gonna take a lot of iterations, but But if, you know, I have some tactics or, you know, some tactics you can implement that account for a quarter, almost up to half of your overall retention problems, that's some really, really interesting things to dive deep in. Alright, so let's get actionable. How do we actually boost retention? Well, the first piece is, is how the heck do we measure it, right? Well, there's a lot of different ways and a lot of different nuance here, but it really comes down to that net revenue retention. Meaning when I look at that money that's in my business, how much of it is staying? And ultimately, I want more of money being created by that existing customer base. And depending on the problem, you're actually going to go into your user revenue churn, which is the actual cancellations. You got 3 big growth levers. You got active cancellations. This is where everyone likes to spend their time and their money, their effort. These are people who are actively clicking a button and saying, I don't want your product anymore. You got your expansion revenue where we don't spend nearly enough time, but it's super, super important. And then we also have delinquencies, which are essentially payment failures. These are people who may be using this as an excuse to leave you, or maybe they're basically someone who doesn't even know their payment failed, which is oftentimes really, really common. So we're going to go through each of these 3 buckets and break out some strategic and tactical bits here. So first up, active cancellations. So as kind of already alluded to, this is where your product team spends a lot of their time, if not all of their time, and they're focused on getting the time to value, creating the right features for value, and then ultimately finding that right segment. And we'll touch on both of those in a bit. But then there's some really tactical things that most people don't implement that are actually probably low lift within your business, but are actually super, super high impact on reducing your effective cancellations. And these are things like term optimizations as well as win-back and kind of triaging those folks who are trying to cancel. So we'll touch on each of these just in a couple of seconds here. So first up, term optimization. I thought I'd start off with something super, super tactical because we've been very theoretical up until this point. The basic concept here, and we have the data to support this, longer-term contracts equate to lower cancellations. What you're looking at here is about 3,000 SaaS companies. We're looking at on the x-axis here in the bottom, essentially the percentage of their contracts that are annuals. And then you're looking at their overall monthly revenue churn rate. And what you'll notice, the more annuals to typically a business has— and of course this is purely correlative data— um, they tend to have lower churn. And there's a lot of factors and lurking variables here, but even when we look at this on a very, very pure basis, your annual contracts will typically have 30% better retention overall compared to monthlies. And then quarterlies basically have typically a 20% better retention rate than those monthlies. And this really kind of comes down to one purchasing decision over a 3 or 12-month period versus going after multiple, even indirect purchasing decisions on a month-by-month basis. Now, what's kind of interesting about this is that a lot of you kind of intuitively get this, but you're only asking for that annual or that quarterly payment when someone signs up before they've even had an experience with your product. And so what we recommend doing, and you should really kind of build your own model, but if you don't have the time or you kind of just want to do this a little bit more bluntly, you want to go at those folks who have been with you at at least a month, so about 2 months all the way up to about 9 months. And again, this will differ company by company, but that's kind of a good heuristic. And make sure you're going out to them and actually asking them to upgrade. Um, so here's just some sample copy you can kind of steal. Um, and then the other piece here is like making sure that when they click through, it's really, really easy for them to confirm and then get on that longer-term plan. Now, a couple of little tidbits here that I'm not gonna have slides for. One, whole numbers, 2 months off, 1 month off, $100 off versus percentages, 15% off, the whole numbers work substantially better. It's not even close in terms of the actual performance between those 2 buckets. Um, so make sure that even on your current pricing page, if you are a product-led growth or kind of a touchless product or a low sales product, you're actually using those whole numbers. And then for the enterprise folks out there, you might want to consider going to an 18-month or 2-year contract versus just an annual contract once that customer gets into the funnel. Now you have to be careful with this because theoretically you want enough acceleration where you can actually raise their price every single year. And if you're in a 2-year contract, that's hard to do. But there's some things we'll talk about in a second and actually account for that. Now the second big tactical piece, and this is something that as soon as COVID kind of hit and we were all affected, um, this is my biggest recommendation to everyone because everyone was worried about kind of a run on their product, is making sure you set up win-back and kind of triage those cancellations. So what I mean by that is when someone wants to leave, you want adds some friction to essentially them leaving. Now, you don't want to hijack them, make you, you know, force them to have like a phone call or something like that unless you're in really dire straits, but I still wouldn't recommend it. But a one-question survey, a couple-question survey they have to answer essentially helps you learn why they're leaving. And if it's super obvious, you know, you're going to see that data. But sometimes it's not so obvious, especially when we've kind of normalized at least a little bit over the past 12 months. Now, when I have that information, Now I can kind of go into action and try to actually save these cancellations. And kind of give you a little bit of a takeaway here is when someone cancels, there's typically a period between then and when they actually officially churn. And most of us just kind of give up once they hit that cancel button. And in reality, there's a lot of things that we can do. Now on a very basic level, we can offer up salvage offers. This saved a lot of companies in March and April of last year. And just just basically making sure that when someone hits cancel, depending on the reason why they hit cancel, offering up, hey, you know, one last thing before you go, let's get you a free month. Or depending on what they said, let's get you, you know, $100 off next month, something that isn't quite exactly better than that, or is better than that customer canceling, but isn't that customer, you know, necessarily paying the full price. Now you can offer this, you got to be careful to kind of like make sure that you don't have people gaming the system here. You want to be a little bit more sophisticated on not just offering this to everyone. But again, if I set up a survey where someone didn't have enough time to use the product, something's not quite, you know, they're not getting the value quite yet. Those are really good customers to go after and make sure that they can actually stick around. Now some other options here, these were kind of thrown around a lot, maintenance plans. Hey, here's, you know, this $10 plan, we're going to save all your data, but you can't use the product. Better language, but that's the basic idea. Even pause plans, this saved a lot of companies as well. And then a couple of other options here, you know, if you have a freemium tier, putting them back on the freemium or even playing chicken. I think a lot of us got really scared as operators because, you know, We were nervous about losing our customers, but it's okay to kind of play chicken when it comes to churn, because if someone hasn't quite fit the profile of or has fit the profile of someone who's a good customer, but they want to leave, it's okay to say like, hey, we'll be here when, you know, you ever— you want to get started again. But the basic idea is this offboarding is super, super important to kind of attack. And then some of the other things is like, don't be afraid to try and win back customers. I think this is a really big lesson here. Reactivation campaigns, doing these either episodically or doing these actually in that window from between someone's cancelled and someone's churn is really, really powerful. Now, interestingly enough, discount numbers work in this case from a percentage basis. So this is kind of interesting because it doesn't work necessarily in the upgrade, but it does kind of work in the salvage, particularly because you end up actually offering a much, much higher discount to get that person back for a couple of months so that they can then get on to a higher-end plan. Now, to kind of back up and go a little bit strategic, this is the final couple of points here with kind of active cancellations. You have to understand your customer, and I'm not going to be able to go super, super deep into understanding, you know, customers and customer development. There's been so much written on it, but I just want to be like a reinforcer of that concept and also give you a little bit of kind of a framework to think through feature packaging, because I think it's really, really powerful for making sure that you're not only getting expansion revenue, but you're also making sure that you're defending that core value experience. Now, There's a lot of pushback on customer development. This Henry Ford quote goes around. He probably actually didn't actually say this, but the whole concept is like, well, if I listen to my customers, you know, I wouldn't actually build the innovative product. And this is the problem piece with this quote. When you're doing customer research, you are not making decisions based on what your customer says. That's, that's, that's not your job. Your job is to get the information, understand where they are, almost being a prosecuting attorney, and then filtering that information and then making a decision by earning your paycheck And so the big thing that I want to get across is, is that you gotta understand those customers. And I know only 20% of you are actually going to do customer development. But it is one of those things that 20%, we have the data, actually tend to do much, much better in terms of retention as well as growth. And it's a correlative because they're probably doing a bunch of other things right than those who don't do the customer development out there. But to give you this little bit of framework, this has been something we've been talking about in the context of pricing for a while. But whenever you have a product, and it doesn't really matter what the product is, you typically have about two axes of value. There's the relative value of the actual features of the product, and then there's willingness to pay. And so if we're talking about a product like, let's say, a cup of coffee, which we're all fairly familiar with, I'm sure, um, even if we don't imbibe in coffee. But if we talk about a cup of coffee, the first thing I want to understand if I'm going to my customer base is what is the relative value of the different features of that product. So for coffee, it's things like taste, country of origin, uh, temperature, these types of things. And I want to basically put, um, through some research methodology, but even just maybe amongst our team, like talking through these I want to put those features along an x-axis here. So if I go out and do some research, I might find out that the most important feature relative to the other features is taste, and the least important feature relative to the other features is country of origin. Now that relative nature is important because I go ask a different group about country of origin, and maybe it's the number one feature, especially, you know, the hipsters that we might talk to who really, really care about those particular things. Now the second thing I want to do, either in a thought exercise or actually collecting data, is to overlay willingness to pay. I want to find out those people who care about taste as their number one, what's their willingness to pay relative to everyone else, relative to the median? And I might find out they're willing to pay about 15%. And then country of origin, there's not a lot of people, but the people who really care about it, they're willing to pay about 25% more. Now, how does this help us? Well, with this 2x2, we now have a framework for at least arguing about, or at least measuring value. Value. If I find a feature that is high value relative to the other features and high willingness to pay, that's a differentiable feature. Low value relative to the other features but high willingness to pay for the people who care about it, that's an add-on. High value but low willingness to pay is a core feature. And then commodity features, which we all end up building. So you can use this again, even if you don't collect the actual data, to understand like, are we defending the core? Are we adding differentiation? Are we adding add-ons here, which we'll talk about in a second? But I think you should collect the data, and, and here's why. We went out to about 1,300 product leaders and we asked them for the last n features after we made sure they understood this, and we said, where do they fall in these 4 boxes? And this is what they said for just under 5,000 features. We then went out to about 1.2 million different customers of these products in a composite study, and using ProfitWell's Price Intelligence product, actually measured value and where they were on the spectrum. And this is where the customers ended up being. And this divide has gotten larger and larger because there's so many more products, there's so much competition for attention where we're getting more and more disconnected from being able to just know what our roadmap is for the first 18 months versus knowing like, what is the thing that's actually gonna differentiate us? So it's super important to do this actual research. So off my soapbox here, something, uh, that you can use here to use this model to actually validate what you think is valuable. Okay, so the one other thing that we're going to talk about here, the two other things I should say, is next up is expansion revenue. And we're not going to spend too much time on this because there's other folks who talk a lot about this, especially customer success folks. But I want to give you some numbers here around cross-sells, upsells, add-ons, and then kind of be another soapbox for a value metric, which we'll talk about in a second. So we've all heard the adage, you know, keeping existing customer, it's a lot easier than getting a new one, right? Well, it's also easier to get more money from an existing customer than it is to get from a new one. And so the biggest thing here is that we need to make sure we're taking advantage of those advocates and that customer base that you fought so hard to get. To give you some data here, and I got the expanded data if you want that I can send over later, um, the best subscription companies, specifically SaaS companies out there, 20% or more of their revenue each month is— their new revenue each month is coming from their existing customer base through add-ons, expansion, some sort of add-on. Now Now, most companies have less than 10% of their new revenue coming from existing customers, and it's not something that's actually extremely difficult. It just takes some more effort, and a lot of us aren't putting in the effort for these folks. So there's a couple of things to go into. Cross-sells and upsells— these are huge. So basically selling someone an additional product, selling them on an additional tier of a product. This is where there's a lot of, you know, kind of, you know, known literature out there. But I want to give you a little bit of a deep dive on this whole concept of multi-product. Um, and the reason is, is that you've seen a lot of these companies basically go, once they hit $100 million plus, start to actually add different products either through acquisition or building them. Um, HubSpot, Salesforce, Zendesk are, are, are the big 3 that have done this. Adobe's starting to get into this. Obviously these are really, really large companies, but we're also seeing more and more people start to do this just past the $10 million mark. And the reason that they're doing this is that multi-product companies between $10 and $100 million in annual revenue they typically grow at a 30 to 50% higher growth rate than those folks who are single product. And this stands to reason, right? And what you're looking at here are different pairs based on their price point. And on the right pair, you're basically looking at folks who are multi-product. On the left of the pair, you're looking at single product, and you're looking at these growth rates, again, from $10 to $100 million for about 500 SaaS companies. Now, what's interesting about this is this should kind of stand to reason, right? They're selling multiple SKUs, hopefully to the similar type of customer or different verticals, and therefore they can actually compound. And once you reach that $10 million point, typically what ends up happening is you have the basic infrastructure not only around hiring and recruiting, but also just around, you know, sales and revenue operations as well as kind of product operations to continue to kind of sustain this. And so I want you to kind of reconsider what are those things that essentially you could add as a SKU to essentially go after your customers. Now, a good baby step here are things like add-ons. And the add-on, I think, is one of the most underutilized aspects of any SaaS company out there, especially since it's a little bit more tactical, a little bit easier to implement than creating a whole nother product. Just to give you some numbers here, lifetime value is typically about 20 to 50% higher for those customers with at least one add-on. We looked at those who had at least one add-on versus no add-ons, and this stands to reason, right? Because they're paying you more. But the other thing that's really interesting is the retention is higher, and the retention tends to be higher because they're more bought into your ecosystem. Now, what should you use for an add-on? Well, you can go through this thought exercise that we just talked about and find those features or functionality that are kind of low value relative to, you know, the whole customer base, but are high willingness to pay for those who like that feature. Another way to do this, it's a little hacky, but basically any feature functionality that is used by 40% or less of your customer base or that particular group. So a tier, if you have a feature in there, anything that's used 40% or less, that's a really strong candidate to pull out and basically sell across the whole customer base. Things like priority support, things like analytics for certain verticals, these types of things, they tend to be really, really good add-ons. And the final piece here of the expansion revenue side are value metrics. Now, a value metric is how you charge. So it could be per user, per 100 visits, per 100 whatsits. The actual value metric is super important. But just, just for kind of an example here, we're going to show two competitors here. So on the left here, you have Intercom. Intercom charges essentially based on the number of people that go through its live chat widget in a given month, right? So if you have 100 prospects interact with that widget, your price is A. If you have 1,000, your price is A plus B, right? Now what's interesting is Drift, one of their competitors, basically charges on a per-user basis. And I wanted to show this because these competitors essentially are pricing differently because of who they're targeting. So Drift, they're going after sales and a bit of marketing, whereas Intercom is going after sales, support, marketing, product ops in some cases, and they need a little bit more of a generalized value metric. Now what's powerful is what you're doing with a value metric, sometimes called a pricing metric, is you are essentially taking advantage of what you learned in your economics class in college or high school, where your professor or teacher put a point on a particular demand curve, and then he or she kind of shaded in a box underneath that point and said, oh, this is your revenue for that particular price point, right? Well, with a value metric, you're essentially having infinites or seemingly infinite different price points, and you're making sure that when Disney comes in, you're charging them a different amount of money than some Johnny or Jane startup that starts using your product. Now the implication here is that cancellations are much, much lower. You will have more downgrades, but a downgrade is better than a cancellation. Um, and it's mainly because people are actually using what they're paying for. And so what's kind of cool here is that what you're looking at on the far right here are those folks who have value metrics, so pure value metric companies versus those who are using feature differentiation. And you're seeing about that revenue churn rate actually to be about half Now, the other side of the coin is actually really powerful too, because expansion revenue is actually much higher. So these are the same categories of companies, and you're looking at about double expansion revenue. And the thing that I like to say is, and I've studied a lot of SaaS pricing over the years, if you get your value metric right, typically your retention and your pricing, even if you get everything else wrong or mostly, mostly wrong, you'll be okay because it bakes growth directly into how you make money. And actually, what's super cool, and I've been beating on this drum for about 7 years now, is that December of 2020 was the first time period where more SaaS companies were using a value metric than using feature differentiation. Um, and so this is kind of the trend that's been growing over time. When we first started about 7 years ago, it was like only 15-20%, and we have basically billing systems to thank, um, for this, because billing systems made it easier and easier to use value metrics. All right, we're getting on time, so I want to make sure we have enough time for questions here. So we are going to talk about the sexiest topic in the world, that is payment delinquencies. Now, when I first started studying data and we started getting more and more people on ProfitWell, this was one of those pieces, credit cards, that shocked us. And it shocked us because when you look at kind of billing, you would expect credit cards to have been revolutionized over the past 20 years to the point that like, why would payments fail, right? Well, some fun facts. Um, the first kind of modern credit card was created in 1958 from Bank of America. And much of the underlying technology, apart from chips and apart from computerization, but much of the underlying technology besides those two pieces hasn't really been updated since 1965, maybe around 1970. And so you have these mechanical devices if you're a credit card-based business that are subject to failure, right? They're subject to failure. And most of you don't have the infrastructure, don't have the pre-failure piece, um, and don't have the post-failure piece to account for these payment failures. And to kind of shock you a little bit, if you are a credit card-based business, meaning most of your payments come through credit cards, it is the largest single bucket of lost customers. And just to give you some data on this, um, it typically in both B2B and in consumer subscriptions is about 20 to 40% of your lost customers. So if you have 100 people go delinquent, 100 people's payment fails, 20 to 40 of them are gone. And what's interesting is the reason that this is so problematic is that we are absolutely terrible at recovering payment failures. And I think it's because of that misconception we have with retention. Oh, well, if the product was good enough, they would just come back. Well, the problem is, is that most people don't even know their payment failed. And even in some cases, sometimes Amex or some of the processors will actually keep that payment going So it's just, there's not enough nuance there. It's kind of like saying, well, if we build it, they will come. And we all know that that's not how products are actually built. To give you some perspective of impact here, right now you're only recovering about 30 out of 100 folks. So if 100 folks' payments go delinquent, you're only recovering about 30 of them. And really, the best folks out there, it's around 60 to 80. So yeah, some folks, this is their excuse to leave you. Their payment fails and they're like, I'm out of here. Here. But a lot of folks, there's a huge delta there. And it's because like you didn't— you've never spent any time on here. And you're probably not going to spend a lot of time, but there's some things we can do very, very tactically to get these folks back. Now, I don't have time to go deep into this. And if you want to go deeper into this, ask it in the Q&A, because I do have like a separate deck where I can kind of go through a bit of like a, you know, kind of what you should do and kind of the payoff. But I'll go briefly through some high-level points here. The biggest thing, treat these folks as a marketing channel. This is the biggest thing I see when we go into our customers because we have a product that handles a lot of this, is we'll notice that before, you know, using Retain, they end up sending like these very bill collector emails, typically written by the finance team. No offense to finance teams, but you normally aren't the one, you know, thinking of like the best language, right? Or what they end up doing is they're just using what, you know, Stripe or Zora already has built in, and that copy and stuff isn't bad, but it could be so much better. And you got to keep in mind, these are your customers, and they have something that happened that they probably didn't you didn't even know about. So it's really, really important to treat them as those customers and remember that relationship. So there's a bunch of things you can do before the point of failure. Really, really obvious things are things like expiration tracking. What I will say there, and I'll go into this if someone has some questions on it, you should not be sending emails for expiration tracking. It's a little bit of a nuanced point because if you're really good and you're going to study the data and you're going to set up the right campaigns, the right triggers, yes, use email. But right now, most people sending emails before the point of failure, it increases active cancellations by 10 to 20%. Um, and we've seen that pretty unequivocally. So what you should do, especially being a SaaS company, um, is you should basically using in-app notifications. Again, if you're going to get more advanced, you can use email, but right now the biggest quick hit on before the failure is to make sure that you're actually kind of turning those pre-failure emails off and using in-app. Now afterwards, uh, smart retries, just make sure they're turned on inside, uh, your billing system. Most of them have them turned on by default, but sometimes someone turns them off The other thing is, if you're more advanced, larger, between 10 and 100 or over 100, you should be really decoupling your retries from the billing system and use your billing system ones, but also do additional ones. We've just seen different fun trends. Like if you have a consumer, kind of a prosumer product, best time to actually retry a credit card is 12:01 AM Pacific on the 1st and the 15th of the month. That's payday. Most of the billing systems aren't doing that for low ARPU products. If you have a little bit more of a B2B-focused product, Mondays is a really good time to retry a credit card. And then the other thing is email, in-app, and SMS. That's where the majority of people are going to come back from. Do not send highly branded design emails. They don't work as well. Plain text emails that appear that they're actually from a human, they work really, really well because there's a little bit of reciprocation. If you send me kind of like a really nicely designed but like, hey, your payment failed email, I'm just going to ignore it. If Martha sends me a customer success email that says, oh no, there was a mistake, can you update your payment info? I'm going to feel a little bit indebted to Martha, and I'm either going to reply and say, actually, We're not going to use the product anymore, or I'm going to take care of it, or I'm going to say like, oh, update this. The other really good hack, don't force your user to sign in to update their credit card. There's some technology you can build, or you can use a product like ours where, you know, basically a really good mobile optimized form using Apple Pay, Google Pay, these types of things, or just straight up credit card. They can actually just use— and this is the one thing, if you have some technological bandwidth but not enough, this is the one thing that I would do in addition to kind of the drips email in-app these types of things. And the last thing I'll say is, lock your customers out who aren't paying you. There's 1 out of like 15 to 20 companies that we overcome— that we see or sees a presentation like this, they go in and they check and their engineering team treated delinquent users different than active users. And then they never close the loop on the delinquent folks. So the delinquent folks are just using the product for free. We had one company, this is like the one that's fun to say, basically $10 million in ARR was, was basically being used using the product for free. And what ended up happening is, you know, they didn't get all of them back, but I think they got like $6 million back and it was like the greatest growth hack. It's not really a growth hack, but it was the greatest growth hack at the time in their history because they just said, oh, whoops, we're gonna lock you out, your payments failed, and then a bunch of people updated their payment information. Okay, enough. How we feeling? We fired up? Fired up? Not seeing the chat. I hope we're fired up. All right. Let me recap really quickly. Um, retention. It's a game of incremental optimization. That's the biggest thing that you should take away from this. And yes, there are a lot of things that are strategic. There's a lot of things that your product team is going to just sweat and cry over trying to figure out a bunch of things. But there's a lot of tactical things in the middle here that you're probably not doing just because you're like, yeah, we got to fix it with features and finding the right segment and all these other things. If you don't have like somewhat the right features of Segment, like, of course, like there's nothing that's going to solve it besides finding that out. But most of you on the phone here, if you're beyond like even $5 million, let alone $10, $20, $50 million, there's a lot of tactical things you're probably not doing to kind of take care of things. Influencing retention, you got to break things down. We've got these 3 big buckets we talked about. And I would just start by like looking at what the heck is going on in your current business. You're probably focusing so much on active cancellations, and there's no focus on expansion revenue or delinquencies, let alone kind of the tactical pieces. But you got to just put in the work. Nothing we talked about was rocket science. There's nothing here that was like, oh my gosh, yes, like getting in some of the math models. If you're $150 million SaaS company, yeah, it's going to get a little complicated. You're going to need some data science work. But for most of you, like, it just takes in putting some of this effort and a little bit of prioritization, nowhere near as much prioritization of the other things in your business, but just a little bit more. And I'm happy to answer any questions and go deeper anywhere we are. If you got a jet or you're looking for more benchmarks, just patrick@profitwell.com. I spend a lot of my time just researching the data, not only to help our product, but also to help our content. And so there's probably something we wrote on the question that you have. So feel free to hit me up.