The classic children’s bedtime story “The Three Little Pigs”, was first published back in 1890 and has been told ever since. I’m sure must of us know the basic outline of the story but just in case you’ve forgotten - to escape the attention of the hungry wolf, each pig made a house constructed out of different materials - straw, sticks and bricks. The hungry wolf could easily blow away the houses made out of straw and sticks; it was only the house of bricks that survived.
I am reminded of this story every time I speak to my clients and ask them one of the most fundamental and revealing “key questions” that exists for any SaaS business:
“What proportion of your customers would say that your solution is:
1) No longer needed 2) Nice to have 3) Essential?”
The hungry wolf - or in this case, your client - will continually evaluate whether they need to keep using (and paying for) your solution. Customers who see your solution as being “no longer needed” would be the equivalent of a house made out of straw – it will blow away (or churn) at the earliest possible opportunity. Equally, you are not much safer if your client believes your solution is “nice to have”, although sticks are slightly more resilient than straw, eventually it will go the same way and ultimately result in churn. Only the customers who evaluate your solution as “essential” (i.e. the house made of bricks), can be considered as not at an imminent threat of ROI-based churn.
However, when I speak to many Customer Success groups about how they would answer the above question, the answers are revealing and startling in equal measure. Typically, most organisations I speak to believe that the majority of their customer base evaluate their solution as “nice to have” – sometimes as high as 85%. This presents a clear and present danger to every subscription business. In an age where budgets and business requirements are being continually evaluated, if your solution is in the (worst case) “no longer needed” or (not much better) “nice to have” categories, your business is going to suffer from cataclysmic levels of customer churn.
This blog will help you understand if this issue exists within your own business and most importantly, what corrective measures need to be implemented:
ASK THE QUESTION
To begin, you need to understand the scale of the potential issue. As experts on their customers, CSMs are uniquely positioned to give a view on their accounts – how would they proportion their base into the three categories that the key question asks? Of course, this is a purely subjective measure made by the CSM, to be more objective you can also review how customers have responded to previous satisfaction surveys.
Net Promotor Score (NPS) would be an obvious example and is calculated based on responses to a single question: How likely is it that you would recommend our company/product/service to a friend or colleague? The scoring for this answer is most often based on a 0 to 10 scale and depending on the response would be labelled as detractors, passives or promotors. I would equate them to the key question using the below scale:
BUILD PERSONAS FOR EACH CATEGORY
Once you build a picture of what type of clients fit into each category, you can start to build common characteristics (or personas) for each one. Many leading B2C businesses have made this into an exact science – they can predict the likely future behaviour of their users based on engagement patterns.
For example, Facebook would determine an “essential” user as someone who connects with seven people within the first two weeks. At Twitter, it's when a new user follows thirty accounts. At both points, both Facebook and Twitter believe that they will have “users for life” (also referred to as the “True North”). The next logical question to ask is what your organisation’s definition of an “essential” customer is and if you don’t know, how do you figure it out?
A great place to start is to take a look back at your book of business; review your churned accounts over the past twelve months and see if there were any common characteristics. For example, did they share any firmographic similarities (e.g. geographic area, number of clients, type of organisation, industry, public/private, etc.), product usage patterns or other types of easily identifiable characteristics. New customers who fall into this profile might well be the ones who fit into the “no longer needed” category in the future.
Similarly, what are the common characteristics of clients who tend to have extremely positive traits? For example, they achieve significant early value, have high usage patterns, consistently renew/procure additional services and advocate on your behalf. These are the future customers who are more likely to fit into the “essential” category.
EDUCATE SALES (AND THE WIDER BUSINESS)
Naturally, every business wants to maximise their “essential” category customers and have very few (if any) “no longer needed” or “nice to have” clients. Once you have identified and categorised your clients into these categories, you should work with your new business teams to review their sales pipelines and use this insight to identify prospects who are the likely churn candidates of the future.
One of the core traits of businesses who truly believe in Customer Success is that they will do everything in their power to help their clients maximise their ROI. If you have identified a future “no longer needed” candidate who will churn at the first given opportunity, then I would strongly argue that the short-term bookings benefit will quickly be overshadowed by the longer-term costs (e.g. reputationally, financial, morale, etc.). Ultimately, having Customer Success educate Sales and the wider business on the exact personas of these three categories will lead to increased customer satisfaction, time to value and reduced levels of churn.
CONVERTING “NICE TO HAVE” TO “ESSENTIAL”
If you have identified a significant number of “nice to have” clients in your account base, it is essential that you attempt to move them to the “essential” category as quickly as possible. Making this happen is clearly easier said than done but is made more likely by following these tips:
Every subscription business should constantly ask itself how many of its customers truly see their solutions as “essential”, and not be satisfied as a provider of “nice to have” services. Left unchecked, the cold winds of churn will constantly blow with increased ferocity; just like the three little pigs, the houses of straw and sticks will eventually tumble. Only where we can unequivocally demonstrate that the customer use case is understood, how their success is objectively measured and clearly show how we are meeting/exceeding it, can we comfortably sit in our house made out of churn-resistant bricks.