The title of this piece is intentionally snarky. Here’s the full story…
After interviewing dozens of Chief Customer Officers and VPs of Customer Success, I realized that almost every company reports the same reasons for churn. And most CS leaders agree that those churn reasons aren’t actionable, leading to departmental campaigns that are not based on actual business problems.
In no particular order, here are the churn reasons that everyone reports:
- Lack of product adoption
- Loss of budget
- Loss of champion
- Poor onboarding
None of these are actionable.
Here, I’ll walk through each of the commonly accepted reasons for churn, explain why they’re too high-level to be actionable, and offer ways to surface the underlying activities that lead to the customer’s success or failure with the product.
Ultimately the goal is to help increase your company’s ability to understand customer churn risk and level up one or two levels.
- Level 1: Unstructured customer feedback and usage data
- Level 2: Summarized customer feedback and usage data ← Most companies are here
- Level 3: Comprehensive renewal framework with early and lagging churn risk indicators
- Level 4: High, medium, and low-risk scenarios for each early churn risk indicator
- Level 5: Automated risk reduction tasks and alerts for CSMs, Managers, and Directors
At Level 5, your company understands all of the early signs of risk and provides daily risk reduction tasks to people throughout the organization and notifications to leaders about overall trends.
For now, let’s focus on moving your organization from Level 2 to Level 3...
Reason #1: “Lack of adoption”
Whether you’re a software company, services company, or something else, lack of adoption of your offering always makes the top list of churn reasons. The Success Leader generally responds to this churn category with the following solutions:
- More training
- Better onboarding
- Decrease time to value
- Determine the magic usage number
Each of these solutions might add value to the customer, but it’s difficult to know without understanding what caused the lack of adoption in the first place. That’s because product adoption and usage are outcomes of the activities the company does first to get the customer using the product.
For example, let’s say a Success leader decides to overhaul the onboarding process and decrease the time to value by 50% in order to increase adoption of the product. But, the real reason customers aren’t using the product is that the product doesn’t have all the necessary features for them to complete the task they intend to do with the product. The result: months spent fixing the wrong problem.
Success leaders need to identify the activities that drive and inhibit product usage to be able to diagnose the real issues. Here are some examples of reasons why a customer would have low product usage:
- The customer hasn’t integrated all the systems required to enable the use of the product.
- The product doesn’t have the features necessary for the customer to solve the problem.
- The customer doesn’t have the functional skills necessary to use the product.
- The customer needs help incorporating the product into their existing workflow.
- The customer purchased the product with the expectation of intermittent usage.
The Success leader should define the reasons why a customer would have low product usage and encourage CSMs to routinely look for each situation in their accounts. CSMs will begin to communicate the specific situations that are happening with customers; Success leaders will use these deeper insights to define leading indicators of churn risk and create playbooks for CSMs to address the problems
Reason #2: “My champion left the company”
This is one of my favorite churn reasons because most companies think this is mostly out of their control. I disagree.
The typical playbook to reduce this risk includes:
- Find a champion with a better title
- Add more champions
- Have an executive sponsor from your company connect with the customer’s executive
In theory, these seem like good things to do. But CSMs are rarely provided with enough training to execute the playbook, it’s not clear what success looks like, and the result is weak execution and frequent churn from lost champions.
Success leaders can provide more structure for understanding champion risk by tracking:
- The authority of their champion (individual contributor, manager, director, executive)
- The role of their champion (user, influencer, budget holder)
- The strength of influence of the champion’s workgroup or department
- The customer’s expected org structure in the foreseeable future
The Success leader then develops a playbook for each example of a low-quality champion: low-quality title, weak role coverage, minimal org influence or pessimistic outlook on the future.
An example playbook when selling into the enterprise is to follow the 1, 2, 3 Rule for mid-market accounts. For each account, the CS leader should have one executive sponsor, two champions and three power users. The Success leader provides detailed tasks for CSMs to build from champion to power user and from champion to executive sponsor and then measures progress across the portfolio. This way, if any of these people leave, the Success leader will have enough relationship coverage to recoup before it impacts the renewal.
Reason #3: “Budget loss”
“Budget loss” is often listed as a top 3 churn reason. Similar to losing a customer because “my champion left” or “they’re not using the product,” budget loss tends to be indicative of an underlying issue - the product doesn’t add enough value to justify the price.
But even that reason isn’t sufficient to take action. To improve the operations of your business, you must gather data for each churning account:
- How would the customer rate the quality of the experience at each touchpoint in their journey?
- What kind of competitive pressure tempts your customers to leave (price, feature set, brand)?
- Is the problem solved by your product severe in the minds of your customers?
- Is the price too high relative to the severity of the problem being solved?
Armed with this data, the Success leader can bring powerful recommendations to the CEO. Rather than reporting that “budget was lost” and shrug shoulders, the Success leader can recommend a change in the feature set or price to counter competition, a change to the prospect targeting strategy to onboard new customers that have severe problems the product can solve, or a change to improve the quality of the experience at specific points in the customer journey.
Reason #4: “The sales team oversold the product”
When a customer feels like they’ve been oversold, the breach in trust is sometimes so severe that the company is never able to recover the relationship. If the customer provides even the smallest hint that the product or service does not match their expectations, the Success leader must immediately identify the issue and prevent it in the future.
These questions can help reveal the underlying cause of overselling:
- What time of the month/quarter was the deal closed?
- Who was the sales rep, and how are they performing relative to quota?
- Who was the sales engineer or solutions consultant, and were they present for the whole deal?
- In which industry is the customer (Retail, Software, Finance, Consumer Goods, etc)?
- What were the titles of the buyer, the champion and the power user?
- Was there an evaluation period and how was the product used at that time?
- What spiffs or incentives were offered to the sales team at the time of closing?
- Which product, feature, or service was oversold?
- Which competitors were mentioned in the sales cycle?
The monthly “closed-lost report” or “churn report” must include the items above at a minimum, so the Success leader can spot actionable trends.
For example, let’s say that xyz feature is consistently oversold in the Sales process, the Success leader can look at other data to pinpoint the problem
- Was an evaluation period or POC provided to allow the customer to try the product?
- Does the sales team understand the product well enough to sell xyz feature?
- Does xyz feature get oversold when specific competitors are mentioned?
Another example: if it turns out that high churn accounts are 50% more likely in the last week of a quarter, the CS leader can request additional deal-desk vetting or sales engineering coverage during that week.
Your executive Sales teammate will be exceptionally talented at defending their sales process and deflecting any accusations of things being oversold. Bringing well-defined data and examples like this will give them the information they need to take quick action.
Reason #5: “Poor onboarding”
“Poor onboarding” is an interesting churn reason because the need for onboarding highlights a flaw in the product. Well-built, fully-featured, and easy-to-use products need very little onboarding. In fact, a self-serve product that creates delight within minutes is one of the core tenants of product-led growth. Onboarding is the process of asking humans to do the work that the product is supposed to do. So when you say you have poor onboarding, what you’re really saying is you have major product usability flaws.
If we accept that the product will take a long time to improve, then what does “poor onboarding” mean for most companies?
- Time to value is too long
- History of conversations with AE not transferred to CSM
- Customer goals not properly documented
- Insufficient training
- Key stakeholders aren’t present for training
- Important features not highlighted
- Self-help options not available
- Feature-blasting, not problem-solving
- Uncoordinated communication between Success, Services and Support
Phew, that’s a heck of a list. But which of these reasons will cause the customer to churn in 12 months? It varies for each business but let’s consider a few cases.
If it takes 90 days for the customer to start using the product, but after they use it they’re in love, then time to value is a “nice to have” but doesn’t impact your renewal rate.
If you provide insufficient training for the product, and the customer walks away from onboarding feeling overwhelmed, then they’re unlikely to use the product. That will lead to a lack of usage which will lead to a churn event. In that case, “bad training” is the specific cause of churn, not “bad onboarding”.
Again, the goal here is to identify the underlying cause of churn, not the symptom, to enable the Success team to make real improvements to NRR and GRR.
Bad churn reasons are symptoms of the underlying problem, and they include reasons like:
- Lack of product adoption
- Loss of budget
- Loss of champion
- Poor onboarding
Those reasons don’t allow a company to take meaningful action to improve the problem. Good churn reason examples include:
- The problem solved by the product isn’t very severe (it’s a “nice to have”)
- The customer doesn’t know how to incorporate the product into their existing workflows
- A specific competitor is offering the same features at ½ the price
- The sales team doesn’t understand xyz feature well enough to set
- Customers are overwhelmed by our training, and never start using the product
By deeply understanding the true reasons for customer churn, you can develop early indicators of risk that will allow the organization to react quickly to problems, and more accurately forecast the risk of an account.