Customer Churn in B2B: The Recurring Revenue Killer?

TL;DR: If you prefer a quick summary, here are the key takeaways from the article: 

Marketing:

• Align the Ideal Customer Profile (ICP) with the value proposition.
• Validate the alignment through customer feedback.
• Monitor and update the ICP and value proposition regularly.

Sales:

• Ensure that the sales team qualifies prospects effectively.
• Align the features and functionality sold with what is actually available.
• Measure customer satisfaction and feedback regarding the sales process.

Marketing to Sales:

• Integrate marketing into the sales process.
• Listen to customer conversations and gain insights.
• Establish a well-organized system for capturing and sharing customer information.

Deal Desk and Customer Success:

• Include a deal desk to ensure alignment on pursuing specific deals.
• Involve customer success managers (CSMs) near the end in the sales process.
• Communicate the customer’s needs and challenges effectively.

Product and Customer Success:

• Monitor how customers are utilizing the product.
• Address low product usage and uncover underlying problems.
• Use metrics and indicators to assess customer satisfaction and value.

Leadership:

• Prioritize customer needs, value and satisfaction over profit.
• Balance revenue and profit goals with customer value and fit.
• Promote a customer-centric culture within the organization.

By aligning these five pillars and adopting a customer-centric mindset, businesses can improve customer retention and build lasting relationships while enhancing their bottom line. Let’s dive in! 

 

Customer Churn Under the Radar

With the recent decrease in available funding in the startup market, there is an increased focus on metrics such as churn and net dollar retention. Series A and B startups constantly iterate and with that change comes the price of not having all the foundations laid in place throughout the whole sales funnel. It is reported that US companies lose  $136 billion a year due to avoidable customer churn.  

 

Why Do Customers Churn? The Blame Game

Easy answer: Because Customer Success doesn’t do a great job. But when you look closer, it becomes clear that the reasons behind customer churn go beyond customer success. By considering five key sources for churn—marketing, sales, product, customer success, and leadership—you can understand the challenges that may lead to customer attrition. Evaluating and optimizing these areas will improve customer retention, but you must analyze them first. 

 

Customer Churn: Marketing in the Spotlight

One potential origin of churn lies within marketing, specifically the alignment between the Ideal Customer Profile (ICP) and the value proposition of your product or service. If there is a mismatch between these two, it can lead to customers feeling misled or unsatisfied, ultimately resulting in churn. Let’s delve deeper into the best practices for connecting ICP with the value proposition to address this issue.

There are several factors to consider:

• Articulating the unique value proposition of your product or service: Your value proposition should describe how your product or service solves a problem, satisfies a need, or provides a benefit. It should highlight the distinct advantages and benefits that make your product or service better than others.  **HINT: try to write your value proposition as a Twitter headline — under 10 words — that not many others can say in the market — it is harder than you think 🙂
• Defining Your ICP: It should include demographic, psychographic, firmographic, and behavioral characteristics. For example, it might consist of industry, company size, geographic location, job title or role, key responsibilities, challenges, age, gender, income, education level, lifestyle, and buying behaviors. 
• Matching Your ICP to Your Value Proposition: Once you have your value proposition and ICP, you should look for ways to align. For example, if your product or service is designed to save time, your ICP should include customers who need time-saving solutions. If your value proposition is about providing a high-end luxury experience, your ICP might include affluent customers who value exclusivity.
• Validating Through Customer Feedback: Conduct surveys, interviews, and focus groups with existing customers to validate your ICP and value proposition alignment. This feedback can provide insights into whether your actual customers match your ICP and whether they see and value your unique selling proposition.
• Monitoring and Updating: Many companies, especially startups, face challenges because they often neglect to revisit and redefine their Ideal Customer Profiles (ICPs). This process may involve modifying the ICP, value proposition, or both, aiming to achieve perfect alignment between the two. This alignment ensures that your product or service targets and attracts the right customers to derive the most value. A company’s ICP will likely evolve, so there isn’t a fixed destination. Monitoring and updating your ICP and value proposition regularly is crucial to stay relevant. Markets and customer needs change, and by keeping your profiles up-to-date, you can remain aligned and cater to the evolving landscape.

Remember that your ICP should represent your desired customers and those who find the most value in your offer. The alignment between your ICP and value proposition is vital for effective sales and marketing strategies.

It’s also worth considering: 

• What strategies do you use to map customer expectations and preferences?
• How do you measure the effectiveness of your marketing messages in resonating with the ICP?
• Is the misalignment between the ICP and the value proposition causing customer churn in your organization? 

 

Marketing to Sales: Customer Information Gap 

How to make sure marketing and sales are integrated successfully? By including marketing in the sales process. 

It is crucial to actively listen and understand what customers are saying. To achieve this, marketers should dedicate at least five hours per week to listen to call recordings, leveraging tools like Gong or Chorus. By analyzing customer conversations, they can gain valuable insights into how customers express their needs and concerns. Additionally, salespeople should collaborate with marketers to identify areas where messaging may need to be improved and address any communication gaps. This approach allows for continuous improvement in both sales and marketing strategies.

It is important to have a well-organized system for capturing and sharing customer information. Creating an internal knowledge base within the company helps maintain the quality of operations and facilitates efficient decision-making processes.

Customer Churn and Sales: Where’s the Catch? 

Is the sales team doing a commendable job qualifying prospects, and are they selling the actual features and functionality generally available? 

Disconnection between what is sold and what the product delivers can swiftly lead to customer dissatisfaction. The sales team plays a pivotal role in setting customer expectations, and any miscommunication or misrepresentation at this stage can be detrimental, directly contributing to churn.

Here are the steps you should take to prevent customer churn during the sales process:

• Identify the Pain Points: The first step is understanding the problem the prospect is trying to solve. A SaaS product may have many features, but it’s important to focus on the ones that address the prospect’s primary pain points. If a sales team can identify a specific issue that their SaaS product can address, it becomes much easier to demonstrate value. SaaS companies can also align market challenges with your prospects and features that could solve this issue.
• Understand Their Current Solution: Find out what solution (if any) the prospect currently uses to address the problem. This can provide insight into the features they value most and the shortcomings they may experience with their current solution. If your SaaS product can address them, it will be seen as providing significant value.
• Demonstrate product features: One of the most effective ways to show value is product demonstration. A well-executed demo can be extremely persuasive however make sure that you understand the problem and the prospect’s business challenges.
• Share Customer Case Studies: It can help prospects envision the value your product can provide. This is especially effective if the case studies involve similar businesses. .
• Offer Trial Periods:  It allows prospects to use the product and see the value it provides first hand. They’re more likely to become paying customers if they find it useful. For this strategy you need an easy to use product that provides value in a short-time frame.  If you go down this path make sure that you define what success looks like for the prospect.
• Calculate ROI: Demonstrating the return on investment (ROI) that your product delivers can be a powerful selling point. This could cover efficiency gains, cost savings, increased revenue, or other measurable outcomes.
• Understand their Process: Learn about the prospect’s business process and how your SaaS product fits into it. The more seamlessly your product integrates into its existing workflows, the more value it will provide.

Remember that throughout this process, the goal is not just to make a sale, but to build a relationship based on trust and mutual benefit. Providing genuine value to your customers is the best way to ensure long-term business success.

 

Preventing Churn with Deal Desk and Including CS in the Sales Process

In the later stages of the sales process, these are the measures worth exploring: 

A Deal Desk

A deal desk works particularly well for larger deals. This involves representatives from operations, sales, and finance coming together to reach a consensus on whether to pursue a specific deal. It includes considering potential limitations or gaps in the product’s capabilities and effectively communicating this information to the customer success team and other stakeholders. The aim is to ensure everyone is on the same page and working towards a shared understanding.

Including Customer Success in the Sales Process 

Unfortunately, there is often a gap or lack of proper transition between the salesperson and the CSM. This misalignment can lead to issues in the implementation process and a disconnect between what was promised during the sales phase and what is actually delivered to the end users.

 

Solution? Customer success managers (CSMs) should be brought into the later stages of the sales process. This involves introducing them to the customer before finalizing the deal. By involving CSMs early on, they can start building a relationship with the customer and avoid a sudden handoff of information.Then, the transfer of data and knowledge should flow smoothly.

 

From Execs to the Users of the Product 

Customer’s needs and challenges must be effectively communicated or transitioned from the executive level to those using the software. Unfortunately, instead of a smooth transition, there is often a gap where the customer assumes that once the software is purchased, it will automatically solve their problems.

However, the customer success manager (CSM) eventually discovers that the executive’s perception of the problem is not necessarily the root cause. Instead, they realize that there is a deeper underlying issue that needs to be addressed. This presents an opportunity for the company to provide additional solutions or upsells to benefit the customer further.

This challenge arises due to a quadrant dynamic: the executive interacts with the salesperson, and the CSM interacts with the end users.  So again, to mitigate this, it is important to involve the CSM in the sales process. By aligning the CSM with the executive’s objectives and understanding their specific requirements, the CSM can accurately communicate and implement the necessary solutions.

 

Customer Churn and Product: What to Monitor?   

Determining how customers utilize the product and reporting back on their usage is crucial. It is important to address low product usage by discussing it with the customer and inquiring about any issues. Engaging in conversations and asking relevant questions can help uncover the underlying problems.

This should be supported by the right metrics: 

• Product Usage: This metric tracks how often customers use a product. For digital products, this could be measured by the number of logins or sessions, the use of specific features, or the number of active users over a specific period. Higher product usage often indicates that customers find the product valuable and are more likely to be satisfied with it.
• Time Spent in Product: This metric measures customers’ time using a product. In the digital realm, this could be tracked by session duration or total time spent in the app or software. Like product usage, more time spent “in” the product usually suggests higher customer satisfaction and perceived value.
• Customer Churn Rate: This is the percentage of customers who stop using a product or service over time. It’s an important measure of customer dissatisfaction.
• Customer Retention Rate: This is the percentage of customers who continue to use a product or service over a given period of time. It’s an important measure of customer satisfaction and loyalty.
• Customer Lifetime Value (CLV): This measures the total revenue a business can reasonably expect from a single customer account. It considers a customer’s revenue value and compares that to the company’s predicted customer lifespan. Businesses use this prediction to identify significant customer segments that are the most valuable to the company.
• Upselling and Cross-Selling Success Rates: These metrics measure the percentage of customers who accept offers to purchase additional products or more expensive items. Success in these areas can indicate customer satisfaction and perceived value.
• Customer Engagement Metrics: These metrics include website or app usage, email click-through rates, social media interactions, and other forms of engagement. High customer engagement indicates that customers find value in a product or service.
• Customer Feedback and Reviews: These provide qualitative data about customer satisfaction and overall experience. 

 

Churn and Customer Success: Back to Basics 

The fourth potential source of churn revolves around Customer Success Management (CSM).

“Is the CSM team ensuring that the customer uses the product or service to its full capability? Is the customer getting the value out of the product/service?” The CSM team ensures customer satisfaction and facilitates optimal product use. However, if the customer doesn’t feel supported or struggles to gain value from the product or service, they may decide to look elsewhere, increasing churn.

It’s worth asking:

• How does your CSM team ensure that customers utilize the product or service to its full capability?
• How do you assist customers in overcoming challenges and maximizing the benefits of your product or service?

 

Churn and Leadership: Customer-Centric Mindset is the Key 

Finally, how does leadership contribute to churn?

 “Is the leadership team pushing for revenue or profits at the cost of value and fit for the customer?” A short-sighted approach focused solely on profit can disregard customer needs and satisfaction, fostering an environment where churn is more likely to occur.

It’s worth asking: 

• How does your leadership team prioritize customer needs and satisfaction?
• How do you balance revenue and profit goals with customer value and fit?
• How do you promote a customer-centric culture within the organization?

Summary

As illustrated, there are numerous areas within a company where customer churn can originate. Businesses need to align with these five pillars—marketing, sales, product/service, CSM, and leadership—to ensure they sell their product or service effectively and maximize customer retention. By recognizing and addressing these potential sources of churn, companies can foster lasting customer relationships and bolster their bottom line. The customer-centric mindset should be the driving force behind adopting mentioned strategies. 

Don’t forget! Discover the top GTM strategies from B2B experts at RevCon: our must-attend annual conference on October 18-19, 2023!