Reasons for Customer Churn and What to do About it
By: Lindsey Renken
Tags: Startup, B2B, SaaS, Retention, Churn

There are many strategies for reducing churn, but the right ones will become apparent once you determine the root problems that are causing customers to leave. Psst! This is an exercise for multiple departments, not just your customer success team.

The wrong approach to a churn intervention strategy would be to implement a laundry list of suggestions people have given you without taking inventory of your company’s strengths, weaknesses and customer feedback. Agreed?

It’s not to say we shouldn’t be taking suggestions from our favorite industry blog, our founder friends, or the startup community. It’s just that customer churn does not have a one-size-fits-all solution. In fact, chances are you won’t need but one solution for your customers, but maybe several different solutions for different segments.

That’s why it’s important to pinpoint the exact points of strength and weakness for your business and which customers are affected by each.

In the big data era of SaaS, we’re collecting more and more data on all kinds of things related to our business. Analyzing this data to help determine the reasons customers churn should be a priority. I would recommend using Observable to help you with this, but there are other options out there as well.

Though, data alone cannot solve this problem. Your team will also need to speak directly with customers to gain all-important insights and feedback. And of course, you’ll need to think critically about where your product fits in the market and come up with winning design and execution strategies.

In your search, you’ll discover the reasons your customers are leaving will likely fall into the following categories:

Your Product was Not the Right Fit to Solve Your Customer’s Problem

This occurs when your customer purchases the product, but it turns out they were looking for something else. It did not help them the way they were anticipating it to.

This problem can arise for a couple of reasons.

Marketing brought in and sold to the wrong customers: Now this isn’t exactly marketing’s fault here. It just means there’s a mismatch between who you are marketing to and who the product is actually suited for. Either you need to change the product or adjust your marketing to re-align the two. Marketing promised a solution that your product doesn’t offer: This is an extension of point number one. Take a look at what your marketing the solution as and what the solution actually is. Again, either marketing or product has to change to re-align the two. The customer did not have enough information to make the correct decision at the time of purchase: The solution to this problem would be to refine your marketing to better explain what problem the product is solving. You’ll also want to make sure the customer can glean enough information on how the problem is solved, so they can determine if they’re a good fit.

This reason for churn is common for companies discovering their product-market fit. It’s common not only for startups, but later-stage companies as well who are iterating on their products and rediscovering where they fit in the market.

The Product was Insufficient

In contrast to not having the right product/market fit, you can also have a product that does not solve the problem well enough compared to alternatives on the market.

Features did not meet the customer’s needs well enough: In this scenario, you’ll want to reconsider how your product solves the problem for your customers for the long-term. These are more minor adjustments to existing features, not product pivots. Features were missing: Consider if a competitor has a feature that is missing from your offering, and is the reason some of your customers are leaving for the competitor. Sometimes it’s something as little as having an extra privacy setting for teams. Too many features: Feature bloat is real, and real annoying. If you discover some features are never being used, get rid of them. Sometimes less is more. Uncluttering your offering makes your product easier to use. These distractions can detract from your offering and cause too much confusion.

The Customer Failed to Use Your Product Effectively

This reason for churn boils down to a failure to onboard the customer.

The customer did not master all of the critical features: The customer may not have been appropriately guided to discover a critical feature and learn how to use it. Re-evaluate which features need to be introduced and how to manage how customers are introduced to them in an appropriate amount of time. Failed to finish installation/setup to receive appropriate value: Installation was too difficult, was unclear, or required too much effort to complete. Do you need to create better documentation, or rather just incentivize customers better?

If your product is used by multiple members of a team, make sure this holds true for each member and not just one, which brings us to our next reason.

The Customer Lacked Team Buy-In

Most people do not work individually. At some point, they need to interface with their team. If your product does not allow for collaboration, chances are the product will not be adopted for the long-haul.

Team members were not invited: Most teams will need some way to collaborate on your platform. Make sure you allow for multiple users to use the product in some capacity. Prompt the initial users to invite their team members. Team members do not find use out of the platform/the results of its service: If there are multiple decision-makers on a team, they’ll both need to find value out of your product, whatever their roles may be. Make sure you account for this when designing your product.

The Customer Experienced Too Many Points of Friction

Over time the product can become too difficult or cumbersome to use effectively. This type of churn is akin to death by a thousand cuts.

Little to no integration into the company’s workflow: Difficulty can arise when the product does not have ample integration into each user’s workflow. In other words, if the service does not mesh with how your company operates, you will have built up friction. It could cost your customers more time and energy to do their jobs. Painful user experience: More often we can forget that sometimes the solution that works isn’t always adopted, this is especially true for more mature markets where customers have a choice. Make the user’s experience enjoyable and virtually friction-less, and you will reap the rewards.

Removing friction can help with long-term retention. You likely won’t notice a drop-off in the initial stages of the customer life-cycle for this reason, but you’ll notice it with customers who churn after a couple of months or more.

The Service Did Not Meet Expectations

Even if your product is solving customer’s problems effectively, you still need to make sure you have a reliable service.

Too many bugs: If your platform is too buggy that it prevents people from using it effectively, then you have a problem. Having minor bugs once in a while is forgivable. However, frequent show-stoppers are often remembered, especially when it comes time for renewal, or when customers are shopping around. Poor customer support: Customer service is important for companies who rely on your business to solve critical problems. If someone cannot reach someone from your team in a timely manner, then they might start looking elsewhere. Having effective customer support also includes having appropriate product documentation.

When people have a choice between different solutions, as they do in most markets, then service reliability makes a big difference.

Your Pricing is Wrong

This reason for churn is tricky and difficult to diagnose, but you can do so by asking customers directly. Typically your sales or marketing teams will encounter this problem and it’ll keep many people from signing up to your platform in the first place.

Customers are seasonal: If you find that your customers are churning and returning, and have high engagement when they do, you might find you have a seasonal product. This problem isn’t always indicative of ineffective pricing models, but it is often related. Customers leave for a competitor: If your offering isn’t any better than another solution and you have a higher price, customers will find this out.

These are the major reasons you can control. If your customer has told you a different story, it might fit into this next category.

External Factors

It’s important to remember there will be reasons customers leave that you cannot control, which have everything to do with your customer and nothing to do with your company or product.

New products enter the market: In the short term, once you realize new products have entered the market, it is understandable that customers might leave for your competitor’s solution if this new product meets their needs better. However, there actually are a few things you can do to keep customers around at this point. Brand loyalty: If your customers are avid fans of your brand, then they might just stick around even if another company has a better offer. Roadmap promises: Switching to a new product is sometimes very time-consuming and often a large commitment. If you can find a way to add new features to compete with a competitor’s solution, then let your customers know you’re planning on doing so. Ask them to stick around in the meantime. Sometimes offering a temporary discount will seal the deal. Customers evolve past their previous needs with your product: Sometimes your customers outgrow you. If you don’t plan on moving up-market to meet these evolving needs, then there isn’t really anything you can do at this point. Customers go out of business: If your customer is no longer in business, it’s understandable that they will churn.

Once you’ve figured out the reasons why customers are churning and the different customer segments that are experiencing each problem, then you will want to come up with appropriate solutions and prioritize implementing these changes.

Be sure to track your customer’s behavior and the appropriate performance metrics to measure the differences. This will help you understand definitively how your efforts are affecting your churn rate. Remember, you can also use this information to justify your churn reduction strategy decisions to your team members.

At Observable, we’re building out a product to help with this process. Learn more about our early-invite program.