When a frog is placed in boiling water, it quickly jumps out because it has felt the heat. But, when it is placed in the water before it is boiling, the frog adjusts to the heat and it is too late before it realizes that it is boiling. This holds true for entrepreneurs who focus on customer acquisition and NOT on their retention and churn. You need to understand why customers are leaving you as EARLY ON as possible in order to adjust and make changes. For this episode, Steli and Hiten talk about how to make the most of a customer cancellation and the importance of preventing cancellation from Day 1.
Time Stamped Show Notes:
- 00:07 – Today’s episode is about what to do when your customers are cancelling
- 00:32 – Episode 106 is about how to deal with churn in SaaS
- 00:38 – This episode is specifically about subscription businesses
- 01:01 – Acquiring customers is different from retaining customers
- 01:42 – How you react or respond to cancelling customers can set the direction of your business
- 02:20 – You should have the mindset of trying to learn from the negative experiences
- 02:37 – Smaller businesses might be losing money so they have to cancel
- 03:05 – When people say they can’t afford your product, you probably did not provide enough value
- 03:41 – Ask customers why they are cancelling so you can learn from it
- 04:08 – If you are on the phone, you can easily do the 5 Whys or keep asking until you are satisfied
- 04:20 – While customers might say that it is about their budget, it can actually be a misunderstanding with what your product can do for them
- 04:41 – It might be because you have not shown them how much value they get from your product
- 05:03 – “What could we have done to keep your business?” is one of the key questions you should ask
- 05:26 – The goal with the first few customers that are cancelling is to learn from them, not primarily to stop them from cancelling
- 06:22 – People who are cancelling have already decided to do so a long time before they actually inform you
- 06:41 – The key is to prevent people from cancelling
- 07:02 – Spend your time understanding what happened rather than pushing your customers to stay
- 07:41 – Learn how you can be proactive using the experiences of your customer, so that the causes that led him to cancel will be minimized for future customers
- 07:53 – When they are cancelling on the app, make it so that they won’t be able to unless they tell you why
- 08:15 – What is the right approach in allowing a customer to cancel?
- 09:23 – It should be easy enough for them to cancel and provide you that feedback for why they are cancelling
- 09:30 – A phone call is an excellent approach, if you can
- 10:12 – Tell them upfront that they can cancel, but you also want to know what went wrong
- 10:25 – Show them that you care because they already paid you before
- 11:03 – When you have reached a larger scale, what would be the best way to elicit feedback?
- 11:27 – A phone call is still the best way
- 12:45 – A lot of the development of a product comes from the feedback of cancelling customers
- 13:08 – The number one goal for you in all of this is to learn and gain insight
- 14:39 – In the early days, acquisition is the main focus and NOT retention and churn
- 15:16 – The “frog in the water” is like the entrepreneur who does not worry about churn at the start
- 16:25 – Retention and churn needs to be a priority from Day 1 and the first person that cancels is the most important, because you get to learn from them
- 17:31 – Learning and understanding the different factors that cause your customers to cancel should be assessed early on in your business
- 18:15 – Make it a priority to learn from your cancelling customers
- 18:41 – The greatest source of learning is the people that leave you
- 18:52 – End of today’s episode
3 Key Points:
- It is inevitable that a customer will leave you, what is important is that you LEARN from them and respond to their feedback.
- Give importance to your retention and churn from DAY 1.
- Create a process that makes it easier for your customers to provide feedback on WHY they are cancelling.
Hey, everyone. This is Steli Efti.
And this is Hiten Shah.
And in today’s episode of The Startup Chat, we’re going to talk about what to do when your customers are canceling. We’ve talked about the subject of churn before. It’s actually episode 106, How to Deal with Churn in SaaS. This was specifically churn for subscription businesses. This is such an important topic, and it comes up so often, and it’s so related to growth. Your company’s not going to be growing if you’re not retaining your customers. We thought we should talk about this a little bit more. Specifically, maybe, on an individual level in the early days. You just started going out there, acquiring customers. You might be doing it manually. You do a lot of customer interviews. You are like less than 100 customers. You’re still in the phase where you’re really hustling to get every single customer to purchase your product. Independently from if it’s a subscription product or not, in the very beginning, canceling customers are not your number one concern. You’re just trying to get some customers to say that they want to buy. That’s your first milestone. Once you have 20, 30, 40, 50 customers, eventually some of these customers are going to come back and are not going to be happy. Either they want to cancel, or they want their money back, or something. They want to reduce their engagement, or whatever it is. That is a critical moment in your startup’s journey. How you react to that and how you respond to that can really set and change the direction with the destiny of the business in very significant terms. Let’s talk about that. Let me ask you, Hiten. Let’s say you have a startup and 20, 30, 40 customers. I get to that first negative milestone, where my first customer wants to churn or just cancel. What’s the right game plan of action? How should I respond to that? What should the business do with that first canceled customer?
That’s awesome. Let’s talk about mindset real quick. I think it’s mindset. Your mindset has to be, “How can I learn as much as possible from this negative experience that someone’s having, and that I’m about to have, because we’re about to lose them?” One of the most common ones is, if you have a lot of businesses that are smaller that you’re working with, they just can’t afford you anymore. They’re running out of business, or something that you can’t control, or that’s not really much feedback for you. Sometimes, the feedback is, “We can’t afford you,” and that could also mean that you haven’t, basically, provided enough value. That’s an issue. The most common reason is, “We don’t want to pay enough.” You have to dig deeper. That’s why I said your mindset has to be about learning. Then I said this example. This is the most common one I hear. “Oh, people say they can’t afford my product. They must suck.” It’s like, “No, no, no. Hold on. You suck. You probably didn’t provide enough value. As long as it’s not the case of them going out of business, or literally having budget problems. As long as it’s not that case, it’s because you suck. You didn’t provide enough value where they could see that it’s worth paying your company more money than … Your company is worth paying money, compared to what else they could do without you, and how much money they would be making without you, or how much money they would be saving without you.” I think it’s really about mindset when someone wants to cancel. How do you turn it into a massive amount of learning? How do you dig in? Don’t let someone just cancel without learning why they’re canceling. Don’t let someone downgrade, or spend less money with you, without understanding exactly why they’re doing it. Depending on how they’re canceling, whether it’s on the phone with you, in a support email, or even in an interface, build it around learning. If they’re on the phone, it’s super easy. It’s like, “Hey, before I actually let you cancel, can you please tell me why?”, and then just digging in. You could do the five why strategy or you could really keep digging in until you feel satisfied with the exact reason why they’re canceling. Oftentimes, it’s like, they say they don’t enough budget, but then it really leads to … Or, you know, your product costs, but then it really leads to these other issues that aren’t really related to the price. More of their understanding of your product, or some feature they didn’t use. Another one that’s related to this is pretty big, which is they say that your product, they can’t afford it, but then they actually are getting a ton of value from it, but you’re just haven’t demonstrated how much value their getting from it. The other way to think about this is like, and … I’ve seen people, if their product is valuable and people are getting value from it, convert people right on the call, if you get them to be on the phone. One of the key things to figure out, and this is one of my key questions, regardless of the way that you’re getting the cancellation, is, “What could we have done to keep your business?” That gives you massive amount of learnings, because you’re framing it in a positive way to them, not a negative way. People are more likely to give you the negative when you frame it as a positive question like that.
I love it. That’s super powerful. The thing I love is that … The thing that needs highlighting is that the goal with the first few customers that are canceling is not necessarily to stop them from canceling. That is a nice to have, but it’s not the must have. The must have is the learning, right?
I’ll go further, Steli. It’s never the case.
There you go.
You don’t want to try to get them back. You want to know why they left, so the next hundred that try to cancel, you get 90% of them to never even get to that point.
Yep. The thing is that, most of the time … Not to say that you can’t have a program that tries to turn canceling or churning customers around that can work, businesses are doing that. It is the most moment to try to turn somebody around, when they already canceled, when they’ve already moved on. A lot of times, that decision has happened days, weeks, or months before. They might have already transitioned to another product. At least it’s the latest moment that you can win your customer back. You already lost them a long period before they canceled, typically. If you don’t understand why, and you don’t have the insights of what could have prevented that, and you don’t truly understand what’s happening there, you will always be reactively chasing customers that are already left. That’s going to be a losing battle, versus preventing people from leaving, which can be a winning battle if you do it right. I love that philosophy. I think that a lot of people, especially with the first few customers that cancel … This then bleeds into your entire customer churn or retention strategy. In the beginning, because founders are so attached to their customers, and their product, and their business, the first person that tries to cancel, all you care about is to turn them around, is to stop them from it. You’re thinking, “Oh, shit. I just told this investor this morning about this customer and now they canceled. Oh my god, this is going to be the end of the world.” All you’re concerned with is turning that customer around. “Oh, we’re going to give you more. What? It was expensive? We’re going to give it to you for free. What? You didn’t get enough support? I’ll give you support 24/7, phone and in person.” You do anything and everything. Push, push, push, trying to keep them, versus trying to understand what happened here.
Yeah, you’re so right. You’re trying to understand what’s going on. You’re not trying to keep them. Keeping them is reactive. Really, what you’re trying to do is figure out how can you be proactive in the future, using this one conversation, or these many cancellation conversations, or places on your website or application where they’re canceling. For example, if they’re canceling in your interface, you don’t want to make that cancel button clickable until they tell you why. That’s such a big deal. A lot of SaaS products don’t do it and I hate it. It’s like, “Hey, you’re missing out on one of your most important events in a key place where you could learn, more than in a lot of other parts of your product.”
Let me ask you about this. I want to ask you earlier and I forgot. How to allow people to cancel, because there’s many different schools of thought. There’s the really difficult part. You cannot cancel in the product, you have to call a hotline, or something like that, to cancel. There’s the products that allow to cancel, but you have to fill out a form, give a reason, or give some kind of data about why. Then there are the products that have the philosophy that you should not introduce any friction, when people want to leave, to make it more difficult for them. They’re going to get even more upset. They’re not just leaving, but now they are pissed and they’re going to tell anybody not to use you. There’s these different school of thoughts on how easy or difficult to make it for people to leave. Would you say don’t make it impossible for them to leave, because that’s really bad, but don’t allow them just to leave without telling you why, right?
Yeah, I mean, look. This is one of those discussions where it frustrates me, because people think that, “Oh, we have to make it really easy for people to cancel.” I’m not saying you shouldn’t make it easy. What I’m saying is, what’s valuable to you is the learning from that customer who’s canceling. You should make it easy enough for them to cancel, and yet, easy enough for them to give you the feedback. In early days, the way I might even do it is, they have to call a number or they have to get on a real quick chat with you in order to cancel. It has everything to do with your messaging. I’ve helped people implement this stuff. One example is, if someone paid three times, tell them, “Because you paid three times, we are dying to know why you’re going to stop paying us and where we screwed up. We would love two minutes of your time, or five minutes of your time, on the phone, or to respond to this quick question, before we really let you stop doing that. Don’t worry, we totally, totally want to let you leave. We’re not trying to take your money, but we really, really need to know why, because you paid us three times. We have to learn how to prevent this, or we won’t have a business.” Again, I know that’s long winded. It’s really all about the copy. It’s all about the message that you’re sending them and how much you show them that you cared that they paid. If they paid you a bunch of times already, which usually they did, even if it’s just once, they already paid you. They have experience with your product. They thought it was valuable to them. There’s no reason why, if you don’t frame it the right way, that they won’t be super happy to tell you why.
I love that. Let’s go a little bit more … The early days, if you get the messaging right, you could even make it so that you want to talk to them for a few minutes on the phone before you fully let them leave. Not to prevent them from leaving, but to understand what went wrong. Later on, let’s say at a bigger scale, there’s more people. This is not practical anymore. Would you do an open comment box or would you have more of a form where people can select an option? What’s the best format of eliciting real good feedback and data? When people leave, typically they don’t want to … Some might, but most people will just want to get through with the transaction of canceling.
Let’s talk about this. If you have a thousand customers, roughly, and 5% are leaving every month, from a churn standpoint, why is it hard to talk to that 5%? That’s only 50 people.
Well, you’re not going to get a lot of resistance from me.
I just want to dispel that and say, even at a thousand customers, that’s 50 people leaving, dude, at 5%. Okay, fine. You have a ridiculously high churn. It’s 20%. That’s still not that many people, but-
Well, then you should definitely talk to them.
Yeah. It’s like 10 people a day. You have a larger team, probably, if you have a thousand people, unless you’re crazy like me, or you. And so-
This is why I said … This is why I want to … I was just about to ask you. I’m like, “I don’t think that you were calling canceling customers for Crazy Egg right now. It’s a big business. You guys are a tiny team.
It’s a big business. It’s a tiny team. Also, it’s a low price point. With that being said, our highest paying customers, we wouldn’t let them go without telling us why. Also, we have it automated. We have it in the form fields and all that. A lot of times, the existing largest customers of ours aren’t on a plan that you can see on our website, at least in our case. If they’re not on a plan that you can see on our website, they have to cancel somehow. We get to talk to them and we get to figure out why. In fact, a lot of our product development, a lot of our fixes, come from the people who are canceling that tell us why they canceled and where we’re missing the mark.
Fair enough. I get it. Okay. You’re talking to these people. I think we said that the important part is, again, you’re not selling them, you’re not bullying them, you’re not pushing them. It’s not about turning them around, necessarily. If it happens, great, but that’s not number one priority. Number one priority’s to learn insights. Try to understand what could we have done differently. Where did we mess up? What has happened? You take these insights. The problem with a lot of this stuff is that it’s more long term. That people think, “Well, that’s not an immediate fix.” They tell me that something significant is missing in my product, let’s say, it’s going to take me four or five months to build this. What do I do in the meantime? How do I slow this down? That’s one pressure point why a lot of founders don’t invest in this, because it feels like it’s a long term fix. A lot of founders and startups, especially in the early days, they’re all about short term fixes, and hacks, and shortcuts. We both … All our advice is counter to that, in most cases. The other thing … A trend that I’ve noticed … I would assume you’ve seen this as well, but I’m curious to hear. A lot of times, in the early days, when I asked founders about retention and churn, they always tell me, “Oh, it’s not a problem.” I go, “Okay, how many customers do you get?” “Well, we have 30, 40, 50, 100, 200. It’s not a problem for us.” I go, “What are the numbers?” “Well, it’s this % or that %.” Then, without failing, I could make a bet that next time when I see them and I ask them if retention or churn is a problem, they’re going to tell me it is a huge problem. It’s funny. It’s like, in the early days … I mean, obviously, when you get your first customer, that day when you close them, you’re not going to have any churn, hopefully. Most likely. In the early days, churn just … Acquisition’s such a big concern and focus. Churn, because the days are still early and the numbers are so small, is not a big disturbing factor. A lot of founders, I think, they tend to completely ignore retention and churn. It happens a little bit and they still ignore it. Once they get to a certain level of scale, the numbers have now added up. They’ve been around in the business for long enough for that to become such a significant problem. It seems to always catch founders by surprise. Have you noticed this trend, as well?
Yeah, I love this one. You know the frog boiling story, in water?
The frog in boiling water story. It’s basically the idea, for those of you that haven’t heard it, it’s the idea that if a frog is put suddenly into boiling water, he will quickly jump out, but if the frog is put in tepid water, or lukewarm water, and then the water is brought to a boil slowly, it will not perceive the heat in the same way. It is likely to be cooked to death. In this case, you and I are like, “Yo, that lukewarm water, it’s boiling, dude. It’s going to be boiling. Let’s just take care of this right now.” They’re like, “No, no, no, no. We’re good. There’s only three or four people leaving. We only have a hundred customers. There’s only three or four leaving.” It’s this whole idea that it feels like small numbers, but you have a small number of customers, so your churn’s actually pretty high at that point. You better start talking to these people asap, otherwise the churn’s going to go up. Here’s the stupid thing. If you don’t know why people are leaving, guess what? You don’t know why people are leaving, which means you can’t keep them. It’s not about the people that are leaving, as we have hammered in, I hope, in this episode, it’s about learning from them so you can prevent the next batch of people from leaving, as much as possible.
I love that. I think when it comes to retention, it’s one of these things where, as a founder, that needs to freak you out. Churn needs to freak you out, in the sense that it needs to be a priority from day one. The first customer that churns is your most important customer. Again, not to keep, but to learn from. Having that laissez faire attitude towards it, which is like, “Well, yeah. Churn is not a problem.” The challenge is, just like what I mentioned before, funny enough this plays into this, is that, once you learn why people are leaving, most likely they’re not, it’s going to take some amount of time for you to fix these things. The later you learn this, the more time you lose. If you’re just a few months too late to be talking to your churning customers and then it takes you another few months to build it, you might lose an entire year. This, in the early days, still seems small, but these numbers compound. This can make a big difference in the growth trajectory of your business. Also, on the roadmap, what you’re building, what you’re not building, all that stuff. Learning from churning customers, to understand what is going on in the market, what is going on wrong with product, what is maybe wrong about your marketing. Maybe you talk to these people, you realize all of them should have never bought your product. Maybe there’s something fundamentally wrong about how your team does marketing. It looks like marketing is crushing it and succeeding, but you’re attracting all the wrong customers. These are really fundamental issues that the sooner you figure them out, the better for your business. Figuring these things out late can be all the difference. It’s not just like a nice to have, it’s like these are critical insights you want to get as soon as possible. They’re foundational to how you build your company. I think that this little rant is my tip for the end of the episode. This shit needs to be a priority. It is fundamental to how quickly your business is going to grow and what direction your startup is going to go into. Every canceling customer should be your number one priority to learn from. That’s the tip here, for this episode.
Yeah. My tip is just a pithy statement about this, which is, your greatest source of learning is the people that leave you.
I love it. This is the tweet of the episode.
I guess so, yeah.
This is it. All right, this is it from us for this episode. We’ll you guys very soon.