How Transparency Can Slash Your Churn Rate by 89%
One entrepreneur's journey into radical transparency created amazing results.
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If you run a software-as-a-service (SaaS) business, you probably know how difficult it can be to achieve a low and stable churn rate. Simply put, a business's churn rate is its average customer lifespan. A low churn rate means your customers typically stick with your software for a long period of time. Alternatively, a high churn rate may be the reason you tend to end each month with a bunch of new customers, but about the same revenue. Despite it being a crucial performance metric, not only for SaaS companies but also any B2B service-oriented business, a high churn rate is incredibly difficult to overcome.
SaaS businesses are constantly trying to improve their customer acquisition percentages and decrease customer churn rate. Google the term "churn rate," and you'll pull up a slew of advice on how to lower your own rate: provide consistent value reminders, perform cohort analyses, and more. These are all great suggestions, but some businesses prefer a different type of solution, like Boaz Grinvald's BrightInfo -- a content personalization tool.
Related: 5 Ways to Reduce Your SaaS Churn
Recently, leadership at BrightInfo performed research that revealed that while many customers loved their product, many were under the false impression that the product was delivering diminishing value over time.
Boaz and his team decided to do something extreme in turn. They injected "radical transparency" into their product. They wanted to make sure that the BrightInfo experience would be infused with irrefutable evidence that it was driving ROI.
Now, every BrightInfo account automatically runs A/B tests, comparing KPIs for site visitors who don't see BrightInfo's content recommendations with those that do. The product dashboard demonstrates the lift that BrightInfo drives. As a result of this change, they reduced churn from 4.4 percent to .5 percent.
I was fortunate to be able to speak with Boaz about his software, which has helped increase on-site engagement and conversions for companies like HubSpot and Cisco. Here Boaz talks about the relationship between transparency and churn, the state of the SaaS industry, and more.
What do companies get wrong in curbing churn?
When looking to curb churn, it all comes down to the delicate balancing act of the three value elements that resonate with customers: product, user experience and level of service.
The problem starts when you need to prioritize resources: for example, when releasing a new feature that a major customer is requesting. You make sure it works perfectly, you pay attention to the usability and you communicate the value this feature brings to your services and accounts team. That's how you minimize the gap between true and perceived value, or better yet, increase the perceived value.
Related: A High Churn Can Cause Your Business to Crash and Burn
For us specifically, we lost sight of the gap between perceived value and value delivered. When we realized our customers were under the impression that we deliver less value than we actually do, we rolled out the ongoing A/B testing as a constant proof of value.
What is the relationship between vendors and value?
The honeymoon effect (the novelty of something exciting and new) definitely plays a role, but that's not all. Each company, with its own unique product, faces different obstacles in this regard. By recognizing these obstacles, you can start to figure out how to hurdle them.
We are in the business of personalized content recommendations, and the end result of what our algorithm does is an increase in engagement and conversion. So, after a few months of using our product, customers tend to forget the numbers pre-BrightInfo and this becomes their new baseline. On top of that, our customers are often busy with various inbound marketing efforts. At the end of the day, how can you distinguish between the different drivers of growth? Many of our customers used to ask us, "How can we attribute the growth in leads to you? It could have been our new Instagram campaign.
This is the obstacle we recognized. By running continuous A/B tests, we've been able to overcome this obstacle -- we've made sure our customers are always reminded of the real baseline performance of their website as far as conversion rate, and who gets the credit for conversion growth.
How do you inject value transparency ?
Transparency works for both sides. Sure, our A/B testing program has helped us reduce churn in a big way, but we have gained much more from it. We are constantly on our toes, facing the performance of our product head on -- no filters.
The best example for me is the finance industry. Whether it's your pension, your investments or any other financial portfolio you hold, when these reports arrive every month, they always compare their own performance to that of the market or their competitors. It's a fantastic way to communicate your value in the most transparent, direct manner.
Related: This Software Company Can Boost Your Retention Rate
FairFly is another great example. Their value is brilliantly and inherently a part of their product: after you purchase an airline ticket, they will find you a cheaper one and reimburse you for the difference. You are literally getting the value in the form of money.
Why is it easy to forget about demonstrating value?
It's potentially a combination of two factors: the desire to make a profit and SaaS being more on the affordable side of the tech industry. It's about combining the pressures of unit economics with SaaS revenues often based on monthly billing, which means potentially low margins, especially for companies focused on consumers or small businesses, where the per-month revenue is the smallest.
I believe that's where the impression comes from. Being optimistic, I see lots of efforts in SaaS to improve perceived value, exactly like we're doing with our ongoing proof of value and sharing this story.
What value can service providers demonstrate?
Here I would go back to the three elements of a value: product, experience and service. If, as a company, you are able to effectively communicate to your customers on these three levels simultaneously, then you have it. And these are the three stories that companies (also outside the SaaS space) need to tell their customers.
And by the way, I think that overarching value statements are a thing of the past. Don't just tell me you'll improve my life -- tell me how you'll do it.
What's next for your "radical transparency"?
We are moving our offices to a glass house. Just kidding.
Look: we're measured by raw leads. So the next logical step on our path to complete transparency is to be measured by the quality of our leads. Today we offer integration with marketing automation solutions like HubSpot, Marketo and Act-On and soon we'll expand to Pardot and Eloqua as well. But in order to really make headway, we are looking into CRM integrations, with Salesforce obviously at the top of the list.
Our aim with this follows the industry trend of closing the loop of the entire buyer journey. We want to be able to report to our customers not only the number of leads we generate, but their quality as well. We want to break it down completely: how many eventually converted from leads into marketing-qualified leads, opportunities, customers; what content along the journey made them convert; what is the best nurturing content for each persona.
We are even tuning our algorithm from leads to deals.
There's one more thing behind door number two. We believe that by doing this, we'll also assist marketers to deliver better results internally. The same way we are measured by leads, so are they. Sales departments are breathing down marketing's necks. Well, this is our way to not only prove our value, but also help marketers prove their own.
One of the hardest things about running a SaaS business is curbing your churn rate. With a little trial-and-error, A/B testing and the right software, you can lower your company's churn rate and convert more leads to customers on your website's front page.