Operations ConsultingFebruary 2, 2022by fieconCountering Customer Churn in Tech Businesses: Optimize Value & Price

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The star Hollywood actor, Chadwick Boseman died as a shock to many fans who had seen him in perfect health previously in the last movie he led, The Black Panther, a Marvel superhero franchise. Cancer had claimed one of the most popular actors among the black community and Africa as a whole. Doctors argue that early diagnosis and treatment of cancer is essential to increase your chances of survival. In the business world, this cancer is customer churn.

Many founders and CEOs in technology and software-as-a-service (SaaS) companies often focus on aggressive customer acquisition. What might not be given enough attention is the rate at which they retain the existing customer base. As a result, the business becomes a leaking bucket; with the leakage receiving little to no intervention.

Customers leave your business not because they want to, but because they do not have a compelling reason to stay.  As a matter of fact, customers will leave if they are not getting enough value out of the service at a particular price point.

Countering Customer Churn

Churn being any technology and SaaS business darkest nightmare for growth, early and continuous detection is the key to mitigating it. When it comes to minimizing churn, there are two main variables to keep in mind; price and value.

On value:

Define your specific target market and stick to it. All the leads in your marketing funnel should be well defined. Many companies succumb to the pressure of growing their user base and end up signing up dormant accounts that have no revenue value. You don’t want to acquire users just for the sake of growing the numbers; focus on value for every marketing dollar you spend.

Demonstrate your value proposition beyond reasonable doubt. Your prospective customers need to know what they are buying upfront. This will prevent customers from demanding for a service/function they did not pay for.[2]  For instance, a service offered in various tiers should explicitly highlight what the customer will get so that they don’t feel lured into a plan they don’t need.

Improve your user experience (UX). Customers can tolerate up to a certain level of frustration when using a service. If a particular service has too many bugs, is slow, or does not have clear outlines to get a task done, your customers will soon shift to your competitors who offer a better user experience. Customers do not want your service, they want the outcome. If they cannot get it easily using your platform, they will look for it elsewhere.

Measure, analyze & take corrective action. Data is your most valuable asset when identifying churn triggers; and platforms like ChartMogul are a good place to gather insights on your subscription analytics. Deploy other tools, including net promoter score (NPS) surveys to get feedback on why the customers are leaving your platform. Once you get enough feedback, act on that information and seal your leaking bucket.

On price:

For new businesses, experimenting with different pricing strategies will help you analyze how the market responds to the different price points you try out. Eventually, you will get to an optimal price where more customers will be willing to renew their subscriptions over their lifetime in your business.

However, this strategy has to be keenly implemented to avoid underpricing to attract more customers. Your pricing strategy eventually affects your cash-flows and other metrics that have direct impact on your business liquidity. Hence, the optimal price must make economic sense for the business as well as reflect the purchasing power of your target customers.

As a rule of thumb, your customer acquisition cost (CAC) should never exceed the customer lifetime value (LTV); with a recommended LTV: CAC ratio of at least 3:1 . However, it is always easier to maintain your existing customer base compared to acquiring a new one. Hence, customer retention for your business should be prioritized and given as much emphasis as customer acquisition.

Author: Dickson Ndoro

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