A fisherman, as a rule, has to work pretty hard to bring home the catch of the day—hours of grueling effort, in pitching seas, to struggle to reel in one tuna at a time. Imagine, however, a utopian upgrade to this model—simply navigating to the “hot spot,” and sitting back with a frosty beverage while the fish jump, willingly, into the boat.
If you run a recurring revenue stream business, you get to inhabit this magical place—a customer signs up, and they keep paying you, month over month. But, simply having a recurring revenue stream does equate to perpetual hockey stick revenue growth—and I played hockey! There are a number of things that can cause your recurring revenue model to “flounder,” affecting your revenue and margin growth.
In this blog series, we’ll look at the three issues facing recurring revenue businesses—churn, balancing acquisition and retention and creating a retention program. It is my hope that, by the end of this series, you will secure your recurring revenue enterprise against the sharks that could bring it down—and that’s no “Big Fish” story!
So, let’s start with churn—this one is a no-brainer. I’m sure most of you have heard the oft-repeated statistic: it can cost you anywhere from four to five times the amount to attract a new customer, than to keep an existing one. But did you know this: According to a recent Bain & Company survey, increasing retention rates by just 5 percent can boost profitability by anywhere from 25 to 95 percent!
Churn, as we understand, has the exact same, but opposite, effect of acquisition. A customer lost cancels a customer gained, assuming they are paying the same rate. But what if they are paying more? Then the lost customer more than offsets the acquired customer! That is a constant problem keeping leaders at recurring revenue businesses up at night. “My longer-tenured customers are paying more than my newly acquired customers,” they moan. “What if they leave? Or, what if they ask to have the price lowered to the current advertised price?” Calgon, take me away!
What can you do? First, it’s critical to identify who has responsibility for churn mitigation at your enterprise. Sales? Customer service? Marketing? The ambiguity around churn ownership is one reason why reducing churn can be so problematic. Customer care—or a save team—often owns it, but by the time a customer reaches them, they have often already made the decision to leave. Sales? They need to be finding new customers. Marketing? They never touch a customer directly.
In my view, churn reduction must be an organization-wide priority. The way you conduct your business must inherently lead to reduced churn and that means delivering an exceptional customer experience. Here are four roles and responsibilities that constitute the key components of an effective churn reduction program:
Longer term, create an e-newsletter or webinars/webcasts as a vehicle to continually educate and stay in touch with your clients. It can’t simply be a shill for your services, but rather provide broader information that they can’t readily get elsewhere. The goal is to be seen as someone your clients can go to for information.
In addition to the contributions of these four functions to your customer life-cycle plan, your product or service must continue to add value. As soon as a customer ceases to see value or benefit, it is not much longer before they leave.
Remember, churn reduction is an enterprise-wide endeavor—it will take your entire fishing crew to keep them reeled in. In my next blog, we will explore balancing acquisition and retention activities.