Fixing churn problems and increasing retention can have a compound effect on your business’s revenue, and it’s one of the most critical growth levers for your company. Andrew Michael, CEO of Avrio and host of the Churn FM podcast, shares his insights on how focusing on churn since the early stage can drive growth. He also touches upon topics such as Upselling and Customer Success.
Andrew Michael is an entrepreneur with more than ten years of experience in digital growth companies. He previously worked for Hotjar, where he joined as the 28th employee.
In the context of churn, what are the challenges that you see in the scaling process?
One of the biggest challenges is not focusing early enough on churn. At the early stage, churn is overlooked because of the growth rates that you have. Companies tend to forget about the leaky buckets and don't realize that you don't have an endless supply of customers.
Another mistake is to set a specific team to tackle churn. The only way to reduce churn rates and increase retention is to align the different departments and educate your team on its importance. You need to show people in each department how their work has an impact on churn. Having different teams moving in different directions can cause chaos throughout the company. Often, Customer Success is the one in charge of reducing churn. That's a big mistake because they're probably the ones that have the least impact on the metric at the end of the day.
Is there any ARR threshold that you usually see churn becoming a particular challenge?
I don't think there's a way to define that. It's unique to every business, and it varies depending on the product, the market you're serving, the stage of your growth, your pricing model, etc. This is also one of the reasons why I like my podcast: I never talk about benchmarks because these metrics vary drastically between businesses, especially with churn.
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What are other common mistakes that companies make regarding driving retention and upselling?
One mistake I see startups make is to neglect retention and upselling early on. In most companies, pricing and packaging become more important when you hit a growth ceiling. It is essential to take a deep dive to understand how to price and package your product to unlock growth opportunities.
Regarding pricing, doing research is essential to understand 1) what is the primary value metric, 2) what is the main value driver that users are extracting, 3) how can we align our pricing and packaging with the value that our product delivers, 4) How can we show that the value that your business delivers scales up.
Especially in early-stage startups, pricing is an afterthought. Some startups just look at a few other companies, determine comparable prices, and move on. You are leaving so much money on the table by doing this. Lastly, if you don’t have around 20% of customers complaining about the price of your product, you need to rethink it because it may be too cheap.
Looking at the organizational aspect in preventing churn and driving upsell: what can Marketing, Sales, Customer Success, Product, and potentially a few other departments do to generate a great result?
Look at the User Journey and the touchpoints that each team has on it. You will see the impact of each team on the overall metrics.
In the beginning, Marketing should focus on positioning. Positioning is one of the most important skills that any startup can have because it helps users understand the value of your product quickly. You need to have a strong alignment with what the product delivers: If you oversold expectations and people are disappointed, that's a cause for churn. Get the first message they see right to set the right expectations and values based on those expectations.
Regarding Sales, it's vital to have reasonable goals and targets for sales teams. Some of the best companies work on sales incentives. They have a close incentive, but then also tie that back to expansion or tie that back to a certain number of months that the customers are with the company. In this way, sales teams align to long-term success.
Customer Success it’s different depending on the type of model you introduced. If you're dealing with predominant SMBs, it will be a low-touch model, and there will be a lot of automation. If it's more focused on the enterprise side and closing bigger deals, you're going to have a lot more hand-holding. It’s crucial to understand your key accounts, what is driving usage, and what is driving the continued expansion of that. It’s almost endless what they can do in terms of expansion working with customers.
Support is often a missed opportunity. Companies fight so hard to get their customer's attention through marketing and emails. When customers reach out, that's a perfect opportunity to work with them, solve their problems, and point them to a new feature they´ve missed. Support-driven growth can help increase the engagement of your accounts.
How do these departments can collaborate better rather than distract each other?
I think a useful technique is working with OKRs throughout the whole company at different levels. They give a good framework in which everybody understands its main direction, the main goals, and the main metrics. Churn and retention are output metrics and are influenced by different inputs. You can quite easily model out all the various inputs that the different departments have. Give teams a single metric that they can move, in which they have influence changing it to increase your main KPIs.
Going back to Customer Success, how can CS teams mitigate churn?
It depends on who you're serving, who your customers are, and your average contract value. In Hotjar style businesses, there is a lot of crossover with Marketing. It's about automating as much as possible. When you have such an extensive customer base paying you a relatively small amount of money, you can´t provide a handheld experience. It will cost you a lot of money to service those clients one-to-one.
Sometimes you need to educate your customer on the best practices to get the maximum value out. Try to think about your product, your use cases, and what you need to make your customer successful.
Can you share some of your insights regarding the Customer Success tool stack for low-touch businesses?
In terms of data stack, in the beginning, it should be minimal. As you scale, you can grow in sophistication. There are so many tools on the market for customer success that can help you provide a great experience all around the board.
In Hotjar, we relied heavily on qualitative feedback and research in the early days. I think that for early-stage companies, data can give you a lot of noise. Sometimes, it's better to speak to ten customers and derive insights from a limited dataset. As we started to scale, we managed to get together like a sophisticated data stack, and we started then implementing different processes.
Another crucial thing it’s to implement a basic lead scoring model. If you do onboarding calls, you should make sure that they count and spend time with the companies with more chance of success.
Our first version of a lead scoring model consisted of pulling an export from Intercom and doing some enrichment through Clearbit. Then, we modeled what the retention curves look like for all of the user bases. After that, we looked at customers that had retained for more than 12 months and had a particular usage pattern. From there, we could quickly see that certain variables would help indicate a good fit customer for us and the ideal customer profile. Then, it was easy to flag them to set up an automation to send an email and book an onboarding call as soon as a lead with those specific properties came into Intercom.
If you want to listen to the full interview, click here to listen to the Leaders of Growth podcast.