Guest Post by Cory von Wallenstein
This is a guest blog by one of our advisors, Cory von Wallenstein of Dyn, Inc. This post originally appeared on his blog.
Stop Churn. Grow Faster.
For the better part of 2010, my number one goal at @DynInc was to get a handle on our growth… or lack thereof on our eCommerce platform. While our Enterprise offering Dynect was growing by leaps and bounds, our self-service offering at DynDNS.com was starting to stagnate. We went from having exciting mid-double-digit net growth on DynDNS.com into yawn-inducing single-digit net growth. What was going on?
Digging under the hood, we were victims of attrition. We were actually seeing healthy customer acquisition, but horrendous retention. And for the most part, we were to blame. It wasn’t that the products or services weren’t good (People LOVE @DynInc – Just check out #DNSISSEXY ), but it was more how difficult we were making it for users to actually stay with us! Service renewal was a hassle and fell victim to all sorts of pitfalls, many of which I outlined in a talk in December 2010 at the Massachusetts Technology Leadership Council on Managing SaaS Revenues.
Retention on DynDNS.com
The first step was recognition that many users were having services “expire”, only to come back and create services that were “new”, artificially affecting our attrition rates vs new customer acquisition rates. We were simply not doing a good job at enabling our users to renew. Keep in mind: This is a fundamentally different problem from “customers are not renewing because the product itself truly sucks.” If your SaaS product fundamentally sucks, STOP READING AND GO FIX IT. If your SaaS offering fundamentally kicks ass, and you’re looking to grow faster, keep reading.
Quick summary of our tactics that enabled us to shift from around 60% annual retention to around 80% annual retention, covered in the slides below:
- Align our schedule with the schedule of our users. Specifically:
- Users were far more likely to take action on renewing a service if their reminder email notifications (sent 60, 30, 14, 7, 3, and 1 days in advance of expiration) were delivered on a “workweek” day (Monday, Tuesday, Wednesday or Thursday) versus a “weekend” day (Friday, Saturday or Sunday).
- Correlated to email deliveries of notifications, the “final reminder” emails delivered the day before the expiration of an annual service had very different success rates for the “workweek” days vs the “weekend” days. Accordingly, we stopped deleting services on the weekend, and we pushed all service expirations that would fall on a “weekend” day to the following Tuesday (thereby allowing the final “day before” reminder email to be sent on a Monday when you were likely to see it!).
- Make it easy to renew. Specifically:
- Made it easier for users to turn on automated renewals on the initial purchase, so no manual action is required next year for renewal.
- Created highly visible renewal calls to action within the applications themselves. You may have missed the “renewal” email, so the application serves as a reminder as well.
- Prevent stupid problems from getting in the way. Specifically:
- Created highly visible “update your credit card that’s going to expire soon” calls to action in the applications, as well as separate reminder emails for updating credit cards that were going to expire soon. This significantly increased the success of automatic renewals.
The net result was absolutely worthwhile: by combating attrition, we were back into exciting double-digit net growth. Seems too good to be true? A quick hypothetical showcases this impact of combatting churn and attrition well.
Put Your Hypothetical Hats On!
Let’s say you have 1000 current customers. If no one leaves your SaaS application, and no one new joins, here’s your userbase. We’ll call this the baseline.
Let’s say you can add 40 new customers every month. At the end of the year, you have 44% net growth. Not too shabby!
Of course, this implies no one ever leaves, which of course we know isn’t true. On a userbase of 1000 users, it’s not unreasonable to find 30 members of the userbase (just 3% of the initial baseline) leaving each month for a variety of reasons…
Maybe they left for reasons outside of your control, such as “going out of business.” More likely, they left for reasons WITHIN your control, such as:
- Finding it too difficult to renew, so they give up and move on.
- Not seeing the value in the service, and canceling
- Finding a better service at a competitor
- Having a poor relationship with your brand (Ever have a bad customer support experience, and decide to take your business elsewhere?)
- Frustrated with speed, availability or reliability of your service.
Putting the whole picture together, our net growth for the year is not 44%, but a paltry 11%! After all, it’s the net growth that you will be judged on. Your bottom line doesn’t care that you can acquire new customers at annual growth rate of 44%… it’s governed by the fact that you’re really only adding 11% net each year.
How can we get back to more exciting growth? How can we grow at say, around 30% a year instead of around 10%? Let’s look at two paths:
The Customer Acquisition Path
What if we can increase the number of new customers we acquire by 50%. We’ll spend more on marketing, we’ll hire more salespeople, we’ll work overtime and hustle and get the word out and drive new signups, and we’ll go from 40 new customers a month to 60. And if we can pull it off, we’ll be nicely growing each year at a 33% clip.
But what’s the cost of this kind of net growth? Sure, our hypothetical SaaS business is pulling in 60 new customers every month that has voted with their wallets on the confidence in our ability to impact THEIR bottom lines, but we’re also spitting out 30 customers every month that are champions of dissatisfaction. They’re not happy. And undoubtedly, some of them are telling their friends they’re not happy. And that only makes it harder (read: more expensive) to acquire those 60 new customers each and every month.
The Customer Retention Path
Let’s step back, and look at this problem a little differently. Rather than try to brute force our growth in the market with new customer acquisition, let’s see what the impact would be if we focused on keeping the customers we already have. Rather than pour our resources into sales, marketing, and business development, let’s pour our resources into the customer experience itself (not just the product, but the experience the customer has using the product, the interaction the customer has with the people behind the product, the ease of use in getting the product to work, etc.).
What would be the impact if we could get that monthly churn down from 30 users to 10? What’s the impact there?
You guessed it. We get to the same spot as if we had increased customer acquisition by 50%. We get to 33% net growth!
This World is Not Binary
Of course, hypothetical thought exercises on “all of our resources focused on customer acquisition” versus “all of our resources focused on customer retention” are just that… hypothetical thought exercises. Success here is found in the form of a balancing act, and the trick to finding the best “balance” is identifying which lowest hanging fruit exist on each path and committing to those: the lowest hanging fruit on customer acquisition and the lowest hanging fruit on customer retention combine to affect your bottom line.
Plenty of folks have spent plenty of time attempting to quantify the impact of “customer retention” versus “customer acquisition”. To quote several commonly cited figures from SCORE:
- It costs 5 times more to attract a new customer than to keep a current one. Are you attributing resources effectively?
- The average un-happy customer tells 8 to 16 people about their experience with you. What do you think they will say?
There is light at the end of this tunnel, however. If you make an effort to remedy a customer’s complaints, 82 to 95 percent of them will stay with you!
So how do we find the lowest hanging fruit for customer retention? Where are customers unhappy? Is the product too hard? Do they get lost during setup? Do they not use the service enough to actual receive value from it?
As described earlier, some of our lowest hanging fruit for DynDNS.com was not “the DNS service” but rather “how easy is it to renew my DNS service”. While the challenges we faced and the steps we took are arguably obvious in hindsight, finding these patterns in an application that has millions of users and many more millions of unique “interactions” with our site were anything but trivial. Hundreds of person-hours went into the investigations and evaluations (a manual, arduous process).
In 2010, the tools in our toolbox to do this evaluation and find the lowest hanging fruit to combat attrition were:
- The unix command line, looking at Apache logs with grep and uniq and wc -l and more.
- Google Analytics, with dozens of custom, configured “events” and “segments”
- Plenty of SQL hammering, and the resultant middleware to make sense of it all in Python and Perl
- A homegrown tool for graphing a moving average of key metrics hacked together using Django and amCharts.com
- LOTS of Excel and PivotTables
In short, this was not easy. It took a lot of research, a lot of conference attending to find best practices, a lot of “let me pick your brain” phone calls, and a lot of MacGuyver-style duct taping of tools together to make sense of all of our data to find the lowest hanging fruit.
Stop Churn. Grow Faster. Introducing Apptegic.
Fast forward a year, and it’s awesome to see that I was not alone in thinking about the impact of retention on the bottom line. Others were out there assembling tools and dashboards that can do most of the heavy lifting for you and give you the insights you need to Stop Churn and Grow Faster. The one I’m most excited about captured my interest so heavily that I joined their Board of Advisors earlier this year to help guide their path forward. They are Apptegic, and they rock.
It’s exactly the type of tool I wish we had in 2010 before we set out to brute force our own insights. It’s ridiculously simple to get up and running, and ridiculously powerful for understanding where you should focus your attention to combat attrition.
The Input: What You Send to Apptegic
Whenever an interesting event happens in your product or workflow, make a quick HTTPS call to Apptegic with simple key-value pairs of relevant data.
Stuff like “step=renewal-start” or “step=enter-credit-card” to tag the event, or maybe “app-revision=2.0.3″ or “order-total=$73.33″ to describe the details of the events. It doesn’t matter if you run a web application, or a downloadable piece of desktop software, or a mobile application, or your user workflow spans a series of mediums (click a link in an email and go to a site and complete a purchase and download an app and install it). A lot happens behind the scenes in real-time on the implicit data as well, such as determining the user’s location in the world using GeoIP, and you have full control over what data is relevant to your workflow.
The Output: What You Get From Apptegic
Two-fold: The first (and most impactful) being the dashboards that give you the insights you need to combat attrition; the second is an incredibly powerful set of pivot tables to dive into your data and gain insight into how customers were using your products and services and the relationships between their usage and your bottom line.
Note: These are interface mockups. You’ll want to reach out to the team below to get a real demo of the beta.
Apptegic Dashboard – Focus your retention efforts
Should you focus on the vocal minority (your premium customers that command your attention) or the silent majority (your high-volume customer base that rarely gets in touch)? Apptegic shows you customers (and revenue) at risk of churn so you can focus your retention efforts on the bottom line.
Apptegic Dashboard – Ensure customer success
Are your customers actually making use of your product or service? Use Apptegic to identify the heavy-user evangelists, the satisfied mainstream, and the lost folks that simply are not receiving value.
Apptegic Dashboard – Fix your workflows
Are customers getting stuck in setup or installation? Who aborts what workflows in your products and services, and where do they get lost? Use Apptegic to visualize where conversion is failing, and pivot against any number of segments to identify who is having trouble.
Dive In With Pivot Tables
See an interesting pattern on the dashboard you want to dive into? Answer questions like:
- Do users in Europe achieve the same successes in our workflows as users in the United States?
- What’s the correlation between “happy, long-term customer” and various usage patterns within the application?
Quickly jump from the dashboard view into a pivot table that let’s you slice and dice in realtime to gain further, more deeply evidenced insight.