Consider This: The Churnstile of Death

The Problem

Churn is the silent killer. It measures the rate at which customers are passing through that metaphorical turnstile, leaving your services either voluntarily or involuntarily (such as for payment issues.) Either way, that’s your life blood seeping out and you’ll need a transfusion of new customers to replace it. That can make churn an existential problem that it pays to understand and solve.

About Churn

Churn rate is generally measured per month. If you have a 3% churn rate, 3% of your customers are failing to renew each month. The companion concept to churn rate is Retention rate which is usually expressed as an annual rate. While churn measures customers leaving you, retention measures how many stay or come back over the course of a year. These metrics help you to understand customer behavior. For example, if you see high churn and high retention it may indicate that customers want or need your services for only periods of time. Consequently, they cancel when they don’t want you and return later when they again do. They churn, but they are retained. That tells you something important about how your product is used, and perhaps leads you to find ways to make it more consistently relevant.

Types

It’s important to note that the bleeding comes in two types: Voluntary and Involuntary. Voluntary churners are customers who choose to discontinue their service even though they may come back in the future. Involuntary churners are customers that want to continue doing business with you but something in their renewal process prevented it- the most common reason being a failed credit card transaction due to expiration, over limit, or credit card hold. Involuntary churn alone often accounts for about a 1% churn.

In addition to causes like periodic product need and involuntary churn, churn happens for many other reasons such as: product inconsistency or quality issues, new competitive offerings, customer job or workflow changes, budget constraints, familiarity-weakened delight with your product, and others. But the most common reason for churn is price increase. In fact, one survey indicated that price increases triggered 71% of voluntary churn.

Good Churn Rates

All of which begs the question: Just what is a good churn rate? Predictably, the answer is: It depends.

For perspective, streaming services exhibit a wide range of churn rates. Netflix has the lowest churn rate among these services- a relatively healthy 3%, while Stars has the highest at a nearly suicidal 12%.

Cross-industry churn rates

Churn rates vary by product category.

Source Data: Recurly Research

I won’t explore the reasons for each variance here, but let’s take a closer look at the lowest churn category- Software.

Software/ SaaS

While overall software suffers a relatively low average churn rate, the rate differs between B2B software at 4.5% and its B2C counterpart at 5.7%. Part of that difference is due to the fickle nature of consumers, but about 40% of the differential is due consumer’s higher involuntary churn.

Of course, not all software is created equal as shown by the distribution of churn rates across the spectrum of software products. In the quartile of products that have the lowest churn rates the average is about 3% for both B2B and B2C, which means the best of the best have churn rates even lower than that. Meanwhile, products in the highest churning quartile suffer rates of 7.2% for B2B products and 9.7% for B2C. That’s a lot of bleeding.

To be competitive it’s best to use the lowest churn quartile numbers as your benchmark because that’s where your toughest competitors are living. Better still, research the churn rates of your specific category, or best of all, find out what your competitor’s churn rates actually are.

The Solution

There are many potential solutions to address churn rates that are too high. To combat involuntary churn you must assure that renewal transactions can process, that they do process, and that you communicate promptly and recurrently with customers when they don’t.

To combat voluntary churn you must first discover why customers are churning. Exit surveys can help to collect this information, but interviews with customers who have cancelled will give you a much better understanding of the motivations.

Some of the approaches to circumvent churn (dependent upon reason) include:

• Allow customers to pause their subscription to accommodate seasonal/ periodic use, temporary budget constraints, or other issues. Better to pause than to have them leave for a competitor.

• Provide downscale subscription options to accommodate customers who discover that they don’t need as robust a product as they are paying for.

• Encourage customer loyalty by offering rewards for continued use.

• Reexplore how customers use the product currently so you may adapt product features and design to accommodate evolving needs.

• Create a dashboard to monitor customer usage including metrics such as use frequency, features used, how much time is spent using, paths taken, abandon points, and direct user feedback. Use this data to create a dashboard that classifies customers into groups by churn rate so you may monitor and take action on customers when their metrics dip to levels that signal risk of churn.

Conclusion

In a world where the magic words are “recurring revenue”, churn can kill your business. Better to kill this monster while it’s small.

Sources: Zippia.com, Recurly Research, Secondmeasure.com

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Consider This: The Nearness of Customer Insight

The Problem

Customer research is needed to discover new needs or to gather impressions of existing products. But the process can be daunting- designing the study, gathering the resources, then spending the time required to pull it off - my God the time! All these perceived necessities tend to hold us back. Besides, we’ve been in this business for a long time. Don’t we understand these customers well enough already!

The Solution

Of course, the central point of customer research is to disabuse us of our assumptions and to learn what is new. Fortunately, gaining new understanding need not be expensive or laborious. Valuable insights await just a few simple interviews away. How few? Read on… 

Putting it into Action

How Few?

The evidence shows that just 6-12 qualitative interviews can provide actionable customer insights.  

This range has been confirmed by a number of studies including: A simple method to assess and report thematic saturation in qualitative research, PLos One 2020, in which researchers concluded that: “…typically 6–7 interviews will capture the majority of themes in a homogenous sample (6 interviews to reach 80% saturation). Our analyses also show that at the higher end of the range for this option (95th%ile) 11–12 interviews might be needed…”

This means that with as few as 6 interviews you can learn 80% of what you’d learn had you interviewed everyone in your market, and 11 or so will reveal virtually everything. Note, however, that these interviews must be of comparable types of people, not disparate groups. In other words, you must conduct 6 interviews for each of your personas.

Personifying Needs

A quick word about personas. These profiles are used to define different categories of customers or stakeholders. As the personification of such a category, the persona defines the typical attributes, attitudes, responsibilities, activities, needs, goals, and other factors of a type of person relative to your product space. Everyone with similar attributes is represented by one persona because that group all have very similar problems and so similar kinds of solutions and communications will resonate with all.

Interviews can help you to efficiently build and evolve a core set of personas that capture the differing characteristics and needs of each stakeholder. For example, you might identify three distinct personas: The End User, The Supervisor, and The Buyer. Periodic interviews with representatives of each offer a ready way to detail their evolving needs. (For this it’s valuable to employ the Jobs-to-be-Done construct.)

But in the process of conducting a few interviews you might also just uncover some new personas you had not anticipated. For example, by conducting some in depth interviews with Users, you discover that there are actually three distinct subtypes of users, each with distinctive problems and use cases. To clarify understanding of these three new personas you’ll want to conduct another 6 interviews for each.

Of course, interviews are not the only way to collect such insight, but they are often the most practical- as long as you apply some best practices to interviewing:

The Artful Interview

Artful interviewing is a skill that every product manager and marketer should possess and should be a frequent practice of those on your team. Emphasis on “artful”- a few tips:

Don’t Lead the Witness

The frequently seen objection during testimony on Law and Order and other shows/movies is the assertion that the opponent is “leading the witness”. In interviews this is incredibly easy to do. The selection of questions asked, the manner asked, and even subtle body language can lead the interview subject to tell the interviewer what they want to hear rather than the unvarnished truth.

Avoid leading the witness by asking only open-ended questions. No multiple-choice options nor right/wrong answers. Even better, rather than asking questions per se, ask the interview subject to tell stories about their experiences with the problems or products you are exploring. When people tell a story they recall and convey all the context that surrounds what they experienced. That context is vital to you understanding, and often reveals insights that your interview subject wasn’t aware of. 

Peel the Onion

Use the “five-whys”, (or at least three of them) to peel the onion of an expressed want or problem so you get down to the underlying need that elicited that want. Understanding the “why” fuels your ability to solve customer problems at their root in highly differentiating ways. This level of discovery is one of interviewing’s superpowers.

It’s also important to put what you hear into context. As you peel the onion ask the question: “compared to what?”. This question prompts your subject to consider and explain the relative value of needs or solutions, revealing the benchmarks against which your solution will ultimately be compared.

Follow Tangents

The artful interviewer must be prepared to let the subject branch off into tangents. Most interviewers will want to reign in the discussion when topics seem to stray, but this is a mistake. Apparent tangents often lead to associated issues that the interviewer had never considered. They are exactly the kinds of things that one hopes to learn during an interview, that is: learning what you didn’t know that you didn’t know.

Prepare a Discussion Guide, Not a Questionnaire

A quick search will reveal endless lists of typical interview questions that can help you to compose a discussion guide for your interviews. I always prepare a guide with many questions prior to conducting an interview. However, once the interview starts, I rarely refer to the question list. The job of the interview is not to conduct a survey in person. It is to listen and probe in the direction that the subject wants to take you. When an interview reveals things you hadn’t thought to ask about, you’ve succeeded. But you won’t get there if you methodically execute your discussion guide.

Conclusion

When a tranche of interviews is over, use affinity mapping or other approaches to coalesce interview learnings into themes by persona, then into actionable insights that can drive product and marketing initiatives. Insights that start from interviews can also be the driver and justification for investment in more formal, quantitative research to enumerate the particulars. They help you to understand what you need to learn more about.

Customers are a moving target because their needs continuously evolve, their standards rise, and the solutions offered by competitors continuously reset the bar. It’s a lot to keep up with. Interviews are a low cost, practical, and very insightful way to stay abreast. Because you can learn so much from so little, your team ought to make customer interviewing a regular (weekly) practice.

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Consider This: Four Tools to Align the Interdisciplinary Product Team

The Problem

Product Management, Engineering, and Marketing are the center points of the interdisciplinary product team. Product Management establishes the vision for exactly what we should make, Engineering/Development designs and builds it, and Marketing figures out how to get customers to buy it.

But maintaining alignment of these disciplines throughout a new product or enhancement initiative is difficult. Afterall, they each live in different departments with different leaders, and each also has its own perspective about customers that also impacts alignment. Product tends to focus on the user, Engineering on technical gatekeepers, and Marketing on buyers. It’s like the old adage about 3 blind men all describing an elephant differently based upon what part of the animal they touched. We say “interdisciplinary”, but we effectively work in silos.

The Solution

Leverage four tools to keep interdisciplinary efforts aligned on delivering a valuable end-to-end customer experience: Product Trios, shared Granular Personas, Value-centric Journey Maps, and the Vision Press Release.

Putting it into Action

Use Product Trios to Assure Interdisciplinary Insight and Decision Making

An increasing number of organizations are formalizing Product Trios as a product management structure to ensure interdisciplinary participation and decision-making throughout product initiatives. The trio consists of the Product Manager, the initiative’s Lead Engineer, and the Product Marketing Lead for the initiative. These three are assigned at the start of the initiative and work as a team throughout the process. Each are privy to all project information from the get-go and must participate/ concur in decisions made. Obviously, each maintains their focus within discipline, but the structure assures that everyone understands the premises and assumptions on which decisions are made and will naturally contribute their own insights and perspectives. The result is increased agility and proactivity.

Establish a Single Set of Granular Personas Used by All

Two things limit the value of personas as typically implemented. First, personas too often lack depth and clarity. They provide only general details about the types of people to be served such as broad demographics and a coarse view of goals. Approaches such as the Jobs-to-be-Done model can be used to peel the persona onion further to include details about the various functional, social, and emotional jobs that personas are trying to accomplish, the pains they face, and the outcomes they hope to achieve. These and other significant factors can be measured and scaled for clarity to transform the superficial persona into one that elicits key insights. I’ll address the Granular Persona further in a subsequent article.

The second thing that typically limits the value of personas is that a single, common and complete set of personas are not utilized by all. For example, Product Managers tend to create and focus on User personas, spending little time on the Buyer, while Marketing focuses on Buyers and only cares about the messaging slant they might employ for Users. Even worse, each group may create their own versions of each persona yielding different personas to represent the very same people. One discipline uses their version while the next discipline uses something rather different. Obviously, these disciplines are destined to get out of sync as each aim at differently defined targets. Again, think about that elephant analogy. A single, shared set of granular personas promotes clarity and alignment.

Develop Value-centric Journey Maps of both Current and Future State

As with personas, journey maps are a commonly used tool, or rather, a commonly misused tool. Again, there are two common difficulties that arise. First, journey maps must be made to represent the high value parts of each person’s journey, not just some generalized view of things. Obviously, user and buyer journeys differ completely, even when the user is the buyer. But so do the journeys of various types of users and various types of buyers. And it’s not just the journey we want to understand in any case- it’s the value-generating parts that count. We must demarcate the turning points of differing personas to highlight the valuable problems and opportunities that each of their particular paths take. There are structural issues with most journey maps too, but that is a discussion for another article.

The second issue with journey maps is the importance of constructing both current and future state versions. The current state journey map shows what happens now and highlights the opportunities to make an impact. The future state version shows how that opportunity will be acted upon. In fact, future state journey maps are a far more effective tool for describing the product path than are roadmaps. Roadmaps explain how the product will change. Future state journey maps tell what customer outcomes will be produced by product changes. Value-centric Journey Maps that describe both current and future states accomplish what maps are meant to do- tell us where we are and where we are going. Again, the result is clarity and alignment.

Start Initiatives with a Vision Press Release

In a prior article I described the Vision Press Release as a key tool to crystalize objectives and align the entire organization around the product initiative. This technique comes from Amazon’s “Working Backwards” approach to new products. In practice it is incredibly clarifying for all and establishes tangible, and almost visceral outcomes to aim for. For details about the structure of (what I call) the Vision Press Release, see my prior article here.

Conclusion

Clarity, alignment, and agility are necessary for product success. Fortunately, leaders can install a few core structures and tools that get the disciplines out of their silos and naturally create that clarity, alignment and, in turn, agility.

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Consider This: A Technique to Start Initiatives at the End

“If you don’t know where you’re going, any road will take you there.”

The Problem

Whether a new product initiative, cost management program, performance improvement project, or other plans, if your team does not start with a visceral vision of target customer and business impacts, they will wander toward blurry targets and produce equally blurry results.

The Solution

Adapting a technique from Amazon: “Working Backwards”, can sharpen the team’s focus for their new initiative by spelling out in tangible, real-world detail just what impact the initiative will have. It works by requiring the team to write an explicit and detailed future press release announcing the results of the initiative BEFORE they start any work. Yes, a Press Release.

Putting it Into Action

Let’s take the example of a new product initiative. Before requirements are written, before design begins, even before all the research is complete, the team writes the press release that will announce to the world the introduction of the product they have in mind. This press release declares in no uncertain terms how current solutions fail, how the new product is delighting customers well beyond their expectations, and the important impact it is having on customer outcomes, partners, and on the company’s own performance.

This future press release follows a format typical of PRs:

• Heading — A single sentence announcing the product and its core value proposition.

• Dateline – The specific date on which the release will go out.

• Sub-Heading — Describe who the market for the product is and what most makes the solution interesting to that market. (Also a single sentence.)

• Summary — A one paragraph summary of the product and its benefit. Assume the reader will not read anything else, so this must be concise and impactful.

• Problem — Describe the problem the product solves, written in the customer’s language (not using internal lingo.)

• Solution Details — Describe how the product elegantly and uniquely solves the problem. Detail the benefits to customers, key aspects of how the product functions, its exciting new tech, and its differentiation from other solutions. As appropriate, highlight how it embraces and leverages the company’s partners, establishes new benchmarks in the industry, and achieves specific company goals.

• Quote from Your Company — Create a quote from an actual senior executive in your company. (Here the team imagines in detail what the enthusiastic executive will say about the product, excitement for it, how it fulfills the company’s strategy, fits with its other offerings, changes the landscape of the market, and other factors.)

• Luminary or Partner Quote – Create a quote from a channel partner or supplier organization addressing the importance of the product in meeting their goals, or from an industry thought leader explaining how the product addresses key trends or otherwise impacts the market sector.

• Customer Quote — Create a quote from an actual target customer that describes the powerful benefit the product is providing to them and their excitement with it, offering a powerful testimonial.

• How to Get Started — Describe the specific, easy next steps that potential customers should take to take advantage of the product.

• Key Take-away and Call to Action — In a summary sentence- what’s the key takeaway that readers should remember, and what should they do next.

The range of information addressed in this future press release forces the team to think beyond the cool tech or processes they plan to create, thinking through the initiative’s impact along many dimensions and carefully considering how those impacts should be expressed for effective communication. It requires the team to be clear about the customer and company results to be achieved, and thus establishes important targets for these- what must we be able to say about the initiative and what must others want to say about it if it is to be a success? The PR serves as a target that the team can use to focus its development efforts, always aiming to develop the thing that will fulfill the press release promise.

Of course, the specific format of the PR will vary dependent upon the type of initiative being pursued and there is plenty of room to adjust its elements to best suit your business. The full “working backwards” approach includes other elements as well, but the PR is the key tool that achieves the crucial focusing effect.

Conclusion

When your team clarifies and embraces the future press release’s vision of target customer and business impacts it becomes a benchmark and rallying point that all can share- knowing exactly where they are going.

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