Why SaaS Customers Churn

I spoke with a scale-up SaaS sales leader this week, and they mentioned that they had lost a key client who decided not to renew.

A lively conversation ensued, and I made a couple of points that are worth repeating here.

Unlike traditional on-premise enterprise software sales, where the payment was received after the software was shipped, regardless of the end user's usage, a SaaS sale is an ongoing process, and there is no won-and-done.

SaaS sales must be renewed, and every quarter, we (salespeople) and customer success must meet with customers to ensure we continue to deliver customer value through using our products/services.

I asked a question which drew a long pause from the sales leader. "What is your customer's North Star metric that you monitor to measure adoption, product usage and value creation?" This was a flashing red light to me and I made them aware why.

Knowing your North Star Metric

Knowing your North Star metric is critical for SaaS companies and is not necessarily obvious. You have to talk to your customers to learn what they value most about using your products and how they measure it, and it may not be what you think it is.

Here's Matt Lerner 's checklist from his terrific new (little) book, #GrowthLevers on stress testing your North Star Metric.

1. Aligned Incentives: Does it increment when you deliver value to your customer? And if you are successful in moving it, will your company earn money and grow?
2. Full Funnel: Does it represent the results of optimising your entire customer journey from first contact through retention / churn? Or are parts of your operations left out?
3. Absolute Number: Can it keep increasing forever? Avoid ratios and percentages as a North Star.
4. Simple and Memorable: Will everybody in the company be able to understand and remember it and use it to guide their work?

Customer Success is running QBR's single-threaded with the end-user

I asked the sales leader another question that also drew a pause: " Do your salespeople attend QBRs along with customer success?" Their answer was one I have heard repeated many times: "Our salespeople are occasionally in touch with the customer, but typically, customer success is involved and meets quarterly with the key user." This was another flashing red light.

• During quarterly meetings, SaaS salespeople should ensure that key stakeholders are present and that the North Star metric is understood, agreed upon, and absent stakeholders are made aware of the value created.
• Additionally, salespeople should scan for new faces in the leadership team responsible for deciding on your software/service, look for potential threats, and appraise newly hired executives on the value you continue to deliver and the metrics that prove it.
• Annual face-to-face meetings are a must in the SaaS business in the era of remote selling. I don't care how great you are on Zoom, Web meetings can never replace in-person meetings and lunch or dinner with key customer stakeholders.

Growth Levers and How to Find Them, a book by Matt Lerner, is recommended reading for founders, sales and marketing leaders. It offers insights on how to scale a SaaS business and grow profitably through finding your growth levers: "Where you'll see that 90% of their growth came from 10% of the stuff they tried"