Losing customers almost always sucks. But before you respond, ask yourself: what type of churn is it?
Recently, I posted about healthy churn and people were curious about the different types of churn are.
I like to divide churn into three categories:
Healthy (The good): brings focus to the organisation
Preventable (The bad): should’ve been prevented
Inevitable (The ugly): unavoidable but still hurts
Healthy and preventable churn are both systematic and within your span of control. Inevitable churn is caused by externalities and mostly beyond your control.
Healthy churn examples:
Some customers will lead your product team astray and you might let it because you need the cash. Unless it’s the early days, custom work is almost never worth it. You might want to let them go.
Not all accounts will generate a profit. Some will become more expensive to manage than the income they generate. Find a way to charge them extra or set them free.
As your product matures and you start charging more and more, you’ll inevitably part ways with the lowest paying customers. Recognise that’s part of a healthy company lifecycle and embrace it.
Preventable churn examples:
When your solution doesn’t solve the customer’s problem. Your sales people might be incentivised to close any deal they get their hands on. However, in the long run it’s more profitable to focus solely on clients you can actually help.
Customers or would-be-customers that walk away because of issues in your payment flow.
Customers that churn without ever using your product. It’s your responsibility to activate each new user.
When the champion at your client left the company and you didn’t find a new one.
Inevitable churn examples:
When the economy is bad, most software vendors can’t escape it. Don’t try to keep every single customer. Accept that you cannot win them all and focus your energy on the ones your sales agents believe most at risk and which they can save.
When your customer simply no longer needs you. You should keep innovating to expand your customer lifetime, but sometimes your customers simply outgrow your needs. Instead of mourning the loss, consider celebrating you got your customer to the next phase.
Embrace healthy churn, focus on preventable churn, cope with inevitable churn.
Tjitte Joosten is the Founder of RevFixr, the one-stop shop for better monetisation of your customer base. RevFixr turns pricing into your biggest growth lever. Prior to founding RevFixr, Tjitte was responsible for the commercial strategy and operations at tech companies like Docfield and Experfy.
