Fun fact: Every day I have an internal conversation about the acceptable number of carbs I can consume and still claim to be “eating keto.” (It varies depending on stress level.) I’m sure everyone has their own “acceptable” debates … what is the acceptable miles per hour over the speed limit before the police officer will call it speeding? What is the acceptable number of ‘likes’ on my Tweet to consider it viral? What is the acceptable time limit on that leftover pizza? You get the drift.
In a recent CMSWire article, this idea of what is acceptable is extended to the exasperating topic of customer churn. In Enterprise SaaS Churn Rates: What's Acceptable?, the question isn’t IF there will be churn, but rather how much and what amount can be deemed expected or tolerable.
As more enterprise software companies move away from traditional perpetual licenses and toward a software as a service (SaaS) business model, the topic of customer churn gets more attention. A SaaS model opens many new doors to product agility and revenue growth, but it also brings with it more fluid customer relationships that make churn—and with it, revenue leakage—a more clear and present threat.
In the CMSWire article, the author defines SaaS churn rate as “the percentage rate at which a SaaS consumer cancels their monthly subscription. In a forecasting context, the SaaS churn rate can determine the probability at which your customers will cancel their subscription.”
Though some churn may seem inevitable in the SaaS economy, I think we need to take a step back. Before we ask ourselves what is “acceptable churn,” it’s important to consider why churn is happening in the first place. What underlying issues such as insufficient data or broken processes might be contributing to commercial account turnover? If we can take a closer look at reasons behind customer churn and take appropriate steps to correct it at the source, we have a better shot at making the “acceptable” outright “avoidable.”
Are you hard to do business with?
We hear from a lot of enterprise software vendors that their customers have a growing sense of them being “hard to do business with.” Why is that? Most signs point to the growing complexity in commercial relationships—competing or non-standard terms, highly negotiated contracts or entirely missing information that leaves sales and finance teams tragically misinformed. And that doesn’t sit well with customers.
We spoke to one enterprise software company recently about this and they shared stories of renewal conversations where the customer had a very different definition of “bill by customer” and that led to some obvious frustration on both sides.
I’ve never met a person who liked surprises in their contractual agreements, so it makes sense that these type of interactions can lead to a greater risk for churn.
Of course, we can’t forget the fast and furious rate of M&A within the software industry. M&A activities alone can wreak havoc on customer relationships, with overlapping account information leading to sales reps stepping on the toes of other sales reps or worse yet, their customers.
Avoid churn with right information at the right time
To keep customers happy and maintain strong (and profitable) relationships, it’s critical for sales and finance team members to:
Know exactly what the customer has purchased
Have access to the exact SLAs that have been agreed to
Ensure customers are actually using the products they own
Make sure customers are not overbilled or under-billed
Understand product renewal tails, so they know the best timing to approach a customer about renewals or cross-sell/upsell and what terms or products to offer
At Pramata, we’re helping software enterprises overcome these commercial relationship challenges by delivering precise, up-to-date customer information to sales, billing and finance teams when they need it, to significantly reduce the risk of churn and eliminate the millions in revenue leakage it can cause. Because why would anyone accept losing a few million next quarter when you could take immediate steps to avoid it?