Episode Transcript
[00:00:00] Speaker A: Foreign.
[00:00:05] Speaker B: Your host for this episode of the subscription Heroes podcast. In this episode, you're going to learn all about the pain of lost customers, what it's costing your business to lose customers not just in lost revenue, but lost growth opportunities and lost enterprise value. Really putting the brakes on everything that is growth in your business. So if you are a retention manager, a chief customer officer, or anyone who's interested in growth, this episode is going to be really interesting for you. We're going to hear from Baird and Nick, the co founders of Turnkey, where they've seen thousands of businesses and millions of customers leave those businesses. They're going to give you some really great practical advice on what you can do in your business to stop the leaking bucket that is your turn and things you can do today to increase your enterprise value and to grow like crazy.
Guys, while you've been running ChurnKey for four years now, you've seen millions of customers leave businesses. So, Nick, could you kind of get us started on what's the real pain of a lost customer and how should businesses be thinking about their lost customers going forward?
[00:01:08] Speaker C: Yeah, losing customers and Churn is so painful for founders, for growth engineers, for anybody in the growth world, as well as customer success, it impacts the whole business. And at various stages, it's very easy to focus on other things like growth. It's fun, exciting, and it can be scary to start thinking about Churn, reading customer feedback. When you look at it from a, through a business lens and you're just totally logical and objective. I mean, most people look at Churn monthly and it's not a really great way to visualize the full gain and impact of Churn. So just to start off here with some numbers, if you look at it, let's say you've got 8% churn. What does that actually mean for your business? Well, if you have 8% monthly churn, that could be that you have to acquire 63% of your customers just to maintain that size. You've got to go back annually at 63%. But the better way to think about it is with 8% monthly churn. Compounding at that rate, you're going to have a complete turnover of all your customers in 12 to 13 months. So you're basically starting from scratch every year. If you have 8% monthly churn.
[00:02:19] Speaker B: Yeah. And that's horrifying.
[00:02:21] Speaker C: Yeah. And Baird and I had been there before. That's why we built Turnkey through our last business. Baird, do you want to talk about that moment maybe where we realized like, yeah, There's a pretty big problem here.
[00:02:33] Speaker A: Yeah, I think it's pretty common for. We were first time founders. It was our First Business subscription SaaS business that served podcasters ironically while we're sitting here on a podcast and other content creators. And we were just obviously obsessive about growth because with your first business that's all you can think about is getting it off the ground and going. And so you just get into this habit of doing nothing but focusing on growth.
And I think it happens to a lot of first time founders that they don't really understand that growth is churn combined with new subscription acquisition. And growth is what's left over when you put those two things together. And we were growing and just high fiving constantly, virtually of course, while we were just hitting all these MRR milestones and then all of a sudden just plateau just. It's almost like the brakes got put on. We're like, what is happening? Why is the business slowing down to a halt? All of a sudden we realized we were running about 14%. I mean we knew we were running churn. It was in our dashboards. We saw it, but we didn't. It doesn't really hit you until you see that that growth plateau happen and then you start digging in like, you know, founders are great problem solvers, so they event you eventually run, dive into it and then it gets horrifying really quickly when you start realizing what's been happening when it comes to, you know, customers leaving each month and what that actually does to the business. So. And we were actually trying to sell the business eventually and knew that any acquirer was going to look at that and just get scared. Rightfully so. So that's kind of how this whole journey started, was us having that big realization and kind of just going to work internally on reducing it.
[00:04:14] Speaker B: Yeah. And I think kind of what both you guys were talking about there, sort of that psychology of starting, it's so real. So my last role at an AI company notorious for high churn, it was dealt with too late and it was kind of allowed to build up until it was this sort of undeniable problem when it was hindering growth. And then once I got in there, basically serving as their retention manager, my pretty much only metric that I was graded on was churn. I remember looking at our stripe metrics and being like, oh my gosh, if we stop getting new customers tomorrow, I can count on one hand how many months this business has to live and that's like, there's no worse place to be. For a SaaS business than right there.
[00:04:53] Speaker A: Yeah. And it's. Yeah. The psychology of it. We talk a lot about how this might seem a little far fetched, but let me try to land the plane on this. Once I put it out there that you can kind of relate churn to like high blood pressure, something that people might know that they have, but there's no acute symptoms. They live with it for a long time until all of a sudden they can feel it, it's causing issues. And then they go to the doctor and try to treat it. And turns out there's a pretty easy solution to that with blood pressure medicine. And. But the psychology of it is, you know, we just would. It's easier to stick your head in the sand and just hope it doesn't become a big problem, but you're really just kicking the can down the road. And something else, while we're talking about like the beginning of thinking about churn for a business constantly, what I hear through all of our sales calls when we're talking to companies that are in this like exact moment, the first question they want to know is, is my churn good or bad? Is it good or bad? Just tell me where. How bad? You know, they want to know how bad is it? And it's a hard question because.
And I think it's where most people should start is like, what should my churn be? And there's no perfect answer. Every, you know, B2C versus B2B is different. The prosumer segment that kind of sits in between that your churn's dictated a lot by pricing, pricing models, your offering, your customer base, seasonality. So there's a, you know, a hundred different factors that go into it. But I think most customers, the best place to start is. Or for most SaaS companies, the best place to start is figuring out, okay, well, what's my. I call it the churn band. So like, where should you know what's kind of the upper realistic churn levels and then the lower. And how do I work myself, you know, through that lowering lower levels of that band to get my churn lower. Because I think it's also important to note when you're talking about churn, it is inevitable to a degree. Like I guess some businesses will have like turnkey has net positive retention. So our accounts are growing, but still like we're. Everybody's gonna lose customers from time to time. So it's not something that you can totally stop. But if you don't pay attention to it, it can get out of Hand really quickly.
[00:07:00] Speaker B: Yeah. So in that theme of it sort of being this thing that you can't stop, but, like, there's never a number that's low enough for Churn, let's sort of switch to what is the real cost of a lost customer? How. How are the different ways that this affects a business? And if you're someone who is, say, retention manager, chief customer officer, head of growth, these kinds of roles where you just want to make the business bigger and have, like, produce that leaky bucket, how should you be thinking and presenting to stakeholders like, guys, this is what Churn is costing us, and this is why we need to go after it.
[00:07:30] Speaker C: You know, going back to the story that Baird was telling about our last business, we can use that as an analogy here, because there's a. There's a cost when you're looking at your growth ceiling, like, what can this business get to? I often wonder when we were running Wave, if we'd tackled Churn sooner, we could have grown that business much higher and had a much better outcome when we sold it. But we actually met with a business broker and we were talking about it, and we knew we were taking an ARR hit. When we looked at our financials and our Churn metrics, the business itself was not growing as fast as it could. So that's one point of pain, but another one is the business valuation. If one day you have aspirations to maybe sell your business, Churn is one of the biggest factors in influencing that growth multiple. And when we met with a business broker and we had like 14% churn, we had a number that we wanted to sell the business for, and he said, there's no way you'll get that value multiple because of your Churn rate. You're basically getting bumped in half. And that's what really. It was one of the many things, painful things that forced us to take this side quest and start building all of our own tools. And, you know, the funny thing is, Churn is so painful, we didn't even want to, like, do it ourselves at first. We were trying to, like, outsource it. So we spent a fortune on a consulting agency, and they were like, taking us through onboarding issues. And onboarding is great. You know, there are all these different. It's kind of like the blood pressure example, the silent killer. That's what blood pressure is referred to, by the way. High blood pressure is a silent killer. Churn is a silent killer for SaaS businesses. But they were just like, you know, back to the blood pressure example. All These, like, you know, you go to the doctor, you've got high blood pressure, they're like, all right, well, you need to go to the gym and run every day and do all these things and eat only this diet. And there are all these, like, external things, you know. And then we were doing a similar thing at Wave, like, where we were focused on onboarding. Let's just get onboarding better. And we weren't addressing the acute need that was causing somebody to Churn at that point of cancellation. When we realized that and started building the tools out to actually understand why people were leaving, understand our Churn bands as Bear talked and where we could get it, well, that was an eye opening experience because we suddenly saw churn go from 14% down to 12% within just a few months by understanding why people were leaving and actually keeping them.
[00:09:47] Speaker B: And what did that 14 to 12% do to your MRR cap and your enterprise value?
[00:09:52] Speaker C: Oh, it was massive. We used Bare metrics at the time as a metrics tool, and they had a really cool simulator where you could look at what is your forecasted growth over time based on your current stats. And I started playing around with that, and I was like, okay, if we lowered Churn by just half a percent, we got from 14 to 13.5. It added like another 20k to our ARR just in the short term. And looking out even further, the results were even massive. And then a 2% drop in churn. It was incredible what that would do.
So instead of going, you know, at that time, I think we were thinking, okay, we're going to have an mrr cap at like 90k to 100k. Does that sound right, Baird?
[00:10:36] Speaker A: That's what we were thinking. Yeah.
[00:10:37] Speaker C: We were like this gross ceilings here, like, what on earth are we going to do? And within the next year, we'd grown to 150k. Like, we blew through that growth ceiling because we did something about Churn. I think we got it down by 3, 4, maybe even 5 percentage points.
[00:10:52] Speaker A: We got it to single digits eventually, maybe even closer to eight some months, which was, yeah, took a lot of work. It was a year and a half of just focusing on it nonstop. And I think that the biggest, you know, we see this a lot with, you know, customer, new customers at Chernkey, where they've neglected Churn for a long time like we did. And then all of a sudden, you know, I always say that Churn is never the most important thing. It's never the first priority for a company until all of a sudden, it's the only priority, it's the only thing that matters. Once they realize it, it becomes a big problem. Everybody realizes it and then leadership sends everybody on a big quest. Like we're going to do nothing this month but focus on Churn, which is great, it's the same thing that we did. But what we really got good at was working on Churn indefinitely and iterating, learning and figuring out how to solve it properly. Because there's no silver bullet when it comes to Churn. There's, there's a lot of things you can do that make impact really quickly. But what we've seen that like great Churn reduction at scale, it's all about these little tiny details and putting all of these small details together, that's how you really put a big dent in it. And I guess to go back to the cost to Churn, one thing that was really surprising to me, I always knew that, oh yeah, you know, it costs more to acquire a customer than it does to retain one. But when you are losing customers, you then have to go find growth models and or growth channels that can not only replace them, but then try to actually create growth which gets very expensive. We were spending, I can't even remember how much we were spending on Google Ads because we were just customer, you know, we're churning out 14% and we would just you know, double down on paid ads and at an inefficient rate just to like keep things where they were. So you wind up not just losing recurring revenue, you also wind up losing more money because you're having to spend it to refill the leaky bucket and it just gets, can get out of control.
[00:12:52] Speaker C: Yeah, that's a great point. Your unit economics become less appealing if you look at your cac. It's like, oh, we're spending more money on customers so our acquisition costs are higher. We have Facebook ads, impression based ads, we have Google Ads spending all this money. And if your retention hasn't improved, then your lifetime value is the same. So your unit economics go down, your enterprise value is not there. And there are also these other hidden costs of every time you onboard a new customer, there tend to be higher support cost, admin cost, things like that. So all these transactional costs add up. So it's just like a cascading pain across the entire organization.
[00:13:34] Speaker B: And you guys might not have this data at hand, but I would be curious to know what it did to your overall profit margin because I was reading an article just last week by the Harvard Business Review that found that a 5% increase in retention, which is roughly a 5% decrease in churn, resulted in somewhere between a 60 and a 100% increase in the profit margin of businesses that increased retention.
[00:13:56] Speaker C: When we sold that business, we had somewhere between 85 and 90% profit margins. Now, some of that is because we were cutting costs extensively as we moved into that time where we knew we were about to open up a data room, start fielding offers, that sort of thing. And this was also during COVID ads were getting very expensive there. So we were able to kind of maintain our ad cost around the same level without continuing to increase it because we had lowered our churn rate and we needed less growth to offset that.
[00:14:24] Speaker B: And since you guys have been running turnkey, I mean literally seeing millions of customers cancel across different businesses. Are there any kind of examples or businesses that stand out in your mind if like these guys really had a problem? And any. And as we're kind of moving the conversation to from pain to what can customers do about this? Anyone that kind of stands out in your mind?
[00:14:43] Speaker C: We got a couple case studies on the website. I think VEED is a great example. Video editing software. They've been with us for a very long time now and they've seen phenomenal results. If you think about a product like VEED, you might have a lot of prosumer type customers that come in, they want to use it for a little while. AI products are similar in a way where you have some people that might be tire kickers or they might have good intentions and want to use a software tool for a period of time. And they're not. They like the product, but they don't need it every single month. But they do want to come back maybe every couple of months. And in those cases, something like a pause offer some kind of discount based on usage can make a profound result. I think there's another thing too that we've realized over time. When we started Wave, we thought that the customers or the businesses rather that we could help the most were the super high volume, super high churn, B2C prosumer types of businesses. But the cool thing we've seen over time is that while we serve a lot of B2B businesses that have low churn like 2 to 3% per month, some of those businesses are saving literally millions of dollars a month through ChurnKey. So even with lower churn, the amount of revenue that we can actually recover even with low churn is extremely significant. So I think that's important to point out that even if you have a low churn, you can get it lower. And the larger you are, the more of an impact that can make.
[00:16:04] Speaker B: Yeah. I remember when I was working as retention officer at this AI company that I mentioned, we hired some consultants, coaches, whatever we could find to help us lower the churn because it was such a pressing issue. And I remember several times they would ask me on intro calls or whatever, like, what turn would you like to be at? And I was like, less than zero. Like there's no. There's no number that's low enough for churning. Like there's no point at which your turn is low enough that you can't improve it more, you know, so it's like, where's the ideal turn? Oh, it's negative. It's like it's.
[00:16:35] Speaker C: Yeah. And even when it's negative, like our turn at turnkey, like we have negative churn, but I want it to be more negative.
[00:16:41] Speaker B: Yeah, yeah, exactly. So let's start moving the conversation towards how can people actually reduce their churn? And I think there's probably no one in the world who's seen more companies do this than you guys. So, Nick, if you'd like to get us started again on what are companies doing, best practices or what can someone start doing in their company today to start getting this dreadful number down? Yeah.
[00:17:02] Speaker C: There are a few things. Two great places to start. Number one, understand why your customers are leaving. So you should be collecting feedback of some kind so that you understand why is it that these customers are parting ways with us. Based on that, you can address that situation at the time of cancellation and really deliver a win win for both you, the business and that end customer by offering them something.
If you know why they're leaving, you can offer them a reason to stay. Could be usage based. Maybe they need a different plan, maybe it's seasonal and they want to pause. So that's number one. If you can understand and collect the reasons for feedback, you'll have a much more intelligent view of your customer base over time. And then tactical things you can actually do about churning rather than just knowing about it. You can do something product like turnkey obviously handles that. The second thing is involuntary churn or accidental turn. So this is when an invoice changes. This is very common. We see it more and more over time due to things like virtual debit cards and more aggressive fraud detection, things like that that throw red flags or false positives. And if you're not doing anything about involuntary churn, that's going to be a massive help Having some kind of dunning campaign retry capabilities.
And that's just, it's kind of like money under couch cushions that it's your money. The customer wants to stay. They don't want to be inconvenienced by being automatically canceled. So your customer's going to be happier because they get their card updated before they're automatically canceled. You're much happier as a business because you're automating this thing and you have a sense of the health of your involuntary return. And then the big thing we see with B2B businesses where this is really impactful is you'll probably have like a customer success person that's like manually trying to reach out. And that hour or two, the two hours that they're spending back and forth trying to track down a failed payment that costs you money as a business. So that's another thing to think about when you're analyzing the pain and cost of Churn.
[00:19:03] Speaker A: Yeah, I think starting, it's a great point to start. You know, why are customers leaving? Collecting data, really understanding that. And then I think the second natural question after that is, when are customers leaving? Are they leaving immediately? Are they hanging around for one to two months? Is it happening after 10 months? We've actually got a free metric Churn metrics product that anybody can download and connect their payment provider to get these charts. And one of the best is just the cohort Churn analysis chart that shows you each month where what's the retention rate? And I was talking to a business this morning actually that if you took out month two on their 12 month cohort analysis, their retention was fantastic. We're talking just, you know, single percentage point drops each month. But from month one to two, they had a 30% churn rate and they didn't really understand what was happening. And so when you look at it from that angle, probably for them there's some issues with pricing, onboarding, maybe a little product market fit. Those are, you know, kind of unique problems that the business has to look at themselves. But I think figuring out when Churn is occurring is pretty important. And then of course you have to take into account your billing intervals. So if you're offering monthly, we're seeing more quarterly subscription offerings lately, which is interesting, and annually. And then see how Churn is like, see how Churn is performing across those different co cohorts. And then also break it down by plan. They're, you know, obviously generally your lower price plans are going to have higher Churn. But understanding the difference in between your Plans and the churn broken down by those is really important too. So I kind of think of it as like looking at it from different angles to get the full picture to try to understand kind of where you stand today. And then when you start doing those different things, the strategies sometimes start showing.
[00:20:54] Speaker B: Themselves and kind of going off what you guys said. As far as the cohort analysis, the solving involuntary churn cards are expiring or payment fails or whatever. I think my experience was that I was trying to rely on our payment provider to do this and it was woefully inadequate. And I won't say who it was, but it starts with S and rhyme rhymes with hype. But I could show, I could run the numbers and show that their cohort analysis was not correct by exporting data from that payment provider. So I knew that the cohort analysis wasn't correct. And then I thought their involuntary dunning campaigns, as they're often called, was fine until I started doing something that actually worked. And I was blown away at how ineffective what they were doing was. And it was stunning because this was the person who we had all of our payment data in here. We went to them for all of our analytics. Their cohort analysis wasn't correct, they didn't show churn by different subscription types and their payment recovery wasn't doing good. So I would recommend to people who are depending on your payment provider for this is don't you should really look at other options because I can tell you from experience it just wasn't working that well for us.
[00:22:04] Speaker C: Yeah, I think end users want something that feels more personalized. If you think about it, everybody's inundated with email. And if you're getting 150 emails a day or even less than that, it's really hard to actually stay on task and get all of your emails filtered. And you may see just a generic email and it goes either straight to spam or you just archive it. And these days you have to have high levels of personalization. You've got to test, you've got to have AB testing. The timing needs to be right. And if you're just using an out of the box email that looks canned, your rates are going to suffer when you're trying to recover those customers.
You know, one thing too that we should talk about just occurred to me is pricing.
So like the relationship between your pricing and then your churn, One of the most common reasons for churning customers is price sensitivity. And we're living in this era of extended high inflation. I don't think that's going to go away totally over the next few years. And it's really hard for SaaS companies to protect their margins. Your cost to hire people, it's much higher. Your ads are much higher. Everything is much higher. I went to Chick Fil a the other day and it was like twice as much as it cost me a year ago it seems like. And SaaS companies are falling behind on pricing. So how do you optimize pricing? Well, I mean you could go and pay McKinsey or one of these pricing engagement agencies, you know, mid five figures or six figures and they'll tell you and it'll be pretty good. Or you can actually analyze your data automatically with a tool like turnkey and you can get a really clear sense of like each plan, each cohort and understand price sensitivity. Some of those cohorts you may be able to increase prices on. Some of them you might want to lower prices on and have more flexibility built in there. And we see this across a lot of customers where they'll get a better sense of like what our customers willing to pay right now for the things that they're using. So it just gives you a much more intelligent way to run your business and handle the most important thing which is what do you charge customers to use your product?
[00:24:07] Speaker A: I think pricing.
The next thing that's most important after what Nick just said is your pricing model. So what we have seen is that your churn reduction strategies, a lot of it starts with what your pricing model is and what I mean by that is are you charging based on usage features, seats usage like API usage, consumption. There's a lot of different types of pricing models out there for SaaS companies and the way you try to retain customers really should be based off of that. So real simple example we talked about vite earlier which is any type of usage based business that runs off credits. So credit usage where you get so many per month for your subscription. We have found that appealing to credit credit usage when a customer is trying to cancel is really important. A reminding them here's the model that you signed up for, B here's how many credits you have left and then here's you, you're going to lose out on these so you know, reminding customers that what they paid for and what they're going to miss out on if they actually cancel. Another good example would be if you are charging based on seats and a lot of times when a customer's canceling they probably we've got a large email provider that does this where When a customer goes to cancel, they actually offer to swap seats with another user. So instead of letting that plan cancel, you transfer the seat to somebody else that might want to use it, which is another really effective strategy. So there's a lot of different ways to look at it, but I think start looking at your pricing model and kind of what the perceived value customers are hoping to get and then kind of starting there when you're starting to build strategies.
[00:25:49] Speaker B: Yeah, so let's kind of get into sort of those more tactical, nitty gritty steps. Now we've got sort of a broad overview. You have your voluntary churn. So someone goes to click a cancel button because of some reason and then you have your involuntary churn, which is cards expiring or payment failed or whatever. So let's start with the voluntary churn. And I think you guys were kind of getting into some of the tactics that people are using to make voluntary churn better. But let's give people a high level overview. What should their voluntary turns. If someone goes to click a cancel button. If you're a business owner, what practices should you be implementing to both collect that feedback you guys already mentioned and.
[00:26:24] Speaker C: Then what I would say first of all, you, you really want to have hopefully already identified the common reasons for why somebody might leave. Sometimes this is intuitive. If you know your business, you know based on history that customers might be leaving because they're not using the product enough, there's a value misalignment. It could be a price issue, which is also a value based reason. But sometimes it's just, you know, you've got price sensitivity for a period of time. It's not forever, it's just right now. Other issues could just be that, you know, somebody might have, you know, varying degrees of also usage base, but like technical reasons like we didn't get around to implementing or going live, in which case you would want to have a well tailored offer to solve for that, like a trial extension. Somebody signs up, they don't get around to using it fully, so you offer them a trial extension. So the key thing here is identifying just a few common cancel reasons that represent most of your customer base. You don't want too many, that's overwhelming. But you want to capture 90% of the possible reasons within some kind of feedback form. And then immediately after that they select a offer type. You want to tie that to something that will negate that churn intent. So offering them something that meets the reason for why they're churning and addresses that automatically. And then you want to measure that over time so that you can track the trends, you can see what's most effective. At turnkey, we have sophisticated A B testing. We have all sorts of tools to do this intelligently and maximize the amount of retention. But that's probably the starting point, I'd say. Bear, do you have any other thoughts there?
[00:27:59] Speaker A: Yeah, well, we see like a lot of customers or a lot of SaaS, companies that come to us have built their own cancel flow that's static, which means that they kind of, you know, hard coded it themselves. And generally what you see is a, you know, a pause offer, a survey and then a discount offer. Those three things just like really basic. Every customer gets the same cancel flow and generally it's around a 10% recovery rate or save rate on canceling customers, which way better than nothing. So if you, if you at least have that, you're going in the right direction. But when we see customers go from that 10% mark up to like 20 or 30%, they're doing what Nick mentioned. They're first segmenting their cancel flows. You know, to make sure that each customer is getting the right flow. Their annual customer, new customer, old customer, by plans. And then they're personalizing it. They're bringing in data from about the customer, about what they've done, what they've accomplished, and reminding them what the value was and then tying those things to an offer that makes sense based on what the customer has put in or seen. And then when you so segment, personalize, and then some FOMO in the copy is always fantastic too, is really, really effective. Which goes back to the psychology. This is a little anecdotal, I guess, based on my, based on what I've seen or personally what I've done. But it seems when most people are going to cancel something, they're not thinking. It's a gut reaction. They see their receipt, they see the price point and they're like, they run a little analysis in their mind. They're like, wait, I haven't watched Hulu in eight weeks, I need to go cancel this. And they're not thinking about, well, what's on Hulu, what are the value? You know, is there new content coming? Do I really need to cancel? They're just like having a gut level human reaction like, I need, I got to cancel this as soon as possible.
So a really great cancellation flow, I think interrupts that pattern of kind of that autonomous response that the person's going through. And it kind of brings the person into the moment to remind them, hey, this is what you paid for. This is what you wanted to achieve. Here's how far you've made it. If you cancel, here's what's going to happen. Which makes it seem like a lot within a cancel flow, but it's actually can be delivered very concisely and quickly and effectively. So as I was mentioning, we have customers that, you know, will save 30 to between 30 and 50% of canceling customers when they put all this together in the right way.
[00:30:17] Speaker B: Yeah. And just to kind of go off on that, on my experience. So when we first started doing cancel flows at the AI company, it was extremely simple to start. It was basically like someone clicks a cancel button and we're like, are you sure? And then from there, of course, many people said yes, but about 10% of them was like, no, actually, like, I just like, I don't know if they just wanted to click the cancel button for fun and see what would happen if we'd give them cancel confetti or cookies or I don't know. But yeah, even a very simple cancel flow that was basically like, are you like, do you really want to cancel? That started having some results. But then compared to everything you just said was totally lines up with my experience. So we started with a very simple one. But over time, as we were doing a B testing, it grew more and more sophisticated. And the kind of thing we settled on that we couldn't really start to beat that. Well, in our AB testing was you have sort of this initial offer.
Somewhere along the line you do have a fomo. We were using a credit system to be like, hey, you're going to lose your 500 credits or 15,000 words or whatever. Like, you've already paid for these. Are you sure you want to cancel? Having some sort of cancel survey like you guys were talking about and then those customized offers. So if someone selects budget, we might offer them a hidden plan that wasn't displayed publicly, that was maybe half the price, but a little bit worse of a deal. So stuff like that. So when you guys are thinking of these offers and this was the roadblock I ran into was like at some point, I'm like, okay, I don't know what else to do. Sort of at a high level overview, what are sort of the best practices as far as offers? Like what should every business consider using at some point and what do you see usually being more and less effective than other things? If there is really any difference?
[00:31:52] Speaker C: Yeah, that is a great question. We're getting into the deep tactical cuts now. I would say One of the things that's most valuable is running a B test. And if you're able to a B test something like a discount. So let's say it's somebody at their core. It's a price sensitivity issue. They know that they've got a limited budget. They need to start cost cutting things that they may not need right now based on the cost. So what are you going to do as a business? Well, you have a few options. One is you could just let them leave because you don't want to give any discounts at all. But that's a lose lose for both you and the end customer. But that's an option. Number two is let's offer them a discount of some kind. It could be a short duration, it could be long. When you're thinking about that, it's like you kind of have to know your customers and you, that's why you want to ab test. So you know, well, how much of a discount do we need the, the minimal discount to offer them enough to stay.
But how do you arrive at that figure? Well, you run an a B test and you look at acceptance rates and you could do one where you're offering 50% off for three months. You could do another where you're offering 30% off for a year. And it's better off financially to do the 50% off short term discount if you look at it over a long enough time horizon. But you can make these really intelligent decisions as a business around we're going to retain a customer, we're going to increase our ltv and this is how we're going to do it. So that's just one example using a discount, the most obvious type of offer to keep somebody. But then it applies to other things too. You can a B test trial extensions. How long do you need to extend a trial in order for somebody to come back and recognize the value to stay and convert from that paid trial to, you know, a paid full subscription pause also similar, based on what you know about your customers, it may be one month, maybe three months. We generally don't recommend more than three months because then people forget that they were supposed to be paused in the first place.
[00:33:41] Speaker B: Yeah, that was totally my experience as well. So we were doing three month pauses and we found disproportionately when people were doing chargebacks or disputes, it was people who'd pause for three months. They contact support sometimes and they're like, who the heck are you guys? Totally forgot. So sorry to interrupt, but yeah, I, I found in my experience One to two months was perfect.
[00:34:00] Speaker C: It really does vary. It varies based on the type of business you have. If it's a B2B business, we find that longer pauses are fine. You know, you're not going to get the chargebacks because you're dealing with a business that is like, okay, we'll, we'll have this again. And then if it's more of a casual consumer, they're going to forget or they're going to, you know, be like, oh, I got charged, I'm not going to use it. And they cancel. So yeah, for depending on the business. That's why you a B test though, and monitor the financials to make sure that each offer is well tailored to maximize your revenue and increase the chances that that customer is going to stay longer. Boost your ltv. Oh, one final thing that comes up a lot, Baird. You get this on every single sales call. I think businesses worry about gamification, like, oh, I'm going to come back every month and just keep taking discounts or keep pausing indefinitely forever. And you know, we've addressed this. This is something that is built into our platform where you can have cooldown periods, you can have anti gamification tools so that only certain segments receive that sort of offer. And that's the full power of having not building yourself and trying to chase every edge case. But having a fully featured platform manage this for you is you can solve all the problems that you're worried about with individuals gaming discounts or pauses or offers and make it so that's not possible. You know, you get one over this time period or you only can get up to this many discounts.
[00:35:17] Speaker B: Yeah. And this is something that I believe we actually ended up. So we started using this and then I think we turned it off because I think from a psychological perspective there's something where like some people just like to get deals and they will pay for something if they feel like they're getting a deal. Like I always go back to thinking about like Black Friday before it was like Black Friday week, like when it was actual Black Friday and people would go out and wait like six, eight hours outside of a store, like camp outside of Walmart to get a TV for like 30% off, save like 200 bucks, you know, like, I don't know, less than that.
[00:35:49] Speaker C: Dude, I'm so, I'm so glad you brought up that example because a lot of businesses will do annual plans at like a 50% off discount because they're like, oh, you know, our customers stay with us for about 67 months. Let's just get that money for bring it forward. You know, the time value of that money is more valuable to get it now. And we're going to discount it because those customers have a high chance of turning anyway. But that same customer, you know, you could offer like a, you know, turn off anti gamification. They can come back every month and get the one month 30% off. They're going to stay with you and it's going to be less than you're giving away on an annual plan. And we see that a lot with customers who used to have really aggressive annual plans. And then they find that with turnkey you can actually mitigate some of that risk and actually have a better off LTV for monthly customers than you do on this discounted annual plan.
[00:36:33] Speaker A: Yeah, we have a hard time explaining. Well, I should say SaaS operators have a hard time understanding that monthly customers are way easier to save than annual because when you buy an annual subscription, the feedback loops can be 12 months between when a customer has thought about you or you know, can definitely be multiple months. One other really important thing that takes me to another point about reactivations. I think one of the best things a company can do is understand their, their organic reactivation rate. So that means if you're not doing anything, how many of your customers cancel and actually come back? If you see that number over 10, 15, sometimes 20 plus percent, that is a really big indicator that you could be using offers to smooth out that cancellation. Those, those CHURN numbers because people are canceling but then they're coming back voluntarily. So a, you can use offers to, you know, keep them around and give them what they actually want, which is more flexibility, but then also have opportunities to be more strategic around who you, you know, who you contact to try to reactivate them after they've canceled. So I think that's kind of a really hidden metric when it comes to CHURN that people don't really think about but can be really telling and help you to, you know, make decisions on how you should be trying to attack churn.
[00:37:54] Speaker B: Yeah. And kind of going back on what you're talking about, the things that we don't think about when it's related to churn. Baird, you actually taught me this. When I first started thinking about churn, when it was first became my real full time job, I had the assumption that like annual customers were so much more valuable than monthly customers. And I remember being on a call with you and you're like, well, it's actually really hard to get or it's not really hard, but it's harder to get annual customers to stay compared to monthly customers. It's harder to negotiate with them. And I don't know if that's because they have more that they're going to pay up front or, you know, what if, like, if they really decided to leave, I don't know what the cause is there, but I totally agree that monthly customers are probably undervalued by a lot of people who are looking at growth, looking at retention, because, like, honestly, you can, you can just do a lot more when you're negotiating or making these offers to monthly customers.
[00:38:45] Speaker C: There's another level to this too, that when you go to sell a business, the annual plans oftentimes could be discounted because it's like, oh, you've already received the cash for these customers. There's a high, higher propensity that annual customers will not renew or they will leave. So in some situations, depending on your business, you may actually see that acquirers do not value the annual plan as much as this steadier recurring monthly customer base. So that's another good point to kind of keep in mind.
[00:39:17] Speaker A: Yeah, I remember one of a potential acquirer. I can't remember the exact turn they used, but I remember we were kind of negotiating price and they said, we're just nervous about the future churn event that's about to happen, meaning all these annual plans that are going to come up for renewal. And they're like, you know, we can't pay full price for these annual plans because we don't know how many of them are actually going to, going to renew next year. I think they called it like falling off a churn, a churn wall or something.
[00:39:42] Speaker C: It was, I think it was, it was around November, December time frame when we were fielding that offer and we'd had a big Black Friday field that it was like an end of year Black Friday thing. So maybe it was November. And it was like they sent us the offer letter and we got on a call, we were like, what, you know, what the heck happened? And he's like, well, a lot of these are coming up renew. We need to see how these go.
[00:40:05] Speaker B: And that must have been pretty scary.
[00:40:06] Speaker C: Yeah, we were already nervous about it and then we were more nervous because it's like, oh, man, this could hurt.
[00:40:11] Speaker B: Yeah, well, speaking of things people are nervous about, so as we're talking about these cancellation surveys, all these offers, it all sounds, I think, complex. Are there any legal ramifications or things people need to really be looking out for when they're making these, making their cancellation process. I think, Nick, you have a legal background so you're probably good to start on this one.
[00:40:30] Speaker C: Yeah, I'm attorney but this is not legal advice. Throw that disclaimer out there. But yeah, it's really, it's an interesting area to me. You know, if you look back over time and you think about the best example is the gym. So if anybody who's listening has ever tried to cancel a gym membership, you can't do it online. You got to go in person and then you got to fax something to the owner of the gym and the owner of the gym has to sign off. And you know, it's this, you might as well send a bike. Carrier pigeon is so complicated. And the FTC recently has said, hey we, there are a lot of problems out here with bad patterns and practices that are not consumer friendly, even predatory in some cases.
And they've tried to address that with a ruling. Now we will see if this ruling actually goes into effect. It's scheduled to in June with an administration change. It may not happen at all. But it's out there in the zeitgeist. Now it's important to be aware that states could still start to pass some of this legislation. California has some. That's not going away. So what do you do as a business to just make sure that you're compliant? Well, number one, if you don't have a self serve cancellation portal of some kind, you have to have that. You absolutely have to have.
And a lot of companies are scrambling right now to do that.
There's other language within the FTC guidelines and the new regulation around symmetry with the cancellation process. There's language around it needs to be as easy to cancel as it is to sign up.
And the way that we've gotten our own FTC expert legal counsel to come in and really walk us through this. This Guy's up in D.C. and he spends all day, every day nerding out on FTC rulings. And he was saying the symmetry thing, it's not a perfect measurement that they're looking for, but it's like, you know, they know it when they see it. If it's a three minute sign up, it shouldn't take 10, 15 minutes to cancel.
Right? Like you shouldn't have to create a support ticket or an email even if it's online. You shouldn't have to go through all this hassle to do it. But if you've got a self serve cancellation process, they're not going to be looking at it and saying, oh, it took one minute to sign up, it took three minutes to cancel. That's not what you need to be looking out for here. It's really about delivering a good user experience. And if you're actually dedicated to delivering a good user experience, you're not using dark patterns, you're not hiding cancel buttons, you're collecting feedback, doing all these things in the best interest of your customers and attempting to offer them something to stay, then you're going to be perfectly within the realm of compliance according to the construction of that statute.
[00:43:03] Speaker A: I think I'm glad you brought up dark patterns. It's kind of like the, well, it's not like the annual plans, but it's similar where it, you know, we've had some customers that we've talked to and they're like, well, I'm not. But if I put a cancel button in my back in the app, my churn's going to spike. It's like, yeah, it is, but your reactivation rate is going to be better because people aren't going to be furious when they're trying to cancel their account. So I think it's worth noting that I think a lot of this legislation probably shouldn't be scary to business owners because it's really just reflecting what the market wants. Like we've been seeing this for a decade, that consumers want control over their subscriptions and they want to be able to cancel online. And if you don't offer it, they're probably going to go complain on Facebook and tell all their friends about it, which is going to hurt your business even worse. So I think it's worth mentioning that everything that we've read about this legislation matches up with what we're seeing in the market of what consumers are wanting. So it shouldn't be a scary thing wanting to provide a good user experience, like Nick said, to subscribers, the way they want it.
[00:44:07] Speaker C: Yeah, like one thing that we did that we found was really helpful for some businesses is email based cancel flows.
So like somebody doesn't have like, they don't remember their login or they don't have like a user portal. Well, businesses are able to have an email based flow. So they just enter the email and then they get a link to a cancel flow. So it's, it's about thinking through all those different cases for your customers, knowing what you know about them and doing right by them. Otherwise you're going to have what Baird said. Those customers are going to give you bad word of mouth. Bad reviews unlikely to reactivate and chargebacks, higher dispute rate, likelihood of getting deplatformed from your payment provider if that rate goes too high.
[00:44:42] Speaker A: Yeah. Chargebacks are probably the single most increasing aspect of all of the churn when it comes to subscription payment providers that I think it's another thing that consumers. It's becoming normal for consumers to think about or see subscriptions just be like, I'm just going to go through my bank and cancel it. And you know, to make sure that it gets done because they don't trust the user experiences out there, which, you know, is something that we, all of us operators need to do a better job of providing so that people don't do that.
[00:45:12] Speaker C: But yeah, that beard, that's a really great point too, around like difficulty of cancellation versus chargebacks. Like, it shouldn't be easier to file a chargeback with your bank than it is to cancel the subscription you're paying for. And some companies have made it easy, like Apple Card. I had to file a chargeback on that recently and I hate chargebacks, so I felt like guilty doing it. But it was a service that I had actually canceled and it was a service that I had to send that email support ticket to actually cancel and it still didn't fall off. So I filed a chargeback and it was so easy. Like I had a. It probably took me 10 or 15 minutes. But that's better than waiting around for emails with Apple's chat support. And I think that's also why chargebacks are increasing, is it's getting easier to file these.
[00:45:53] Speaker B: Yeah. And just to clarify for anyone who isn't sure, so if someone has sort of this offboarding procedure you guys are talking about where someone clicks a cancel button, they get surveys, offers, you know, everything that can be done within like a minute, two minutes max.
They're still the person who's the business that's running that is still on the right side of the law. They don't have anything to worry about.
[00:46:16] Speaker C: Yeah. Not legal advice, but yeah, they don't have anything to worry about.
[00:46:20] Speaker B: Okay.
[00:46:20] Speaker C: And also like we have a. We, we track time spent on cancel flows. We have session recordings and things like that. Customers can actually like. The businesses we serve can actually go back and they can see like, are there any dark patterns or issues with the cancel flow? I think 48 seconds was the average time spent, which is, you know, less than a minute. That's pretty fast. And a lot of times we see customers that. It's not like that's how long it takes to get through it. If you really want to cancel for sessions where somebody really wants to cancel, it's just, no, no, cancel 15 seconds, you know, and then other ones where it does go a little longer is when they're really deliberate and you can actually watch the session and say, oh, like, they're considering this pause. They're waiting. They're wondering, you know, is it. Is it worth pausing and retaining the subscription? So that's another important thing. When you're looking to be compliant. It's just making sure you understand, like, what's the feedback we're getting around our cancel flow? Are people upset about it? Do we need to change things? With a product like Turnkey, you can do this really simply on the fly and, like, push changes live immediately so that, like, you've made it easier within, you know, five minutes of editing a cancel flow.
[00:47:25] Speaker B: Okay, well, that's really cool. And I'm sure that puts a lot, a lot of hearts at ease because no one wants to be on the wrong side of the law, especially someone who has no legal background. Like, they just want to run their business. They just want to make some money, do good for their customers, and so on. So I think we've pretty much talked a lot about voluntary churn. Let's go to involuntary churn, kind of in our last few minutes here. Involuntary churn. So first, could one of you go ahead and let's define that again, because it's been a few minutes since we've talked about it, and then maybe talk about some best practices. What you're seeing businesses do that's really lowering their involuntary churn.
[00:47:57] Speaker C: Yeah, well, involuntary churn. It's like, it sounds not intentional churn. Some people call this accidental churn. Some people just call it failed payments. But that's essentially what's happening. Somebody has agreed to use the subscription. They're going along, they're happy, they're using the product, and then something happens outside of everybody's control on the bank side and the payment side, that card fails and it's declined. And we're seeing over the last three years since we've been working in this space of failed payment recovery, we've seen rates of failure increase. Some of this is due to more sensitive fraud alerts I mentioned earlier. Some of this is also due to cards that have a virtual debit card or virtual limit.
There are a number of things that have influenced this and caused it to spike over time.
So, yeah, that's a quick overview of, like, essentially what's happening here. Payments are just failing A lot of times customers don't want to leave, they don't want to be canceled. But the business logic automatically cancels the subscriptions when a payment is delinquent for a certain period of time.
[00:48:59] Speaker A: Yeah, we've been working with customers to like really help them understand the difference between hard and soft declines too. So like a hard decline meaning that that card's never going to work, maybe the card was stolen or doesn't exist any longer versus soft declines where maybe it's just insufficient funds or there was a, you know, maybe a bank code that was. Some of these bank codes are not very clear and you run the card again and it actually works. So when there's a hard decline, it doesn't matter how many times you retry the payment, it's never going to work. So then it comes down to communicating to the customer, notifying them, letting them know that, that they need to update their payment information. And generally what we see is that you're fighting procrastination. These customers generally want to stay subscribed but it becomes a to do list that has to be checked off. They're like, oh yeah, I got to go log in, update my payment information. So I think communicating very timely, sending great emails, great copy, making sure that emails don't go to spam promotions or get threaded in Gmail. There's a lot of different ways to do that. And then providing a really clear experience to update credit card information is important. Something else that works really well is including offers in the email. And it's to again you're fighting procrastination with these people. So if you put a 50% off coupon for this specific invoice that's needs to be paid, you're going to get a lot of people jump, you know, kind of moving it up the to do list so to speak and get, and actually updating their credit card information. So those have been some, some strategies that have worked really well. The latest has been sms. You know, if you collect phone numbers from customers. Nick, what was the latest reading? It was like 3x recovery rates with SMS.
[00:50:39] Speaker C: Yeah, our, our customers see a 3x recovery rate when they're using SMS compared to email. And that just goes down to how convenient it is to update something from your phone if somebody's more likely to just tap a SMS that comes in and update a mobile friendly webpage with a card. So it's again back to procrastination. That's the biggest issue we see with involuntary churn. Customers don't want the subscription to cancel, they put it on their to do list and they wait too long until the subscription is automatically canceled.
[00:51:09] Speaker B: And you guys were mentioning three times the response rate with SMS versus emails. Do you have any numbers as far as roughly how much should someone be expected to recover when they're sending email?
Involuntary turn recovery kind of stuff.
[00:51:23] Speaker C: You know, it's hard to compare when you're doing both. We have a few customers where we can compare it because we've had enough time to assess it. One customer I'll use as an example, they were getting 45 to 55%. It varied by month with just emails and they've boosted it into the high 50s consistently, like 58 to 62% last I checked on a monthly basis by adding SMS. Another thing in addition to SMS that can increase this is, let's say you're a, you're a company and you serve other businesses. You have seats at that company and the person who is the primary record holder who would typically receive that email is gone. They're on holiday, they're on maternity leave or they've left the company. What do you do then that's going to cancel? There's no way to reach them. You could retry it, but if it's a hard decline, what are you going to do? Well, now we offer the ability to send to multiple contacts. So if you have people with multiple seats on an account, then you can reach out to those different seat holders with an email saying, hey, you're about to lose access, please update your information.
[00:52:24] Speaker A: Yeah, the most common example there is the CFO or someone in finance buys the subscription and that's, you know, in stripe or your payment provider, that's the email that's listed, but that person never uses, uses the product. And emailing that person over and over again might not do any good. When you know, the person that really needs it is somebody in marketing or in sales. So being able to communicate to the right person is, is really important. I'm surprised that we built that feature for one of our largest customers and I'm surprised it took that long for it to come up as a feature request. Seems so obvious, but now it's been really incredibly effective.
[00:53:06] Speaker B: Well, I can tell you why it, it took so long for that feature request to come up. And this is my scenario is I was using our payment provider to do this and I thought it was like fine, right? Like I didn't know what to expect. We were having, you know, sort of mid five figures in churn revenue every month. They were recovering A couple hundred bucks. So I was like, I don't know, I don't spend any time on it. So it seemed better than nothing. And then I started using a solution that worked. I'm going to throw away my kind of riding defense here. I was using Turnkey and our recovery rate depending on the month, literally like 10 to 20x and it was such a difference. And what was really cool about payment recovery as well is that this was something that again we just spent no time on. We set it up and it just stinking ran. And yeah, I mean it was getting like just incredible numbers as far as how much we were losing and how much we were recovering. I don't remember the exact percentages but it was something mind boggling. And when you count like our return on time investment that we had invested in, like we put an hour into payment recovery maybe and we're making five figures a month from it, it doesn't get better than that.
[00:54:15] Speaker C: I think in, in some situations Brady, I think the time recovery is potentially more valuable than even the revenue. Now the revenue recovery is going to be amazing. But if you've got somebody who's a customer success agent and they're having to like track down failed payments and they're spending five, ten hours a week that's taking time away from other accounts they need to be focused on and you know they're on the payroll, that's a very tangible cost that is going to doing this. And the other thing we've seen is that the automations that a platform like turnkey has, it will actually beat and outperform a CS agent or a dedicated person who tracks these down because that is the only job of the platform is to in a machine like customized fashion recover these. Whereas a person is going to get distracted trying to run chase payments down. They're not going to be as consistent. There's that human error element. So I think that's an important thing to point out because a lot of companies just throw a person on it and say hey, go fix this, go chase all these down.
[00:55:13] Speaker A: I think, I think it goes going back to like what consumers or what the market expects. I think automation is what consumers expect. They don't want to talk to somebody. They you know, you get an email from some random person that's telling you to update your payment information that like, you know, even though it is maybe personalized, like wait, who is this person? Am I being phished is like what's going on versus you know, something from the business that's very kind of transactional and seems fast and automated is going to be something that I would personally would much rather interact with than feeling like I have to, like, have actual conversation with somebody. So, again, going back to some of these legislations and kind of what people are, you know, what the market expects, I think this fits in line with that as well.
[00:56:01] Speaker B: Yeah, you're totally right. Having actual conversations is the worst. Except for this one. This one was really great. Thank you guys both for your time. I think we've covered a huge chunk of churn. Of course, there's still a million things that people can still do to deliver their churn. So anything you guys want to wrap up with as far as what people should be doing and then where can they find you guys?
[00:56:19] Speaker C: Well, I mean, you can find both of us. Our names Nick and bairdurnkey. Co. We're both on Twitter with our first and last name too. Not as active on there as we used to be. I guess that's a good sign that the business is busy and we don't have as much time for distractions.
And, you know, it's a new year. Like a lot of companies, we. This tends to be our busiest time of year where everybody's like, oh, wow, new year, we gotta do a Churn resolution. There's really like no better time though, to start recovering. It's now, like, stop procrastinating on your Churn problems and do something about it now. And we're happy to meet and talk and, you know, we're not gonna do a high pressure sales pitch or anything, but this is what we do. It's all we do. We love talking to businesses about Churn because we've been there. We know the psychological impact that Churn has. It's negative. And sometimes we see ourselves as like, you know, Churn therapists, if you will. We love to talk about business and talk through problems and if we can help with the platform, we'd love to do that. Cool.
[00:57:13] Speaker B: Baird, any closing thoughts?
[00:57:15] Speaker A: Yeah, I think just to wrap up, if I had to just give one sentence summary on Churn, it's just don't avoid it. Don't hide from it. It's there. You might as well just face it. I think good operators don't look at problems as painful, but look at problems as opportunities to grow. And I think that's what Churn is. You get closer to your customers, you better understand what they're really looking for based on what they didn't receive or didn't think they received. So it doesn't seem fun, but there's just nothing but good things that come from tackling Churn Head on. Similar to any New Year's resolution that everybody's trying to do right now. The best way to do it is just to get started. So that's my wise, wise words of the day. But yeah, find us on Twitter, LinkedIn. I think I'm still the only Baird hall on LinkedIn, so you can find me there pretty easily. And yeah, we'd love to chat with anybody that wants to talk Churn or retention.
[00:58:10] Speaker B: All right, well, thank you guys for being here. And everyone else, thanks for listening.
