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Gain More Profits With Negative Churn with Shreesha Ramdas
My guest is Shreesha Ramdas. I met Shreesha through some of my amazing friends, many of whom you have read on this blog. He is an entrepreneurial executive with a track record of launching and growing products in competitive markets. He sells disruption for a living. He has lots of great general management experience and product development, growth hacking, including market strategy and execution. He is the CEO of Strikedeck, which is a leader in customer success. Automation doesn’t do you any good to sell disruption if your customers are leaving. That’s what customer success is all about. We’re going to talk about the untapped power of negative churn. Shreesha, welcome to the show.
Thank you, Mark. It’s a pleasure to be on your show.
What do you mean by negative churn?
Negative churn is definitely a counterintuitive term. Negative is negative and churn is also negative. This is a case of two negatives making it positive.
We don’t want customer churn, that’s expensive. How do we make this positive?
There are four ways you can make negative churn happen. Let me talk about what is negative churn. Churn is when your customers leave you. The revenue is decreasing.
They decided to go someplace else.
If you are able to get more revenue increase, expansion from your existing customers and that’s more than the revenue that you’re losing from the customer churn, that is called as negative churn.
The idea is let’s get more out of our current customers and dump those customers that don’t make as much money. Is that the idea?
Exactly. Revenue decrease that happens due to lost customers is offset by the revenue expansion with your existing customers.
I see this happen all the time now that you’ve mentioned it. If we do the 80/20 rule, 80% of your headaches come from 20% of your customers.
We all know that when you are a small startup, you are busy signing customers. You’re not looking whether they are a good fit, whether it makes a lot of business sense. You want customers to come on board and start using your product. All the time you realize that these customers are not profitable, you are taking a lot of energy and effort from your side to keep them onboard.
That sounds like the perfect customer for your competition.
The negative churn term gained popularity because of growth in SaaS and subscription module where previously you will do the sale and you would have an account manager who’s managing the account. The account manager is either chasing a maintenance contract or trying to sell them the next version of the product. Usually products back then were all on premise. What has happened in the SaaS world is the initial deal value is generally small compared to the previous high six and seven-figure that used to happen.
That entire five-year contract, instead of being spent up front, it’s spread over five years.
In SaaS world, you realize the customer lifetime value over a period of years. The first year, you may not make that much money on the customer. The organizations realized that it’s very important to sustain with your profitable customers over a period of time to recoup. That’s where the negative churn came about where the emphasis is on how do you grow the revenue from your existing customer base? That can happen in four ways. One is up-sell, which is they are using a product and you are giving them some more products to use. They are consuming more of that product. The second is cross-sell where you have some other product to sell it to the same customer. There could also be resource expansion. They have been consuming some resource. It could be like storage.
They want to buy more storage from you, that’s resource expansion. The fourth one, which is a user expansion where they’ve used all their licenses and they want to buy more from you. A great example of an organization doing all of this is Amazon. If you look at AWS, a lot of the startups start with subscribing to one or max of two services. They’re not using the full bandwidth, the full potential of the services. As they grow, they start buying more user licenses from Amazon. They start buying other services, other products from Amazon. They are a great example of what I call land and expand strategy, which leads to negative churn.
Land and expand is such an important concept. Part of it is that when we have a startup company that people don’t know about, they don’t have any track record. There’s a lot of risk in buying from that company. You have to create a product or a service that is low enough in cost. If there’s a problem, the person who’s buying it doesn’t get tarnished in their reputation. One of the challenges that we face is that in the world of corporations, the way that we make more money is through being promoted. The only way you get promoted is by consistently illustrating that you have good judgment. If you purchase something, it fails and your boss sees that as being bad judgment, your career gets tarnished. The way we have to approach this in selling to organizations where they are risk averse because of career ascension strategies, we have to give this land and expand approach. They get used to us, they can safely test us out. Once we have that trust and belief, then we can expand once we’re safe.
Let me also talk about the magic behind negative churn. I’ll give you an example on this one. If you have a company that has about a thousand customers and they are churning 2% of their customers every month, let’s assume that they’re not bringing in any new customers as well, it’s a dire situation. 2% of the customers are churning every month and they’re not bringing any new customers. Let’s assume that they’re extremely good with their current customers. Current customers love them and they are using the product well. This organization is able to grow the revenue per customer by 10% month over month. They’re losing customers. They’re not bringing any new customers but their existing customers are spending 10% month over month more. At the end of the year, the organization would have lost 20% of its initial customers, and because they not bringing new customers, they are not adding to that count. What you will find surprising, and that’s what I call the magical power of negative churn, is that the MRR at the end of that year will be up by 37%.
That’s what I call a weed and feed strategy. The idea is let’s get rid of the customers that are sub-par. They don’t meet our target marketplace. They’re the people that cause the greatest cost of customer support. They’re not bringing us any additional business. They’re a pain to deal with. Let’s cut them loose. Instead, let’s focus on those customers who we are serving well and we’re loving up. Use up-sell, cross-sell, resource expansion and user expansion to make more money from them. Let’s make products specifically for them. You do this with Strikedeck by providing some customer success automation. You help with this negative churn and how to optimize the relationship with good customers and cut the bad customers free. Tell me more about how you go about doing this?
Customer success automation platform at Strikedeck, we built it with the goal of making customers realize this untapped power. We see that there’s this obsession in the industry about new logo acquisition. People don’t pay enough attention to their existing customers.
I see it all the time. I ask everybody, “What do you want?” “I want more logos.” “Why do you want more logos?” “That’s how we’re going to get more business.” “Why don’t we get more business out of the people who already know you and love you?”
When we were talking to organizations, we found that less than 10% knew exactly how their product was being used by the customers. Most of the organizations were in dark about all the use cases that were being leveraged by their customers. That’s where Strikedeck comes in. We help our customers understand what their customers are doing with their product, how are they consuming the service, the product, how their user experience with the product is. Once they have that knowledge, we help to correlate with other events that are happening. How they are interacting with the company? How’s their support tickets being taken care of? How’s the legal process has been? In one snapshot, they get the customer 360-degree view. Remember to take any action, it’s very important to be informed. Once you are informed, once you are armed with all the insight, then it’s easy to take action on.
My experience is that a lot of executive driven go-to-market plans do not survive contact with the customer. The reason why is because the customers move so fast that what made it successful in the last decade isn’t working anymore.
That’s the reason you cannot expect your customers to be static as well. They are moving, their use case scenarios are changing. The personnel are changing. You have new people using the product and you need to monitor how the usage is going. Once you have the Customer 360, we have an extremely powerful automation engine on top of it. That will help you in getting alerts on when something different is happening. For example, you can set an alert if my usage of the product by this customer decreases by 10%. If the customer login has gone down, let me know. If there’s a change in my key stakeholder, then let me know. The automation that has a direct impact on the customers. Let’s say you’ve got about twenty odd steps during onboarding that needs to happen. You don’t need to rely on software customer success manager to make that happen. You can set up automations that can help the customer walk through your product. Help them understand all the powerful features that are in the product and how to use them in an automated way.
I like this idea about setting triggers to alert certain behaviors, changes of a customer. What a fantastic way of getting feedback about if a customer is increasing or that lets us know if we have the opportunity of doing an up-sell, cross-sell or resource expansion. If it’s starting to decline, it means that our product is less valuable to them. We could step in and apply the customer success resources, which are expensive at the right moment in time when it’s going to be most effective versus blasting out emails saying, “We want to make sure you’re successful.” This is a blinding flash of the obvious to me. It’s brilliant. An extremely interesting strategy here for creating this peak in how customers are using the product. Alerting us on what we want to do to either move them out or upgrade them. Let’s talk a little bit about how we actually trigger churn. What do you see works well to help customers encourage them to go someplace else?
One common scenario that we have seen is early startups. They try to get as many customers as possible using their products. All the time when the organizations grow, they realize that the early customers are perhaps not the best fit customers anymore. That’s where we have seen them adopting strategies where they go sit with the customer. Make them understand that the product may not be working for them in terms of the use case scenarios. They are better served by some other product or even a homegrown solution. One way is to convey to the customers that the product may not be serving them as it used to before.
Let them know, “We can’t serve you the way that you need to be served.”
It’s a tough decision. If you have to proactively churn your customers, it’s not easy. Nobody likes to lose any customers. One other thing to consider is to first figure out who your profitable customers are? We have seen that very few organizations know who their profitable customers are. While they know how much revenue every customer is bringing to the table, they don’t know how much effort is going on in terms of maintaining the account.
You’ve got to balance the revenue against the cost of delivery and supporting that customer. Do you think that most companies keep track of that?
No, they’re not tracking that. They’re tracking the MRR that’s happening, the growth in the MRR month after month as new customers are coming on board or even when the expansion is occurring. They’re not tracking the effort that’s being put in to service the customer. That could be handling the tickets, handling any requests that come in on email or to a phone call. Organizing training sessions for new members who are joining.
Is that something that Strikedeck does?
We record all the engagement that the customer is having with an organization. That could be with a support group, with a training group. Once all of that is recorded, we can then show the effort that is being exercised by the organization to maintain the customer.
Now that we’ve identified the profitable customers, what’s the next step?
Once you have identified the profitable customers, you know that these are the customers you need to spend more time with. You need to encourage them to continue leveraging your product and figure out how to expand the revenue with those customers.
Essentially, you start selling to them. They’re easy. They already love and know you. This is an easy thing to do.
The unprofitable customers, it gives you an opportunity to sit with them and tell them how they are taking up a lot of time and effort from your site. Either they increase the revenue or the spend with the organization or they may not be the right fit. It’s the type of conversation I mentioned proactively organizations have with their customers.
How do you have that conversation saying, “You’re not spending enough with us to make it worth our while for you to be our customer?” Is that what you do? What’s the approach that you take?
The best approach is to be straight with them and show the data because Strikedeck will make the data available, the effort that’s being spent. If you are doing regular QBRs or your monthly meetings with the customer, that’s the best time where you share that data. Show them that, “This is the amount of effort that has gone into serving you, and this is super expensive for us and either increases our revenue or we figure out a way to decrease that effort.”
I can imagine the audience has one of two responses, “That’s the best idea I’ve heard ever. We will sit down with our customers and say, ‘We are losing money doing business with you. You need to either pull the trigger or we’re going to have to pull the trigger.’” The other audience might be going, “There is no way I’m going to tell a customer that we’re not profitable with them.”
It’s a hard thing to say.
It’s an easy thing to say. We have to have the guts to tell the truth. Quite frankly, customers that cost us money to serve are running us out of business. We need to change our business model. We need to either improve them as a customer or we need to get rid of them as a customer because there’s no reason for us to liquidate our company at our customers’ benefit. You’ve got a tool that lets us figure this out.
Strikedeck is an automation platform. We have a powerful automation engine that’s built on lots of data coming into the platform from different sources. We take data from the CRM. We take data from the ticketing system. We take the usage data, billing data and we are able to create this Customer 360-degree view for the customers and then let them run the automation engine.
It’s lots of interesting data crunching along the way. How do people get involved with this? What’s the way that people can bring this into their organization to figure out what customers are profitable, what customers can be developed and what customers to move along?
When a customer decides to go with Strikedeck platform, the first key thing that happens during the onboarding phase is to identify all the data sources that need to be tapped to create what we call as a master customer record. That’s the foundation. The customer data is generally found in desperate data sources. It’s important to bring that all together. We have seen a lot of organizations do not even know what data is there. What do data fields mean sometimes? A lot of customization has happened over the years and the current team has no idea about why that particular field was created and what’s the use. During the onboarding, we work with the customer to make that master customer record happen. That’s a lot of work as you can imagine. We bring it together.
Once the master customer record is there, we work with customers to create what we call as playbooks. There are different playbooks that are created for different scenarios. There could be an onboarding playbook, an adoption playbook that takes a customer through the advanced use case scenarios on how to use a product better. There could be advocacy playbook, which is identifying the customers who are loving the product, loving the experience, how to tap them for case studies, testimonials, references or provide referrals, all of that. There could also be an up-sell playbook, which is this particular customer is leveraging the maximum potential of the product. That’s why the customers can spend more with an organization, more on the product.
It’s an easy justification.
What we’re seeing is that these playbooks provide not only a script for people to understand what to do in a particular scenario. It also ensures consistency in terms of treating customers. If you have an account management group, a customer success group or you have a part of the sales team who are hunters as well as farmers, they all know how to engage with the customer given a scenario. They all treat the customers in the same way. If there is consistency in how you’re treating your customers across your different team members, then you can anticipate results better from those efforts.
It also contributes to your brand. Customer experience generates brand experience. I am a massive believer in playbooks. It is how we get best practices installed across our team. If we leave all of it up to our team, unfortunately our junior people don’t know what our senior people are doing, we have inconsistency which kill brands. This idea of creating playbooks for different scenarios as well as different customer types is absolutely brilliant. The reality is that one playbook fits nobody. To create these varieties of playbooks for different customer types, different customer avatars, it makes all kinds of sense. You work with your customers to develop these playbooks.
You brought up a good point, different types of customers. It’s very important that you segment your customers. You may segment your customers, for example, as an enterprise, mid-market, SMB. What that means is you create different playbooks for different segments.
They have different experience expectations.
Your enterprise customers may demand an onboarding experience that spans across months, whereas SMB customer may be okay with a couple of weeks onboarding. That’s the reason why you should have different playbooks.
Let’s create the customer experience that they value. Once your customers are onboard, once you’ve got the playbooks going, the next step is to turn the crank and watch the data. What do you do then?
You have the playbooks going. These playbooks will trigger off alerts in terms of identifying customers who are ready for potential up-sell, cross-sell, licensed expansions or resource expansions. Once they are identified, then it’s following the series of steps so that the revenue growth happens. It can be done in multiple ways. There could be a series of automated emails that can go to the customer. Based on the engagement of the customer with those emails, you can determine which way to adopt to sell to the customer. For example, you could give them a preview of some other products. Get them excited about the value propositions for webinars, that can further explain the value proposition of the product and so on. You could also invite them to a customer get together, an event where you get them to interact with customers who are using different products. Let them share the experience.
A couple of ways that I find that works well expanding customer penetration is elevation. Let’s elevate the experience. Let’s take them to a new level. Education, let’s teach them how to buy what we sell. Teaching them how to use it better, teach them how to get more out of it and then celebration. Let’s get together and have a party and celebrate our joint success. That’s a way for us to spread that through the rest of the organization. That’s the plan for more deeply penetrating our customers with our success.
What we are doing at Strikedeck is leveraging all for data science engine where we use advanced techniques such as cohort analysis, clustering analysis, propensity analysis and sentiment analysis. We are delivering real-time service personalization to the customers. We are taking all the data that we have, CRM data, usage data. As the customers are using your product, we deliver them personalization based on their past behavior.
You are able to tune the customer experience based on the experience that they prefer.
I would like to give you an example. We were working with a gym. They have multiple locations and they wanted to engage with customers more. They wanted to bring customers on site to the gym. Whenever they come onsite to the gym, they ended up purchasing other products. If they’re on the location, the chances of them seeing the nutrition consultant or the fitness consultant is very high. Strikedeck platform was leveraged to deliver this engagement where we walked them through series of challenges. It could be weight loss over 60 days, 90 days or they lapse some physique in a certain time period. You have all these challenges. As the customers participate in this challenge, they end up taking more sessions. They come on site, they consume other services. This is an example where you have given each customer a personal experience. Then leverage that personal experience to do up-sell, cross-sell.
They feel much more comfortable. They feel like it’s personalized to them. It has a lot less risk. It becomes a low consideration purchase. They spend way more money. That’s how we sell disruptive products, land and expand. That’s the methodology. You’ve shared so many great ideas here. How does my audience get ahold of you? How do they engage with Strikedeck to learn more and find out if this is right for them?
We’ll get the conversation going and figuring out how to use customer success automation to get rid of your worst customers, your least profitable customers and make your good customers become great and extremely valuable. This is the way we sell disruption. Thank you for sharing your insights with my audience, Shreesha.
Thank you so much, Mark, for having me. It’s been a pleasure.
About Shreesha RamdasEntrepreneurial executive with a track record of launching and growing products in competitive markets. General management experience in product development, Growth Hacking, and go-to-market strategy & execution. Shreesha is the CEO of Strikedeck, a leader in Customer Success Automation. Previously, Shreesha was the VP of Corp Dev & Partnerships at CallidusCloud. Before that, Shreesha Ramdas was the co-founder & COO at LeadFormix, a marketing automation platform, where he raised the initial funding, built the company, and contributed to the successful acquisition by Callidus in January 2012. Prior to LeadFormix, Shreesha was a co-founder of OuterJoin, an online marketing services company and an early member at Yodlee, where he held the role of General Manager of Yodlee’s center.
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