Preventing Churn
No one wants to lose customers, but there are good and bad ways to keep them.
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There is currently a disease spreading quickly through the technology industry: long-term commitments.
Enterprise software that requires a 2-3 year contract. Individual products that require 1 year subscriptions. Consumer products that are nearly impossible to cancel. Countless other tactics to make sure that once you start paying for something, you don’t stop.
What happened?
Churn.
Companies became afraid of losing customers, especially as the economy became more difficult and competition increased. When the economy was roaring, lost customers could be replaced with new business fast enough. As soon as that stopped, losing customers became a dangerous proposition.
So, companies did the first and easiest thing: they locked customers in. Customers that can’t leave can’t churn! It seems like a good business decision at the time, as you can focus on growth instead of retention if everyone is locked in for the long term.
The problem is that these long commitments don’t reduce churn. They just hide it.
Customers that aren’t happy will still be unhappy. A customer can churn 6 months into a 2 year contract, but you might not know for 18 months. They have to pay you, yes, but that doesn’t mean they love your product or even use it seriously. Worse, they are likely detractors that warn others against making the same mistake. That costs you a lot of future revenue.
You turn your customers into your worst enemies.
That is not a formula for long-term success! It sounds obvious, but this is an easy trap to fall into. Any leadership team at a technology company believes in their product, and many believe their product is the best on the market. If you believe your product is the best, it’s hard to imagine customers might not like it and become strong detractors.
So, they rationalize long term commitments. “We’re giving them a better deal, because they will be customers in a few years anyway.” Sure, right. If that was true then you’d charge them full price and let them renew.
There are many reasons that customers churn that have nothing to do with your product. Sometimes it’s a strategy shift, sometimes it’s a re-org and sometimes the customer goes out of business. However, those are just the cost of doing business.
Much more dangerous is building a culture that is not accountable to customers. If your team is not focused on making customers happy every single day, then they will get lazy, sloppy and lose the plot. Your product and business will suffer, even if churn doesn’t happen due to lock-ups.
You need a team that lives for the customer experience. You want to offer:
The best product
The best service
The best price
You don’t do that when your customers are locked up! You do that when you need to re-earn their business every day.
Don’t be afraid of your customers. Don’t be afraid of renewals. Make the risk of churn motivation for your team to work harder and do better. Don’t lock your customers into long-term commitments, make a commitment to serve them so well they won’t leave.
That is how you retain your customers.
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Great article! Your point really resonated with me - while long-term contracts might reduce churn on the surface, they risk damaging customer experience and trust relationships even more.
What are your thoughts on giving customers the choice between monthly contracts and discounted long-term contracts? Would love to hear your perspective.