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  • Writer's pictureCharlie Beveridge

3 reasons Churn can actually lead to increased ARR

With a global recession looming, churn has become a key focus for SaaS. Some have already seen alarming volumes of customers churn - others are yet anticipating it. In any normal economic scenario, the more churn that takes place, the more negative the business outlook.

But when heading into a recession, the irony is that churn of a certain type can actually be a healthy strategy. In other words, the current global economic circumstances are actually presenting a unique opportunity to take positive action for the future of your business. And this is an opportunity that may not present itself again in a hurry.

So what is the opportunity? And what action should be taken?

The key is this: when it is intentionally targeted, churn can actually produce the right circumstances for stronger, more robust ARR.

Let’s deconstruct that.

There is a portion of every SaaS customer base that is least profitable, on a per customer basis. If the right customers churn, only the most profitable portion of your customer base remains - enabling you to better attract more of that type of profitable customer moving forwards.

But if churn is a customer decision, how can your business influence it?

First, the target set of least profitable customers needs to be identified. Individual customers might be more costly to your business for a number of reasons. They might:

  1. Use edge cases for your product that are not core priority for product development to support or evolve

  2. Use your employee time (like customer support or success) more heavily than necessary, again often because they’re using edge cases for your product, or because they’re a small firm with different expectations

  3. Still subscribe at a lower price due to being an early customer (especially if they’re a small customer, or they’re using an early, edge use case of your product)

Next, the right measures need to be put in place to deter that target set.

The best way to target these customers is to stop giving them what they want. And doing so won’t even necessarily cause them to churn; if they like your product enough, they’ll stick around and start to behave like a more profitable customer. But those that do go ahead and churn are not the core customer base you want to be supporting during a recession.

The following measures would directly address the cost-driving activities of that target set:

  1. Strategic prioritisation of which use cases product development will support and evolve, and then rigorous execution of that prioritisation

  2. Stricter consistency of which services your customer support and success teams offer to each customer

  3. A consistent pricing strategy (in particular assimilating small customers and edge use cases into core tiers/groups)

These measures, if they can improve the profitability per customer of your customer base, put you in greater control of your profitability during difficult economic times. And a more tightly controlled operation will make it easier to weather the storm.

But by the same token, these measures carry risk if they are not executed properly. Targeted churn must be dovetailed with increased ARR from your priority use cases.

The prioritisation of use cases for product development, customer support and customer success teams means retracting focus from some use cases but it also means increasing and improving focus on the highest priority use cases.

Those highest priority use cases must become even more valuable to you than they are today.

It is about delivering on those use cases better than anyone else in the world. It is about crystallising and standardising what you do well, so that you do it even better. It is about doing more of what you do best, with the same (or less) resources. In short: this is about being the master of what you do best, and taking advantage of economies of scale in the way that you do it.

The better you are at what you do, the stronger your retention of core profitable customers - and the more you’ll attract bigger customers. Particularly in the enterprise space.

Enterprise customers like simple, slick, validated propositions - propositions that are clearly defined, many-times executed and repeatedly validated by other large customers.

And the more you sell to enterprise, the larger your ARR potential. Strong, healthy ARR involves having a strong, healthy proposition first.

And that’s the bit that’s really hard. It’s not easy to achieve that level of clarity and simplicity of proposition.

So that is where Expedeck focuses its help. Expedeck curates the value proposition for your product’s priority use cases. Our business-led, insight-rich go to market content enables sales and marketing to be more effective with enterprise customers. It empowers them to demonstrate situational relevance in enterprise conversations - ultimately accelerating your enterprise sales journey.

Reach out via our Contact Us page if you'd like to know more about how we might be able to help.



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