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How Pricing Drives Churn

This week's Newsletter:


 

DATA REVEALS 9 WAYS PRICING IMPACTS CHURN: How pricing influences customer retention and what pricing works best! ↓


🏢 Every company is a complex "system" in which nearly everything is interconnected. Make a change in one area, only to see an effect pop up later elsewhere.


This is especially true for customer retention. Many things that appear to have nothing to do with churn are actually connected.


That's why it's essential to consider the impact on churn of everything you do. I recommend that companies standardize asking a simple question before making any decision:


👉 How will this impact churn? 👈


Our research reveals that pricing is a good example of this principle. Here are 9 WAYS PRICING IMPACTS CHURN:


1️⃣ High vs Low Price: ↑ Price = ↑ Retention


Higher prices are consistently associated with longer retention. One obvious reason for this is that bigger customers (who can afford higher prices) retain longer than small ones.


However, the data shows that the effect remains even when you compare similar customers. Those who pay more for the same product tend to get better results and stay longer than those who pay less.


2️⃣ Discounting: ↑ Discounts = ↓ Retention


A similar effect shows up in discounting, where customers who received a significant discount from the list price (greater than 25% off) had significantly higher churn than those with little or no discount.


3️⃣ Monthly vs. Annual Billing: ↑ Annual > ↓ Monthly


Customers who pay the entire price upfront stay significantly longer than those who don't. It's a signal that the customer is more serious about achieving the expected results, and the results are more important to them.


4️⃣ Contract Length: ↑ Longer Contracts = ↑ Retention


The same effect shows up when customers commit to longer initial contracts, and likely for similar reasons.


5️⃣ Trials, Opt-outs, Pilots: ↑ Trials = ↓ Retention


When similar customers purchase the same product, those with a short-term exit option have significantly higher churn. Easy getaways drive lower customer effort, which leads to worse results.


6️⃣ Paying for Implementation: ↑ Paid Implementation = ↑ Retention


Customers who pay an explicit amount for onboarding/implementation stay longer than those who get the same services for free. Even when the total cost is the same, deals that list the onboarding as a separate amount retain better.


7️⃣ Paid Services: ↑ Paid Services = ↑ Retention


Customers who pay an explicit amount for extra services consistently stay longer than those who don't.


8️⃣ All-In-One Pricing vs Modularized: ↑ Expansion = ↑ Retention


Customers who purchase an All-In-One pricing model have higher churn than customers who only purchase the functionality they need to start and upsell more modules later.


9️⃣ Downsell Option: ↓ Deal Size = ↑ Retention


Customers who reduce their spending at any point have consistently higher retention than customers who never change.



 

The Key to Reducing Churn is Knowing What Kind You Have


There are different kinds of churn, and knowing which kind you have unlocks the power to crush churn for good! I'm offering subscribers to this newsletter a free consultation to show you how to find your churn type. Click the button to schedule your session and start getting ahead of churn in 2024.


 

IAM CX Podcast - The 4 Playbooks of Customer Loyalty, It’s Simpler than you think!


March 6, 2024: Dive Into SaaS Mastery with Greg Daines on the IAM CX Podcast!




 

Customer Satisfaction Surveys Be Like:




 

QUOTE OF THE WEEK:


You can't expand a customer you no longer have.





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