Yesterday the CEO of a $250m+ ARR company asked me: "Is there one thing we can do to minimize customer churn heading into a recession?" In a word, YES...
Of course, real churn prevention isn't about just one thing but comes from driving customer results.
But this particular CEO has done a terrific job of aligning everything in the company to produce, measure, and materialize customer results. He wanted to know if there is anything specific he can do right now to make a difference.
I explained to him that there is one thing that makes a big difference, especially during an economic downturn. It has to do with two different ways of measuring "churn".
Customer Churn vs. Revenue Churn
Most companies don't experience significant increases in customer churn during recessions. But it's a different matter when it comes to Revenue Churn.
That's because although they may not leave, many customers will need to downsize their accounts due to a slowdown in their own business.
Revenue churn is inevitable in a recession.
The problem comes when companies try too hard to prevent revenue churn, and end up causing customer churn.
If you make it difficult for customers to downsize their accounts, their only other option is to leave!
The One Thing...
Here's the one thing I told the CEO to focus on...
→ Make it easy for customers to right-size their accounts. ←
Don't make it difficult for them to downsize. Provide options for customers to reduce their usage at lower price points. Make these options easy to find, and simple to choose. Even reach out and tell them about it in your customer marketing.
Too many companies limit the customers' downsizing options or make it difficult to do, mistakenly thinking they are protecting revenue. Actually, they are putting it more at risk!
There are lots of ways companies limit customer downsizing.
Some try offering incentives and freebies for customers to stay at their current level.
Others bury the downsizing options so customers don't know about them or can't find them.
Many companies even take the "cable company" approach by forcing customers to call in where they are subjected to aggressive pressure tactics.
The problem is that these things don't work - even when they seem to.
Customers will eventually react to the pressure on their own businesses by cutting things they would've preferred to keep. And this obviously gets a lot worse in a recession.
But downsizing is actually a key indicator of customer health!
Downsizing Drives Retention
Our research consistently shows that customers who downsize their accounts retain far longer than those who stay at the same level.
Customers who have ever downsized their accounts stay on average 57% longer than customers who didn't change.
So my advice is simple: Resist the urge to "protect" your revenue by making it hard for your customers to stay. Help them right-size now, and they'll likely remain a loyal customer for a long time.
If you found this useful and want to learn more research-driven insights and suggestions for customer churn and retention, visit my "Churn Whisperer's Guide to Churn"