Back in March 2012, Rand Fishkin, then the CEO of Moz, was filled with hope and optimism. He gushed enthusiastically in a post on the Moz blog about a massively successful funding round and the anticipated growth of Moz’s many ventures. He also shared some data: On an average weekday, he wrote, 150 marketers took a free trial. Approximately 56 percent of those marketers converted to a paid membership; of those 50 percent, 40 percent would go on to cancel their membership in the first three paying months.
He opined that, “For an enterprise SaaS business, these metrics are fairly mediocre (well, the churn metrics anyway, the acquisition numbers would be phenomenal [emphasis added], but thankfully, we're not the typical enterprise model.”
You see, Fishkin said, it’s really not that bad. “Because we have very low costs for customer acquisition (we acquire ~85% of our customers using inbound marketing rather than paid channels), and very low COGS (no account management, sales people, or services costs), our model scales very nicely.”
Flash forward to August 2016. Fishkin has been replaced as CEO. Moz announces that it’s laying off 28 percent of its workforce and dumping extraneous services. So much for scaling “very nicely.”
No doubt a lot of factors fed into this necessary downsizing, but one potentially game changing problem was right under Fishkin’s (and the Moz team’s) nose: that alarming 40 percent of customers who canceled within the first three months. These paying customers never became active. They likely never even entered a low usage phase. They just signed up and -- poof! -- they disappeared. We call this phenomenon Instachurn, and unless you address it, it can be the silent killer of your business. Luckily, Moz has now come to recognize the importance of effective onboarding, and now tracks it’s “non-loyal,” (1-3 months) customers. No doubt this change in thinking is one reason they’re still around.
You can’t really blame Fishkin for this blindspot. After all, like most CEOs, he was focused on the positives: all those sign ups and conversions, the customers were were sticking around, and of course that adrenaline-inducing financing round. And in 2012, people weren’t really focused on onboarding as an essential step in the adoption process.
But those customers who churn and get lost in the cracks in between purchase and usage represent a huge loss in revenue. And all too often, this phenomenon goes unmeasured and ignored. And that’s a huge mistake. As Harvard business professor Clayton Christensen points out in Competing Against Luck, just because someone makes a Big Hire -- or that initial purchase -- that doesn’t mean they’re going to go on the make the successive Little Hires that add up to active use.
But you don’t have to fall into this all-too-alluring trap. The first step is understanding the missing link for these Insta-churners: an effective, satisfying, value-packed set up and onboarding. Good onboarding can catapult your customers right into a fair or frequent usage pattern -- avoiding low usage and early churn altogether. As noted customer success strategist Lincoln Murphy has written, “Having a poor onboarding experience for your customers can pretty much kill your growth… if not your business.”
And setup and onboarding should never be an afterthought. As Murphy tweeted last year, “Proper onboarding isn't done to prevent churn; it's done to ensure the customer achieves their Desired Outcome. Retention comes from that.” In other words, ignoring your onboarding is ignoring a significant portion of your potential future loyal customer base. Think of it this way: A recent study revealed that a one percent difference in churn can have a 12 percent impact on company valuation in five years. What if Fishkin had turned his eye towards that 40 percent of sign ups who churned within three months? What kind of impact could a thoughtful, value-driven onboarding have had on Moz’s bottom line?
We’ll never know, but it’s certainly not too late for you to boost your Churn IQ. And the first step is understanding what makes for a great setup and onboarding experience.
The Importance of Set Up & Onboarding in the Adoption Process
As the name conveys, in set up, the customer is prepared, or “set up” to use your software. There isn’t any value extraction for the customer at this point (that happens in onboarding), but you can still turn them off with an overly long, clunky, invasive, or confusing set up. It’s important to make this step quick and easy, and ensure the customer is ready to move on to the onboarding step without any roadblocks.
Onboarding is the first time your customer will interact with your product. You never get a second chance to make a first impression, so it’s crucial that you make this process seamless, pleasant, and most importantly, clearly convey the value you can provide. You want to deliver the kind of early successes and “ah-ha” moments that will make it a no-brainer for the user to want to immediately move on and become engaged with your product.
As SalesLogistix CEO David Taber points out, “‘Onboarding’ applies to nearly any sophisticated cloud app, whether it comes from a vendor or from your own shop. If first impressions rule (and with users, they do), then the perception of software quality will be forged in the first 90 seconds of users’ first encounter with your installation and configuration mess. Whoops.”
Now that you understand the lost revenue these early churners represent, you’re probably feeling like you need to do something about it. And you’re right, you do. But don’t worry -- it’s far from impossible to bring this lost group out of the dark and into the light of active usage, if you follow a methodical approach.
Boosting Your Churn IQ
The following step-by-step process will help you correct the root of your early churn problem, until your lost group of early churn users becomes healthy, active, engaged -- and revenue-producing -- customers.
Define the value you’re creating for your customers with your product
What job did your customers hire your product to do? Remember, they fired another product in order to switch to yours. They were putting their faith in your promise that your product would do the job better than what they were using before. If you aren’t crystal clear on what that is, go back to the drawing board and hone your message. Because if you don't know what value your customers expect from you, how can you convey it in onboarding?
Understand how your customers define success
What struggles and obstacles have your customers been facing when trying to do the job they hired your product to do? How will you ease those struggles and obstacles? What do they hope to achieve with your product? How do they define success? Onboarding is the time to show them the answers to these questions. This is your chance to win them over and demonstrate how you will make their lives easier and better.
Create “ah-ha” moments and quick wins that align with your customer's definition of success
Once you understand the job your customers hired you to do and how they define success, it’s time to figure out how you’re going to convey your value to them. How do you do this? By providing a big and easy success early on, the kind that leads to an “ah ha” moment for the customer.
Slack has nailed this concept, and Slackbot is an especially effective aspect of their onboarding. Users are able to ask Slackbot a question, such as, “How do I create a new channel for chat?” or “How can I search older messages?” Slackbot responses are to-the-point, easy to understand, and walk the user through the elements of the product that are relevant and useful to that particular user, helping to create early “ah-ha” moments.
Map the ideal setup and onboarding experience
Now that you’ve got all your ducks in a row, it’s time to build your step-by-step set up and onboarding roadmap. Map out the precise experience that you feel will deliver the value you need.
Build internal stakeholder support
Make sure that everyone in your organization is aligned around the importance of preventing early churn through effective, targeted setup and onboarding. No matter the players involved -- marketing, development, front end, sales -- make sure everyone is on the same page when it comes to the value of your product for the user, and they ways you will convey this value at such a crucial early stage of adoption.
Simulate, test, observe
Make a lifelike simulation of your new setup and onboarding process. Test it with real users, and observe their struggles and obstacles, and make tweaks as necessary.
Measure and iterate
Once you deploy your new process, don’t just set it and forget it. As well as measuring the customers who move from onboarding to active usage, you must continue to monitor early churn and iterate on your onboarding flow.
No customer should be taken for granted at any stage of adoption, but to ignore early churn -- the large group of users who may be churning before they even become customers -- means you’re missing out on a lot of potential revenue that could kill your business.