October 10, 2019 | Divyansh Meena
“If churn isn’t in single digits, it’s absolutely the only thing you should be focusing on” – Josh Pigford
According to KISSMetrics it can cost “7x more to acquire new customers”. Great marketing and sales efforts and monetary investments go in to acquire customers. This is an earned asset, yet it alarming to see that so many organizations fail to utilize this asset to fuel their growth.
Your product or service is innovative, you want to change the world for the better, and your initial customers seemed enthusiastic about your value proposition. You made a great product or service, spent a considerable amount of money on branding, and went to market acquiring many new customers. But over time your customers can go dark and stop purchasing leaving you wondering what happened.
Why did they Leave?
There are two common reasons why this would have happened: Either they have gone to one of your competitors or they just don’t need the product or service, be it coming from you or one of your competitors. To understand this better, consider that one morning you get up and have a billion-dollar startup idea and you are excited to change the world with it. You start looking for a co-founder who would share similar values and passion and would fight the battles next to you. And you sold the idea of joining you to the most eligible co-founder.
You were happy, your partnership and startup were flourishing. But your co-founder has started cutting discussions short, started showing up to work late, started leaving early, missed appointments, started arguments, and the list goes on. Everything seemed normal to you until one day he/she decides to leave. Chances are high that he had issues with working in your venture or he/she just lost the drive and passion which ignited them earlier.
The same scenario can happen with your customers leaving your sales team left to wonder what to do! Your customers THINK that they don’t need your product/ service anymore. The good news is that your sales team is proficient enough to reach out to them and build a sense of urgency in their minds to win them back.
If you look from a sales and marketing perspective, a prospect goes from the awareness stage through the funnel to closing. In the awareness stage, there could be a possibility that your customers did not even know that there is a problem and your solution could solve it. Now that they are well educated about how such solutions even work, the curious might start shopping around to check out their options.
It is not fair that even though you watered the tree, you cannot enjoy most of the fruits. If this was not enough to consider reducing your churn rates. Take a look at these Customer acquisition & retention marketing stats (Source: OutboundEngine)
In the graph below it becomes self-explanatory that once an organization turns 5 years old and is officially out of the startup phase, it is a better payoff to focus on generating recurring revenues from existing customers (Green curve) rather than revenues from new customers (blue dashed line).
Let’s introduce a concept called “Negative Churn”. Negative Churn happens when the expansions/up-sells/cross-sells to your current customer base exceed the revenue that you are losing because of Churn. It’s an amazing result. The business is nearly 116% bigger with a negative churn rate of just 2.5%. Getting to a negative churn is one of the most powerful accelerators for growth. (Source: For Entrepreneur)
Let’s get back to the unicorn startup scenario. Have you figured out why your co-founder left? If you want him/her to stay you will need to answer that question. Bringing in a business partner with the same zeal and skill level would be extremely difficult.
Sales professionals are stuck with that question on a daily basis. There are multiple factors and myriads of data that would cause a customer leave, which is very difficult to analyze with existing solutions. It looks like an inevitable issue that will haunt the sales and marketing team for eternity. Well, an AI-powered churn reduction solution that is built on the base of machine learning, is here to empower the sales and marketing team and reduce churn.
While data comes in from multiple sources and at a fast pace, it could be difficult for humans to process it all considering the dynamic nature and siloed structure of data. But with machine learning models running on Google Cloud, these data silos start behaving as a unified data source and empowers the sales team by flagging customers who show signs of potentially falling out of the customer base, so that your sales team can intervene early enough to retain those customers.
Here are two case studies where AI-powered churn reduction helped the organizations:
Leading the industry in virtualization products and specializing in corporate IT systems and cloud service providers, this enterprise is recognized for driving innovation. This is echoed in our client’s culture which is focused on fostering innovation and change which prompted their renewals and e-commerce teams to look to machine learning and artificial intelligence in the cloud as a means of showcasing innovation to help drive business benefits.
The subscription renewal process was based on a few simple rules that could not scale to match the need for handling multiple low-value renewals. The former methods could not adequately assign risk to renewals, resulting in loss of revenue. Also, they detected many now well-known companies (such as Uber and Airbnb) that had placed e-commerce orders. The rapid growth of these companies surprised this visualization leader, who had no way to proactively detect these companies until they were already household names.
With the AI-powered churn reduction solution built by Pluto7, they were able to drive innovation in the improvement process and saw tangible business benefits like identifying the customer churn rate up to an accuracy of 92% as well as 2-3 potential high-value customers through the Diamonds in the Rough model.
The world’s largest networking company, based in San Jose, California, develops, manufactures, and sells networking, telecommunications, and other equipment and offers security and other services. They are growing their datasets by about 5TB a week. That dataset growth without a doubt comes from their growing customer base.
The increase in the customer base increased the burden on the sales team to retain customers. Manual processes for analyzing data collected from the large install bases slowed validation and results took up to 4 weeks. Slow turnaround limited the sales team’s ability to deliver a renewal quote for customers. On top of the manual processes, There were also a lot of errors in analysis, causing further issues with customers. Consequently, their churn rates increased.
Pluto7 helped this world IT leader by complementing their existing on-premises infrastructure with the cloud-based data platform. Using Google BigQuery to quickly analyze large datasets about customers’ install bases, a platform was developed that could scale quickly for analysis and also set the stage for future use of advanced analytics.
Pluto7 developed a platform that can scale quickly for analysis and set the stage for their future use of Advanced Analytics (such as machine learning). As a result, for each large install base, the time to results was reduced from 3-4 weeks to 50 minutes. Elimination of the errors also improved the overall customer experience. Overall business transformation in this scenario gave an edge to the sales team for a deeper connection with the customers and reduce churn rates.
Whether you take the red pill or the blue pill, it is completely your choice. But before you make the choice, ask yourself two questions:
Whether your organization is for-profit or for nonprofit, you have customers or followers. Growth is what you will want to compromise on. Although we showcased subscription-based IT and software companies, AI-based churn reduction could even help keep Youtube subscribers loyal. If you take one thing away from this it would be the following: SUSTAINABLE GROWTH. If this rings a bell for you and you would like to discover how AI-based machine learning models can help your business then follow us on LinkedIn or feel free to reach out to us at email@example.com and we will never let you leave empty-handed.