Features Pricing Blog
August 12, 2015
Why a SaaS customer hasn't churned when they cancel

When someone cancels their account they're gone, right? Toss them in the churn pile.

Given the amount of time, money, and manpower we spend fighting cancellations, this frustration is definitely understandable. After all, MRR churn is just a name of the SaaS game.

However, what we forget is that those customers who cancel, but still have time left on their subscription, are in a magical period where an enormous, profitable opportunity exists. In fact, just about 1 out of 2 (45.5%) of all churned customers cancel on average 3 weeks before their subscription is officially finished (as seen through examining 149k SaaS customers). If you don't have a system in place for learning from and recovering these customers, you're missing out on a huge opportunity.

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Getting back a customer who still has access to your product is easier than one who no longer can log in. That’s why, with ProfitWell, we flag up cancellations separate from churn. Your account feed shows cancellations as orange and churns as red. We don’t count a cancellation as churn until the customer’s subscription period expires. Let's explore why that's the right decision by walking through why cancellations and churn are fundamentally different before illuminating some ways you can capture this enormous amount of cash you're leaving on the table.

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How Cancellation is an Opportunity to Win Customers

The key here is to think about all of the pros of dealing with canceled customers instead of fixating on the fact that they hit the cancel button. They signed up in the first place. They have experience with your product and a ton of knowledge about it. The product may even still be an habitual part of their workflow. Of course there's a reason they're looking to leave, so the clock's ticking on your opportunity to convert them back to MRR.

In reality, you're going to find that a good group of these customers are essentially gone, but the rest may have cancelled out of a fixable frustration or misunderstanding. Your window's super-small (weeks, if not days) and closing extremely quickly. Yet, it's still open until their account turns red and “churn” officially sets in.


"It ain't over until the account turns red; A cancelled customer is still an opportunity"

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How to Win Back Cancelled Customers

How do we ensure as many of these accounts turn back to green as possible, instead of pending to red? This process comes down to the basics of: 1. initially making contact, 2. identifying key causes of frustration, and 3. implementing these learnings into long term solutions for growth. Let's break these down:

1. Make contact

It all starts with communication. The word 'canceled' can hide a multitude of sins. You have to know what you did to make them leave. Is it because you're too expensive, don't meet their needs, or you just plain ol’ suck in their mind?

We've previously written extensively about surveys and their use (and misuse) for SaaS customer development. This is the time to make that knowledge count by sending a succinct, targeted survey that forces the cancelled customer to pick the biggest and smallest reasons for churning (here's more on setting up relative preference campaigns). We've seen these surveys work best in three main forms:

  1. An exit survey that’s displayed upon hitting cancel

  2. An automated (but seemingly personal) email survey in the cancellation confirmation email

  3. Or a highly personalized email with an open-ended question: What made you cancel?

Remember that time is the enemy here. You need this information as soon as possible. The positive externality here is that this contact shows that you value these pending cancelled accounts, which rekindles cooler leads into being a bit more responsive and much more prone to being rescued.

2. Match solutions to problems

Once you've started to catalog why a customer is heading for seemingly greener pastures, you need to keep in mind the following four concepts: Bought away, moved away, pulled away, pushed away.

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These are the four basic reasons that people are going to leave you, according to Jill Griffin and Michael Lowenstein in their book Customer Winback: How to Recapture Lost Customers–and Keep Them Loyal. Though you may have not heard them in these terms before, all of these reasons and problems will be chillingly familiar to anyone running a SaaS business.

Let's break down each cause of customer cancellation and align the easiest solution to bring them back.

  • Problem: Bought away

    • These are price-driven reasons, which normally boils down to customers feeling like they aren't getting the best bang for their buck. If you don't have properly aligned buyer personas, you'll likely here this excuse considerably more than if your pricing is aligned correctly.

  • Solutions: Discounts, Downgrades, and Better Customer Persona Alignment

    • Discounts: The first viable option might be to give the customer a discount for a specific period. We definitely preach against discounts, and for good reason. We've found that discounts lower lifetime value (LTV) substantially. Yet, you'll also remember we've discussed how they can be a really good tool, when used appropriately - when they're discrete, limited in scope and time, and used sparingly. Winning back a price conscious customer via a discount gives you a bit more time to justify your value or explore the real reason behind their cancellation.

    • Downgrades: If a downgrade is an available option, it could be better than losing the customer outright. A downgrade to a simpler, easier plan might better suit their financial position and needs. If the person has canceled without downgrading first, it can be an easy way to get them back on board at a more manageable level. Keep in mind that this may be a sign of serious value metric problems, as well.

    • Pricing Overhaul: Keep in mind that if customers are bought away at a high rate (greater than 20% of your cancellation reasons), then you have a substantial problem with your entire pricing strategy that needs to be fixed. We've written extensively about value based pricing and the pricing process, but keep in mind that pricing is one of your most effective weapons against cancellations. Align your customers with your tiers properly and this reason will decrease substantially.

  • Problem: Moved away

    • Often, a customer will pivot their company and focus, and as a result, they'll decide that your services are no longer needed. This is especially true of customers who “graduate” to a more enterprise product or venture down to a lighter weight option.

  • Solutions: Trials and Product Feature/Plan Expansion

    • This should definitely be seen as an opportunity rather than a problem, because it's exceptionally likely that this customer isn't the only one looking to move up or down. Treat this customer as the tip of the iceberg for a brand new customer persona and start exploring downmarket and upmarket offerings to accommodate their needs. As you solidify this new group's needs you can then offer new trials on these downmarket and upmarket plans to keep them around. As always, keep in mind that not everyone is going to be your ideal customer, so some of these folks you just may need to leave behind.

  • Problem: Pulled away

    • If the answer from your survey questions is “I am going to switch to using xyz instead” then you still have time before they are committed to the switch.

  • Solutions: Discounts/Downgrades, Re-Aligned Value Propositions, and Better Feature Hooks

    • Discounts and Downgrades: As discussed above, these can be powerful tools to win back a customer in the short term to prove your value long term. Keep them discrete, exclusive, and time boxed (can't say that enough), but also keep in mind that you'll need to work these in tandem with re-aligning your features and value propositions to ensure they don't get pulled away again.

    • Re-Aligned Value Propositions: If they've indicated they're looking to move to a competitor product, then there's some reason they even thought the switch was a good move. This is likely due to pure marketing or some particular feature. Marketing can easily be solved through better positioning on your part. Make sure you're digging deep on why the competitor was looking good in the first place.

    • Better Feature Hooks: If a feature is the reason they're getting pulled away, then you clearly have a problem with the product not hooking into your customers enough. You may need better email notifications and reporting. You may need some feature that's been backlogged. You may need a lot of things. The long and short of the problem though is you're missing something, and your product team needs to double down on retention.

  • Problem: Pushed away

    • This problem can be split into two separate parts: an intentional push, and an unintentional push.

      • An intentional push is when a member of your customer's team starts briefing against your product. They could have their own personal preference for a competitor, become irritated by a certain feature, or had a specific bad interaction with your company. Whatever the reason, they don't want to use your product and that is pushing the rest of the team away.

      • An unintentional push comes from your side and is one of the biggest and most common issues affecting SaaS businesses. This takes the form of neglect. Customers end up feeling that the service is poor quality or that expectations of the service have gone unmet.

  • Solutions: Better communication and customer support

    • In both these cases there is likely a highly specific issue behind the cancellation that likely can be solved or at least mitigated by better communication and customer support. At the very least, you'll be able to minimize the amount of festering a particular uncomfortable situation creates by making sure you're always keeping the user/customer top of mind and your customer champions are doing their jobs properly.

3. Always Be Learning and Closing

From start to finish, communication runs like a thread through winning canceled customers back. You need to find out why they want to leave and then you need to discuss with them why they should stay. Ultimately, your product will need to do the talking though. You might keep them around for an extra month or two with a discount or a trial extension, but if the new features you promise don't materialize, or they still feel ignored by your company, then they will cancel again, and second time round, you're very likely not to win them back again.

SaaS businesses need to be perpetually closing. Every renewal of a monthly subscription is like selling to the customer afresh. They can cancel at any time if your service or product doesn't meet their standards. The type of communication needed to win back canceled customers should be happening all the time, with your best customers as well as your disgruntled ones. All customers are potential cancellations, and all cancellations are potential churn. The more you talk to them, the happier they will be.

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Andrew Tate is a UK-born, US-based writer. He spent 10 years working as a scientist in labs around the world and now specializes in using data to tell stories.
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