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From Sign-Up to Superfan: Dale Harrison’s Secrets to Successful Customer Onboarding
169 Plays3 months ago
In this episode, I sit down with Dale Harrison to dive deep into one of the most critical—but often overlooked—aspects of customer success: onboarding.
We all know that a great first impression can make or break a relationship, and it's no different when bringing new customers on board.
Dale shares his expert insights on how a well-crafted onboarding process doesn't just get customers up to speed but actively drives product usage, builds loyalty, and significantly reduces churn.
Whether running a SaaS company or offering a complex service, this conversation will give you actionable strategies to turn first-time users into long-term advocates.
If you want to boost retention, improve customer satisfaction, and nail that all-important first experience, you won’t miss this episode.
This episode was sponsored by LeadFeeder - https://bit.ly/3ySLl4o
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Transcript
Introduction to Marketing Spark
00:00:00
Speaker
Welcome to Marketing Spark, the podcast that brings you actionable insights, strategies, and stories from B2B and SaaS entrepreneurs and marketing leaders. I'm your host, Mark Evans.
Why is onboarding critical for B2B SaaS?
00:00:10
Speaker
Today, we're discussing one of the most critical components of customer success onboarding. Now, when we think of onboarding, we often think of it as a one-time process, get the customer started and then move on. But in the B2B SaaS world, onboarding is so much more than that.
00:00:27
Speaker
It's the moment when your product either becomes indispensable or forgettable. As important, it ensures that customers see value quickly. They can determine whether they want to stick around for the long haul or churn after a few months. Given the importance of onboarding, many companies fumble the ball. Their initial communication with a new customer is generic, uninspired, and does nothing to build product usage, trust, or brand affinity.
00:00:54
Speaker
Bad onboarding is a puzzling and troubling marketing mystery at a time when it's a huge challenge to attract, engage, and win customers. My guest today to talk about onboarding and lots of other things is Dale Harrison, an experienced marketer who comes at it with a perspective informed by mathematics, statistics, and finance. Today we'll explore how businesses can improve their onboarding processes to reduce churn and as importantly drive long-term customer loyalty.
The first impression: Onboarding as dating analogy
00:01:22
Speaker
Before we get started, here's a quick word about MarketingSpark's newest sponsor, Leadfeeder.
00:01:28
Speaker
Leadfeeder is a tool that helps you cut through the data and turn your website visitors into solid leads. Imagine knowing which companies are checking out your site, tracking their behavior, and integrating all of this with your CRM. It becomes your secret weapon for targeted lead engagement, making it easier for your team to convert website traffic into sales. Head to leadfeeder.com forward slash try for a free demo.
00:01:56
Speaker
When you let the rep know that you fad out about Leadfeeder through the Marketing Spark podcast, you'll get a free extended premium trial. Dale, welcome to Marketing Spark. Glad to be here.
00:02:08
Speaker
Let's start with a softball slash onboarding one-on-one question. What is customer onboarding and why is it so important to set the stage for a successful relationship and also believe reduce churn. You've done a lot of work on this. You recently published an in-depth ah research report looking at onboarding. I wanted to bring on the podcast to provide us with an insight into a topic that fascinates me.
00:02:33
Speaker
One of the ways I describe onboarding is it's like dating. If you think about the customer's experience with the product, it comes in three phases.
Long-term impact of onboarding
00:02:44
Speaker
The initial phase is, you know, all the click marketing, all of the smooth talking sales, sales conversations.
00:02:53
Speaker
That's equivalent to your dating profile. And then there's the dating, which is trying to figure out, is this thing going to work and is it going to turn into a real relationship and will we move in together? Then at some point, if the dating is successful, you move in together and and then you've got the lived experience of the relationship.
00:03:13
Speaker
And there's ah there's some very good parallels between a customer's experience of your product from initial awareness that you exist all the way through hands-on usage of the product and what people go through with dating. What attracts someone initially of their own online dating is you got a great profile. you You look great in the picture, so they swipe right.
00:03:36
Speaker
and But all that does is it gets you a chance for them to try you out or or for each other to try each other out. If you showed up at that first date with wearing sandals with white socks and having bad breath, or if the first thing you say is that you really wanted to have your baby, that was probably not going to be a second date. And and you can't and if you screw that up,
00:04:01
Speaker
you can't predict it by saying, oh but look what a great dating profile I had. and This is this break between everything that was said during the sales and marketing process, and then what happens during that onboarding process where they're they're trying to figure out how to establish a relationship with the product. If that process is bumpy, you cannot go back and say, oh but look at the great marketing we have, you if nobody cares. What you're trying to get What you're trying to accomplish with that onboarding process is to leave them from a state of not knowing how to use the product and not having the product integrated into their processes to a state where they, not not necessarily like everything about the product, but it meets their expectations and they're willing to make that investment to fully integrate it into their work processes. And in the same way.
00:04:54
Speaker
A lot of relationships aren't with people who are absolutely perfect in every way. They're good enough in most ways and very good in particular ways that count. This is very much the same with product is that no product is going to be perfect. There's going to be things that you really wish it did or we wish it did better, but does it get the job done for you? Is it worth making the investment? like but Again, it's very much like dating, but then when you move into the actual long-term usage of the product, again, you have this sort of lived experience with the product. And what matters at this point, once you're past that kind of past the dating phase or past the onboarding phase is that so nothing that marketing or sales has ever said in the past or will ever say in the future matters. What happened during the onboarding process is going to to determine what the trust levels are.
00:05:45
Speaker
But what really matters once you move in together is what's the lived experience of living with this person? If it turns out that you've got that your partner discovers that you have a hair trigger, anger issue,
00:05:59
Speaker
that that she had to keep calling the cops on you, that there are temporary restraining orders. You cannot fix that by going back and saying, hey, but look at what a great dating profile I had. Because again, nothing that marketing and sales has ever said or ever will say in the future matters at that point.
Common onboarding mistakes and solutions
00:06:15
Speaker
It's that lived experience. What happens is that once you've gotten through the onboarding, what matters is the product doing the job. Is it working? What's the lived experience of the product?
00:06:27
Speaker
But your perspective on that lived experience of the product is going to have a lot to do with the onboarding. One of the things I always talk about is how a poor onboarding experience will leave a sort of psychic scar that can never completely be healed. And again, going back to real to to personal relationships, if If once you move in together, it turns out that you're a selfish narcissist, but there were hints of that during the dating, they're going to say that this guy was clearly always a selfish narcissist and now it's really coming out.
00:07:02
Speaker
If you were, if the dating experience was really good and you were very generous and even tempered, you're going to have, there's going to be trust there and there's going to be, you know, maybe he's going through a bad period because I know he's a good guy because I saw him at his best. And when we were dating and it's their willingness to stay in the relationship.
00:07:24
Speaker
is going to have a lot to do with the trust that was built during the onboarding. b and this thing The same sort of middle models are going to work onboarding with products. if If the salesperson is directly lying to you about the product,
00:07:40
Speaker
If the onboarding the customer success people are gaslighting you during the onboarding, if they're telling you that it's doing you that it's doing things when you clearly know it's not doing things, there's going to be a lot of trust issues. If anything breaks down in the future, even if they stick with you, if anything breaks down in the future.
00:07:59
Speaker
You're going to have that history of mr there's going to be a tendency to interpret a bubble, some sort of a stumble with the product in the future is going to be interpreted through the lens of, is this fundamentally a company I can trust or is this a fundamental, fundamentally a company that has proven that I can't trust them or I can't count on them to be there when I need them. There's really no way to fix that. You got one shot.
00:08:24
Speaker
at being able to create that initial impression. And that's during that early onboarding phase. You and I appreciate the importance of onboarding to set the tone for the relationship to establish the rules of engagement, to maintain that delight factor that validate someone's confidence in our product and the fact that we're going to deliver the goods, that we're going to meet the brand promise and that we're going to allow them to say, yes, I made the right decision.
00:08:59
Speaker
But I guess the question is, in your experience, what are the biggest mistakes that companies make during the onboarding process? What don't they do? What do they take for granted? ah Where do they drop the ball? Because I look at a lot of onboarding and I sign up for a lot of products. Some of them paid, some of them free.
00:09:19
Speaker
Very rarely will I come across an onboarding process where I receive will receive one, two, or three or four onboarding meet me emails where I go, that is smart. That is prescriptive. That is offering me value. This is a company that I like and I trust and I see that they're vested in my success.
00:09:40
Speaker
as opposed to simply seeing my relationship with them as a transaction. Where do they go wrong? You've got smart marketers, you've got smart salespeople, but many companies fumble the ball. It's going back to the data analogy. It's like the person who gets the first date that thinks that they've won the game yeah and not realizing that, no, the game is just starting. I think a lot of companies treat the onboarding process with disdain because we already got their money onto the next one, that there isn't a sense of any kind of a serious commitment to the long-term relationship with that customer. It's all considered a nuisance and a cost that you just want to sweep away as quickly and cheaply as possible rather than really deeply thinking about it. I'll give you an example. I've got a client right now, and one of the early things that we did
00:10:32
Speaker
was look at their, what happened in their churn process during the onboarding period. And what we saw was pretty dramatic. And in terms of a very high loss rate, now it's a SaaS company. It's a PLG product with a pre-tier is often the entry point.
00:10:48
Speaker
with the idea of then converting them to one of the paid tiers. um So a very classic sort of SaaS business model. The problem was that there were just there was very little in the way of um video and text documents to help them onboard. A lot of the onboarding is baked into the design of the product. In this case,
00:11:10
Speaker
You would go through the signup process and then you would be dumped onto this dashboard in the product with no, absolutely no idea what you're supposed to be doing for a second or third. It's up to you to figure it out. and and So one of the things that we did early on this was To sit down and ask the question, what are the different types of customers with different use cases? And what are the things that each of those types of customers need to do specifically first, second, third, and fourth as they come on board?
Enhancing onboarding through feedback and UX testing
00:11:45
Speaker
Part of the problem was that there was product blindness within the company. Everybody was so deeply steeped in this product.
00:11:52
Speaker
that that they looked at it and everything seemed completely obvious and intuitive because they were just so familiar with it and had used had used it internally for so long. I had not used the product. One of the things that I did was as an early part of this project was to basically come in as a brand new account. And they actually had three separate product lines. I did this with each of the three product lines and bring myself all the way through the onboarding process. And I did this in the form of videos. So I would record everything I was doing with a voiceover narration where I'm on stream of consciousness, mentally saying it out loud.
00:12:34
Speaker
what it is I'm confused about, what it is I think I should do next, what is it that I'm looking for that I can't find, all the stumbles are there. And then I did exactly the same thing for each of their major competitors.
00:12:49
Speaker
So that we now have a clear set of comparisons and, and out of this was a lot of very surprising information. So Warren, a lot of the competitors were equally bad, but some of the competitors did certain things quite well. So we were able to then cherry pick the best.
00:13:07
Speaker
that their competitors across the category space were doing and incorporate those. and The other thing was because we had this sort of voice narration of an actual onboarding experience, you were able to highlight the stumbles and highlight the likely places that people were going to get confused. and Out of that process, we then developed a set of kind of customer types. So there are slightly different types of customers that had they they' were going to use the product in a slightly different way. So certain features, it was really important to get set up first. Others were never going to use certain features, so you never really needed to set it up. And we came up with an onboarding sequence for each of these major types of customers. And
00:13:50
Speaker
and We came up with a simpler set of questions that would allow the customer to self-identify. yeah are you Are you trying to do this or this? If you're trying to do this, then this is your onboarding sequence. This is what you need to do first, second, third. When there were both written instructions with step-by-step, with screenshots, and then there was video walkthroughs because you have different kinds of learning styles.
00:14:13
Speaker
And some of this work is still underway in terms of developing the all of the onboarding videos and documents. But the idea was to really get for the company to get out of its head and to see the product through the eyes of a brand new customer who had never seen the product before. And this is, I think, where 99.9% of companies fail.
00:14:35
Speaker
is that they are incapable of getting out of their head, that either you have customer success team, which is deeply steeped in the product, trying to put the walkthroughs together, or even worse, you have the product development team putting the onboarding sequences together. And their problem is that not only do they Are they ultra familiar with the product? They know too much about what's going on on the backend and to to be a reliable teacher of how to work your way through the initial onboarding. So you really absolutely have to have an outside.
00:15:10
Speaker
actor that is willing to walk through that entire onboarding process, but being knowledgeable. again One of the advantages I have is early in my career, I came out of software development. A lot of what I did involved designing in very complex UI UXs. So I have the advantage of coming in with that perspective of having seen a lot of user interfaces, having engineered in detail a lot of UX experiences.
00:15:39
Speaker
and and I had the advantage of being able to see it with a slightly more experienced eye, I was so neophyte for that particular product. I'm still stumbling through, but I have some sense of what I should be expected to see, and which helped me to be able to more precisely define not just the stumbling points, but what the solutions were going to be. right that For instance, there were very critical things that were like on a second tier menu. They should have been pulled up to a top tier menu.
00:16:07
Speaker
The only way to find where it was to systematically go through every top tier menu, looking at every secondary menu selection to find it. And yet it was absolutely vital to to select that choice to be able to go through the initial onboarding. There were details about the product engineering that really needed to be fixed in this process as well. This is often the case with other software products. I also have done engineering work around platforms, about physical like robotic platforms.
00:16:36
Speaker
and we have a very similar issue with physical devices and instruments is that what the engineers think is intuitive is often not intuitive when you start to put it in front of real people. The only way to know if your machine device or piece of software is going to work is you put it in front of a neophyte and have them struggle through the process of trying to figure out how to use it and videotape it. and right Not just videotape it, but record that stream of consciousness talk Out loud, have them tell you what's inside their head as they're going through it so that you've got some understanding of their internal mental state as they're grappling with all of these options. It seems weird in an industry like SaaS, for example, in which they throw out things like long-term customer value, they talk about CAC,
00:17:26
Speaker
There's all kinds of metrics that they point to as far as being, this is how we're successful. These are the things that we should rally around. And then you've got this ignorance or lack of understanding or lack of a perspective when it comes to onboarding or blindness. Yeah, blindness as well is that, and and that's really interesting because you've got smart people who do, who's ostensibly do customer research.
00:17:54
Speaker
customers that should be talking to customers and yet there's this blind spot that they can't see. I guess the question would be, what are the pillars for, if not the ideal onboarding process, but a solid onboarding process that sets the stage for success for the company and their ability to serve a customer and keep them loyal and generate revenue for a long time and success for the customer. And what are the steps or features that are non-negotiable so that the customer gets off to a running start, they're happy with the product, they're happy with their decision, and that it's a win proposition for both parties. know I would say 90% of the problems that a company faces in the onboarding process are out of the control of marketing, out of the control of sales, and out of the control of customer success.
00:18:52
Speaker
it is baked into the engineering design of the product. And this is part of what makes it hard because I think companies, the engineering team is so anxious to add the 14 extra features from the product pipeline in that nobody wants to go back and fix the crap they did early on. There tends to be in organizations an enormous reluctance to step backwards in the product development process and fix stupid stuff they did.
00:19:22
Speaker
instead of just constantly layering on new features. To a large extent, with many companies, whatever you do on the customer success side around onboarding is basically trying to patch up the mess that was left by product development. And this is part of why I think you need these onboarding scripts where you have someone who's not familiar with the product, go through the onboarding process and you record that with their stream of consciousness. Because what you're going to see is lots and lots of things that if the user interface had been slightly different, this would have been obvious, but instead it's like completely hidden.
00:20:03
Speaker
For the example i was using where there was a particular step was an absolute vital thing you needed to see but it was buried down in a secondary menu all you had to do is to bring it up to its on top level menu and suddenly it's right in front of you. And it would have been easy.
00:20:20
Speaker
And it's the short term fix is to have an explanation about, and when you need to do this, you won't find it in the top menu, but you have to go to this particular menu and it's going to be the third item down in this particular menu. And that's what you need to choose where if you just. Designing the product correctly to start with. And I think part of this problem goes back to.
00:20:38
Speaker
there is no There is no UX testing in 99.9% of SaaS products out there. right and insist It is completely being done in kind of this closed hot house environment that contains nothing but programmers.
The challenge of UX in complex software
00:20:55
Speaker
Even if you have a UX person, most of these UX people are not worth a damn because they can get the most obvious problems resolved, but they can't see where the problems are either unless you're doing a systematic UX testing program where early in the development, you're showing alternative versions of the interface to potential users.
00:21:18
Speaker
And you're watching how they interact with the environment and whether or not they're able to figure out what's working and not working. And certainly no companies do this kind of of external UX testing during the development process. you You get really bad software. And even very large companies, anyone who has ever used Salesforce, ever.
00:21:38
Speaker
has experienced just how incompetent UX design can part can be. and again if you're ah yeah If you're a super expert and you've used Salesforce for 10 years, you instantly know for everything is buried. But if you've never used it before and you're trying to produce a particular sort of report that says a particular thing, good luck.
00:21:56
Speaker
It is so deeply buried, and this is why you have this entire infrastructure of Salesforce consultants come in and and do what you need because the software is so badly designed that you can't figure out how to do it yourself, right? So let's assume that You're a company that has been told by users in no uncertain terms that your onboarding sucks. It's incomprehensible. It doesn't add any value. It's uninspiring. In fact, it probably does more harm than good because I've made it. It's a leap of faith to buy your product versus somebody else. After I hit submit on my credit card.
00:22:38
Speaker
I ah get your onboarding flow and it is disappointing. And I immediately say to myself, I made a mistake and I either turned then or I turned later and the company recognizes the pattern and they do some research and they, people like you or me, and they're told that your onboarding is a negative asset. It's actually forcing customers to turn away from your product as opposed to embracing it. So strategically.
00:23:08
Speaker
What would you advise a company if they wanted to take a big step back and say, okay, we need to reload on this. We need to develop an onboarding process that's inspiring, that's prescriptive, that establishes ah an honest and authentic relationship and helps.
00:23:25
Speaker
new customers get immediate value and ongoing value from the product. Where do you start? Like it's a big, big tackle. I think there's two separate issues. One is, are there fundamental flaws in the UX design? And at some point you're going to have to fix those. The second issue is you could have a very well designed UX.
00:23:44
Speaker
But it's the package is doing something that's inherently complex. Even though the UX is well-designed, you still need assistance in stepping through it. It's important upfront to divide out, and it's always a mixture of these two, to divide out what portion of our problems is because simpler things are hard to do because we did a poor job at the UX design.
00:24:06
Speaker
or simpler things are hard to do because it's an inherently complex package trying to accomplish inherently complex things. One of the keys there is getting a very clear sense of the different sort of use cases. and To give you an example, if you look at something like HubSpot, there are people who use a certain subset of features of HubSpot intensely and never touch the other 80 percent.
00:24:35
Speaker
There'll be other people using a certain subset, but it'll be a different 20%. there's probably almost no one that's using every feature in the package. But what you'll see once you start to to go and look at real customers is that certain customers are using it for certain things that are different than how other customers are using the same package. Your customers are not all homogeneous. If you do not understand what those use cases are, because i again, one of the big frustrations with especially for a complex package is
00:25:08
Speaker
the sort of onboarding where you're systematically teaching them every feature. What that means is you never bothered to think through the fact that there are different use cases and that no one uses every feature. What you need are five different onboarding sequences for the five different categories of customers that each have a major use case.
00:25:30
Speaker
Now, again, there'll always be exceptions. You always want to have a more encyclopedic set of resources where if someone, but give you an even better example is Photoshop. How many people use 100% of the features in Photoshop? Absolutely no one on the face of the earth. How many people use 5% of the features and get by perfectly fine because All they really need to do is to just go in and remove the background from this image, make it transparent so they can pull this out and put it on something else. That one task right there for years was complete brain surgery in Photoshop.
00:26:10
Speaker
the amount of hoops you had to jump through and only in recent years have they made it slightly better by actually pulling that one task out into into a separate function that you can more easily access and it's still a pain in the ass. There's absolutely no reason I shouldn't be able to pull the image up and with one click, remove the background. But for whatever reason, Adobe has never managed to pull that one off.
00:26:36
Speaker
And but that's a very common use case for that product. Most people are doing a small number of things over and over again. They represent a standard approach. and I give you another example is I think the reason that Canva and Figma have done so well.
00:26:52
Speaker
is because Adobe did so badly with both their UX design and their onboarding.
Communication and customer trust in onboarding
00:26:58
Speaker
Because Adobe's idea of onboarding is to give you this massive feature dump of everything the product can do. No one has a head big enough to to take all that in. When you come up with packages like Canva or Figma that take 5% of what the Photoshop and can do,
00:27:15
Speaker
But you take the most important 5% and you make it as easy as possible, and now you've got a billion dollar product. There are entire product products like that exist because the incumbent products couldn't get their act together in terms of UX design and in terms of onboarding design. Right. I wanted to ask a couple more questions. One, just going back to a comment that shoes made that once onboarding starts, it doesn't matter what the customer, what marketing told them before, what marketing called them after. So like your advice in terms of, let's say the onboarding process is okay. Let's say it's not terrible.
00:27:56
Speaker
What can companies do from a communications perspective to to stabilize their relationship, to mitigate there the risk of churn? Very little. So that's the onboarding. but youing ins if an board of like os If you have a bad first day, you're never going to recover. Right. Yeah. If you show up on that first day with bad breath and you're wearing sandals with white socks.
00:28:20
Speaker
you know There's not much you can say or do at that point where you're going to recover. and you see this with There's a couple of different and very interesting i think pathological behaviors that I see in marketing groups. One is this idea of customer marketing. so We're going to like keep marketing to them, to the existing customer base, so that we can keep telling them how great the product is. That's called gaslighting. If they know that this product is a piece of crap,
00:28:50
Speaker
ah nothing you say is going to change their lived experience. All it will do is to make them think you're a psychopath. A lot of customer marketing, really, when you tear it apart, is just expensive
Understanding and addressing churn
00:29:05
Speaker
gaslighting that does nothing but but tear down the trust of the company. The second thing that I say, the second marketing behavior I see is a lot of companies will start to do either very targeted, like retargeting ads to you or very specific email campaigns in like the 30 days before renewal. And the problem with this is that nothing you say is going to overwrite their lived experience with the product at that point. That what they think about this product is going to be based on their personal human experience of using it. And if you say something that's consistent with that personal experience,
00:29:49
Speaker
That will be acceptable. But if you say, if you try to tell them, Oh no, that's not actually what you experienced. What you actually experienced was this much better thing. They're going to fake your a sociopath. This is very destructive behavior because if they have decided to not renew by 30 days before the renewal period, they're not going to renew. There's nothing, there's not much you're going to say or do.
00:30:13
Speaker
but The only possibility is to give it to them for free or cut the price in half. You might be able to salvage some. But at that point, it was really about the lived experience with using the product that is driving their understanding. And again, the same way with if If you're in a relationship and you're living with someone who is and abusive an abusive partner, you're not going to fix it by suddenly giving them a Valentine's Day card. you know You're still going to be seen as that abusive partner that I want to get the hell away from. It doesn't matter how pretty the Valentine's Day card was. Again, it really goes back to the product. Let me ask you another question in terms of
00:30:55
Speaker
turn analysis that companies can conductor the onboard process whether it's pay on on the length of the process are there. Ways that a company can identify the likelihood of someone turning during those early days and if so how do you do that. What are the problems that i think this is one of the reasons why.
00:31:15
Speaker
onboarding is not seen as a vital and critical component is because the way that churn analytics is done is deeply fundamentally broken because a typical churn report is going to look at It's going to answer the question of all the people that are active this month, how many people churned? I knew you were going to do an account churn report or revenue churn report. For right now, let's just talk about account churn, so logo churn. So what that report says is that we have 10,000 customers and 100 of them churned. are So we've got a 0.1% churn rate.
00:31:54
Speaker
The problem with that is if that 100 are all people that came on board in the last 30 days, or 50 of that 100 are people who came on board in the last 30 days, that tells a very different story. It's not, we don't have a churn problem. It's, you don't understand what the churn problem is. I've done this for now 25 years. I've worked in other industries that where repeat systematic purchase of product was a core part of the business model.
00:32:23
Speaker
Without a contract. One example you can think of is like the dry cleaners. Every week you drop things off of the dry cleaners. Usually the same dry cleaners. Usually there's a long-term relationship there. You don't have a contract. It's not like SaaS where you've got a contract. So it's not like you've got a one year long contract and you're forced to keep going back to the dry cleaners for a full year, no matter how much you hate them. What's important to look at is there any.
00:32:48
Speaker
the churn rate as it typically calculated, because that basically will absolutely minimize the problem. And what gets even stupider is when you throw NRR in some net revenue retention, because let me tell you, NRR was invented to hide what's really going on in churn.
00:33:05
Speaker
No is meant to gas like the cfo and make them think that things are better than it really is should you be tracking increases and decreases in revenue per count absolutely that's a separate report. To layer that on as as part of your turn analysis is intentionally fraudulent and deceptive.
00:33:25
Speaker
What you need is to see what is the base underlying logo churn rate and revenue churn rate that we're experiencing. But more fundamentally, going back to this issue of the way the churn rate's calculated, if you've got a very large customer base,
00:33:41
Speaker
even if you have a very high loss rate in the early stages of of new accounts, it's going to look very tiny because if you've got 10,000 customers and you're adding a hundred customers a month, even if you lost all of them, it would look like you had a very small churn rate. So what you really want to look at is what's called the, what I call a cohort survival rate, meaning of everybody who came on board this week or this month,
00:34:09
Speaker
How long did each of those accounts last in the system? And what does that probability curve look like? So how many days or weeks did they survive before they churned? The other thing is you've got to come up with a more flexible definition of churn. Do you really see this in a very stark way with PLG products with a free tier? Because there, if they've come on board for free, they can leave for free.
00:34:36
Speaker
If you don't have a PLG product, a PLG business model, everybody that comes on board signs a one-year contract, the same exact behaviors are happening, but now they're hidden because you don't see that until the one-year part point when it's time to renew the contract because you're holding them hostage for a year because you've got a contract. This goes back to product development. You've got to be able to instrument the software.
00:35:01
Speaker
so that you can actively monitor engagement and activity levels within an account. How many seats are logging in? Have the total seats available? ah Have the seats that are logging in? How many hours have they spent? How many you individual task points are being executed? You need to be able to harvest that kind of software at the account level. And this is very easy to do.
00:35:26
Speaker
if you think about it from the from early on when you're designing the software. Because especially with SaaS, it's all running on your servers. So you get to you get complete control. But what you can really need is you need some ability to look at engagement levels. Because what you will see happen is that people that have given up on the onboarding basically just park the software.
00:35:47
Speaker
You'll see usage levels very low or significantly lower than the usage levels of people that are of other accounts that have long incumbency. And you'll also see at some point, if they're switching to another account,
00:36:03
Speaker
You're going to be able to see me this drop in usage as they're starting to move their people off onto from Photoshop to Figma. Again, you can see this as an early warning. The problem with most companies is the only warning they have is when renewal doesn't occur. But you're really masking a lot of what's going on.
00:36:24
Speaker
And the deal is the only people who get hurt by that is the company. That's true. The SAS company. Right. What word analysis is critical because you really have to think in terms of how long did account stay active before churning? Give me, there should be a number that is X number of days or weeks or months that they're active on average before they churn.
00:36:46
Speaker
Lots of great insight, lots of perspective, lots of food for thought for marketers and companies in general in terms of how they design their products and how they market them and how they onboard. What can people learn more about you and what you do? Most of them LinkedIn. So Dale W Harrison, I write about this and other things related to marketing. But the way I threw one one last thing in for people to think about going back to the, to just to close off the cohort based analysis discussion. If you do this sort of survival analysis, where you, where every single account you're tracking a number of how many weeks have they been active in the system before churn.
00:37:25
Speaker
What you'll see typically, and I've seen this for 25 years, I've seen this over and over in companies, both SaaS and non-SaaS, that the rate at which people drop out of a system is like falling off a cliff in the first 30 to 90 days. They have a very very high loss rate. Even if they're not officially churning, you'll see the usage of the product drop In that first 30 to 90 days and then at some point there'll be an inflection point where the loss rate will then radically change into a long term stable um pattern. One of the things about these patterns is that both the early churn rate during the onboarding period and the long term churn rate.
00:38:11
Speaker
follow what's called a poison distribution. And what that means is that you're losing customers on a predefined half-life, just like radioactive decay. So there is some period of time, maybe it's nine months or 14 months, where post onboarding, you're going to lose 50% of your logos in 14 months. And of the 50% that are still active at 14 months, 14 months later, you're going to lose half of those.
00:38:38
Speaker
14 months later, you'll lose half of those again, that it is this decline of curve or loss curve is extremely stable. And what I've seen is this is stable over on the order of years and even decades with companies. There's an extremely difficult number to change by really focusing on the onboarding process. You can dramatically salvage those early accounts that would have, that were bailing out of the software.
00:39:05
Speaker
or bailing out of whatever the purchase is very early on, you can salvage those accounts and get them into the long-term customer base. But once you're in that long-term customer base, There's very little that the company can do to substantially alter that customer half-life. It tends to be one of the most sticky, most stable numbers. And it's 99% of the stuff that people talk about around customer retention is just bullshit. Because
Choosing the right customers for retention
00:39:32
Speaker
what happens is, yes, you can do exit interviews. They're not going to tell you the truth.
00:39:38
Speaker
Yeah. with When, when the person you're dating says, Oh, I really need to rearrange my sock drawer this weekend. I won't be able to make a date. Yeah, they're not telling you the truth. Neither is the customer who bailed out of your product. They will not tell you the truth. but You cannot rely on that sort of surveys or asking them. It is very difficult to, and in many cases, not even the customers are necessarily fully aware in their own minds of why they why they left this product and went to another one. It's very complicated.
00:40:11
Speaker
Again, if you look at from a statistical standpoint, what you're seeing is the account loss rate is following this decay curve with a half-life. But the individual accounts that are leaving, it's as if they've been selected by random.
00:40:26
Speaker
there is no right or reason for why certain accounts leave and other accounts stay. Now, one of the things you can see is you can start to segment out by things and in terms of different types of accounts or how the accounts were acquired and they can have somewhat different loss rates over over time. One of the things that I tell people is the number one tool for minimizing your long-term churn rate is to choose better customers up front. Certain types of customers that are going to be inherently longer lived in your system than other types, and yet they're all going to cost you the same to acquire. If you can preferentially acquire customers, and I'll give you an example. If you're selling software into the e-commerce space,
00:41:13
Speaker
It turns out that if you're selling to customers that have their e-commerce store on Amazon, they tend to be much more stable long-term than customers who have their store on Etsy. And yet, it it's going to cost you the same to acquire an Etsy customer versus an Amazon customer.
Conclusion and contact details
00:41:29
Speaker
So you're much better off pouring all your marketing resources into acquiring Amazon customers and avoid actively going after Etsy customers because you're goingnna you're going to be able to impact your long-term churn rate for your product because you're choosing a a customer cohort that is inherently longer lived in the environment. Thanks, Dale, and thanks everyone for listening to another episode of Marketing Spark. If you enjoyed the conversation, rate it, subscribe via our podcast, Spotify, or your favorite podcast app, and share via social media.
00:42:02
Speaker
And if you're a baby or SaaS company with $1 million dollars to $10 million dollars in revenue, looking for traction to scale, we should talk about how I can help you as a fractional CMO and strategic advisor. You can reach out to me via email, mark at markadvis.ca, connect with me on LinkedIn or visit marketingspark dot.co. I'll talk to you later.