[Study] Why Your Clients Churn: Vendasta’s Churn Analysis on 200k+ SMBsBy Dew Smith
“The only thing harder than getting new clients is retaining the ones you have.”
Growing revenue faster than growing costs is the #1 challenge reported by marketing service providers like agencies and media companies (Vendasta Study). Yet, growing company revenue isn't just about getting new clients—it relies heavily on your ability to keep and grow the accounts you already have.
With more technology and service options at an SMB's disposal than ever before, it is becoming increasingly difficult for a marketing provider to capture and retain clients on a long-term basis.
To develop a better understanding of SMB churn patterns, and allow local service providers to succeed in an increasingly competitive and complex environment, the Vendasta team turned their attention to the wealth of SMB data stored within the Vendasta platform.
Below are the factors analyzed and strategies unveiled for keeping your clients from Vendasta's churn analysis on 100,000 SMBs.
What is Customer Churn?
Customer churn is the loss of clients or customers—when a customer terminates their relationship with a provider. This is also referred to as client turnover, or client non-retention. Churn can be defined as the percentage of SMB clients that terminate or fail to renew within a set period of time, such as monthly or yearly.
Understanding SaaS Customer Churn
SaaS churn is the rate at which SaaS (software as a service) clients cancel their subscription with their provider.
Unlike traditional sales models where you sell a client a product and collect upfront, SaaS (software as a service)—which depends on a recurring revenue model—requires you keep that business each month. The success of a SaaS business relies on growing that customer's lifetime value with your company and ensuring their lifecycle is as long as possible.
"Selling the solution isn't the problem. Retaining the client is the issue."
Vendasta's Churn Study on 100K+ SMBs
Vendasta examined over 100,000 SMB client accounts of our agency and media company partners within our marketing platform. The study examined client retention with local marketing service providers over a two year period, examining major factors such as:
- Sales approaches
- Upsells and timing
- Product engagement
- Number of products sold
- Vertical vs horizontal specialization
The study revealed that all five factors above had a substantial impact on client retention rates, with a needs-based sales approach, the number of products sold, and product engagement having the largest effects.
Key Findings on SMB Churn
Some key findings our churn analysis revealed:
- Identifying the needs of SMBs with needs-based selling and providing relevant solutions increases client retention by 30%.
- Upselling has the highest impact on the lifetime of your clients at the 3-month mark, indicating that early re-evaluation is important. Conversely, 62% of clients that were not upsold within the first three months churned within 2 years.
- Selling an SMB 1 product has a retention rate of only 30% after 2 years. Selling that SMB just 1 more product showed an increased retention rate of nearly 20%, while selling an SMB 4 products shows a retention rate of 80%.
- A proper onboarding is key to retention. The sooner that clients engage with the solutions they have purchased, the higher their retention rate. Clients who engage weekly have a 26% higher retention rate than those who do not.
- Understanding and serving the unique needs of an industry will improve retention. Vertical-specific marketing providers have 15% higher SMB retention after 2 years than non-vertical sellers.
How to Reduce Churn
In order to examine churn, Vendasta established three hypotheses for client retention:
1. Needs-based selling is critical for building long-term customers
It is widely believed that a sales approach wherein marketers aim to solve specific pain points with their products—aka "needs-based selling"—builds trust and establishes long-term value. Here, we evaluate how client retention is affected when SMB pain point data is used and a relevant product or service is sold. Additionally, we examine whether upselling has an effect on retention and the right time to re-evaluate client needs.
Solving specific needs and identifying unconsidered needs early on in the relationship not only increases revenue, it also extends customer lifetime.
2. Early and frequent engagement builds stronger relationships
Encouraging early and frequent SMB engagement with your products should establish value, keep your company top of mind, and promote strong business relationships. We tested this through examining the relationship between frequency of SMB engagement and their retention over time.
Early & frequent engagement is key. Creating a unified experience for the customer and getting them to see value in their solutions by engaging extends customer lifetime.
3. Providing more solutions will reduce churn
The more problems of your clients that you solve, the more meaningful you are to their business. Understanding your clients' problems and being able to provide them with what they need to solve those problems will reduce churn. To test this idea, we examined the relationship between number of products sold and client retention over time. Additionally, we examined the churn rate of companies that specialize in 1 or 2 main business verticals versus those that do not.
Offering more solutions not only allows you to capture a greater share of wallet over the lifetime of that customer, you're also extending the lifetime of that customer.