Overcoming External Drivers of Churn in B2B SaaS

The secret to success in B2B SaaS is not one-times sales; it's building lasting relationships with customers. The strength of these relationships keeps customers loyal through ups and downs, secures a revenue stream that can afford rising acquisition costs, and determines the ultimate value of your company.

And let's not forget, happy customers can become your biggest cheerleaders, bringing new customers to your doorstep.

The secret to enduring relationships, as we previously explored in "The Four Pillars of B2B SaaS Retention" is delivering value so compelling that cancelling is unthinkable, making sure this value stays top of mind, establishing an emotional attachment via a delightful customer experience, and maintaining trust through consistent communication.

But why is this so much easier said than done?

One reason is that the causes of churn are not entirely under your control. This article discusses the external forces that commonly cause B2B customers to churn from SaaS products, and recommends ways to mitigate each of them.

In an age where new customer acquisition costs are sky-rocketing, retaining customers is an art that every business needs to master.

– Neil Patel, Co-founder of NP Digital and Crazy Egg

Customers Are Captivated by the Lure of Novelty

With technology hurtling ahead at a blistering pace, and receiving prolific attention in the business press, it's no surprise that customers often get drawn to the "new kid on the block."

For instance, OpenAI's ChatGPT, which popularized large language models seemingly overnight, managed to amass over 100 million users in a mere two months. Almost immediately, B2B SaaS businesses across every industry found themselves inundated with customer queries about incorporating generative AI into their plans.

In such a scenario, companies lacking an AI roadmap are under threat of losing customers to innovative startups.

However, it's crucial to remember that not all that glitters is gold. Just a few years ago, blockchain was lauded as a revolutionary technology destined to remodel SaaS, yet crypto has since receded into oblivion after high-profile enterprise initiatives ended in disastrous failures.

Companies that poured resources into chasing the ‘shiny new thing', without comprehending its tangible benefit for their customers, now face the embarrassing aftermath.

Mitigation tactics include:

• Understand your customers' needs well enough to know what new technology will be relevant to them, and what is a distraction.
• Establish an innovation advisory board, composed of key customers, to regularly consult on new technological trends. Their insights can help gauge customer interest and potential relevance of emerging technologies.
• Invest in R&D and collaborative partnerships to remain at the forefront of innovation. By actively exploring new technologies, you're in a better position to evaluate their merit and potential applicability to your product or service.

The landscape of competition in B2B SaaS is ever-evolving, particularly when venture capital flows abundantly.

New competitors frequently emerge, employing tactics such as enticingly lower prices, innovative features, or compelling narratives to draw customers away. They can invest heavily in high-impact marketing campaigns, effectively ensuring that potential customers become acutely aware of their presence.

In some cases, they will buy a list of your customers from a vendor and target them directly. For example, in the red-hot B2B SaaS compliance space, Vanta and Drata have both raised over $100 million from venture capitalists and are currently engaged in cutthroat price competition, each reaching out to the others' customers to offer steep discounts if they make the switch.

Mitigation tactics include:

• Fortify your customer relationships before new competitors make their entrance. This way, your customers will be less inclined to contemplate alternatives when they arise.
• Define and continually reinforce a Unique Selling Proposition (USP) that sets you apart in the market. Your USP should be a distinctive strategy that competitors can't easily replicate. This discourages customers from comparing you and your competitors on a like-for-like basis.
• Prepare a compelling counter-narrative to whatever story your competitor is telling. Use your existing communication channels to disseminate your narrative.
• Analyze product usage stats and support tickets to get a sense of which customers might have waning enthusiasm for your product, and start a conversation with them proactively.

There is a perpetual tug-of-war within the customers of B2B SaaS companies about whether to outsource solutions or build the capabilities in-house. The appeal of internally developed solutions can sometimes be quite alluring for customers. They may perceive a potential for cost savings, increased customization, or tighter integration with existing systems.

For instance, let's consider a B2B SaaS company offering a product management tool. They may face the risk of a customer, especially a larger one with substantial resources, deciding to build a similar tool in-house.

This can stem from the belief that an internally built solution would integrate more seamlessly with their workflows, that they could customize it to suit their requirements more precisely, or that this is a strategic capability that they need to control for the future.

The pressure to insource can also be highly personal, such as when an ambitious team leader simply wants to make their mark by overseeing a large software development project.

Mitigation tactics include everything you would do to counter the advances of direct competitors, plus:

• Educate customers on time-to-value. Reinforce the advantage of the immediate utility provided by your service over the time-consuming process of building and testing an internal solution.
• Emphasize the quick time-to-value that your solution offers, enabling customers to focus on their core operations without significant delay.
• Remind customers of the added convenience and security of having a dedicated team ready to assist them. Highlight that maintaining an in-house solution will require constant attention to stay current and secure, which can be resource-intensive.
• Offer flexible and customizable solutions that cater to specific business needs. Customers will be less likely to consider an in-house solution if your service can be easily tailored to their requirements.

Reducing the temptation for your customers to explore alternatives can significantly lessen churn risk from any external force.

It's essential to deter switching, not by implementing inconveniences or dubious practices such as obligating customers to call support during business hours to cancel a subscription (which we highly discourage), but through positive, value-adding strategies:

Establishing community offerings such as user forums, workshops, and knowledge-sharing events can add a layer of unique value to your product. This community-driven strategy not only encourages learning and networking, but it also fosters a sense of belonging. The emotional and identity-based value created through this can make the idea of switching very unattractive to your customers.

Customers tend to stick with platforms they trust and rely on. By making it effortless for customers to migrate their current and historical data to your platform, you create trust and attachment that serves as compelling ballast to churn. Provide a self-service importer that makes onboarding their historical data a no-brainer for them.

Success in B2B SaaS is increasingly a function of customer retention rather than acquisition. This underlines the vital need to strengthen relationships with customers and continually deliver value that renders the idea of cancellation inconceivable.

While some causes of churn are out of a company's control, effective strategies can help mitigate the risks associated with external forces such as disruptive technological innovation, direct competition, and customers contemplating in-house solutions.

Whether through deeply understanding customer needs, crafting and reinforcing a unique selling proposition, or preempting alternatives with a counter-narrative, you can mitigate the external causes of churn. Whatever external pressures may arise, you can reduce the appeal of switching in the first place by fostering a product-centric community and facilitating seamless onboarding of the customer's data files into your platform.