This article was contributed to VentureApp by Michael Peach, head of product marketing at Pendo, a company that improves customer experiences with actionable product data.
Successful startups are hyper-focused on growth, often chasing 2x or 3x year-to-year multiples in their quest to capture a new market. Many strategies have evolved to help companies maximize their customer acquisition process, but too many of them overlook one of the biggest inhibitors – user churn. This is why investing in effective customer onboarding can be one of the best growth moves you can make.
Churn – Your Hidden Growth Inhibitor
Companies that are looking to grow quickly are naturally focused on the customer acquisition process–looking at how they can generate quality traffic to their content, capture good leads, and convert them to paying customers as quickly as possible. This is natural. You can’t grow without adding a lot of new customers. However, in the world of recurring revenue, you can’t grow without retaining customers either.
Consider a 2% monthly churn rate. This seems relatively small, but over the course of a year it adds up. Assuming you don’t add any new customers, that 2% churn rate translates into a 21% customer loss over the course of a year. So, in order to grow the business at all, you first have to re-acquire the quarter of your customer base that you’re going to lose.
This doesn’t even cover the impact on revenue. In most businesses (and especially in the B2B technology space), the cost of customer acquisition is much higher than the cost of retention. So the full impact of customer churn is lost revenue + replacement acquisition cost. With this “small” monthly churn rate, your company is actually making a significant investment in time and money just to break even.
Preventing Churn Through Better Onboarding
So why do customers churn in the first place? Most churn can be traced down to two key issues:
- Unmet expectations – where the product experience doesn’t deliver against the expected outcomes of the customer. This can happen because of over-promising on the part of marketing and sales, but often it happens because the customer simply couldn’t figure out how to achieve the things they wanted. They become frustrated and drop out.
- Unrealized value – where the customer actively uses the product for a period of time, but the outcomes they get out of it don’t match the investment they’ve made. This value mismatch could be quantified in terms of ROI, or just be an “underwhelmed” feeling on the part of the customer. Even frequent users of a product can end up in this camp if they’re only using a small part of your feature set.
Both of these issues can be addressed through a better onboarding experience. What is user onboarding? Typically we think of onboarding as the in-app tutorial we’re shown the first time we use a new product, but in truth, it describes the entire process by which a new user becomes proficient with your product. This includes the in-app experience, the training curriculum, and the support a customer receives from your customer success team.
An effective onboarding experience accomplishes two things:
- It helps users become proficient in the features of the product that will deliver the most immediate value to them.
- It encourages them to explore areas of the application beyond their immediate use case that may provide ongoing value in the future.
Once a new customer completes a successful onboarding process, they should understand how the product will provide them with value that aligns with their investment, and why they will continue to receive value over time. If a customer believes both of these things, their likelihood of churning is much, much lower.
One Size Does Not Fit All
One of the biggest blockers of effective onboarding is when product teams try to pack all of it into a single experience that is delivered to all customers. Customers will always have limited patience for training content. If they have to wade through too much of it before becoming productive, their time-to-value ratio increases to such a point that it makes them a churn risk out of the gate.
Different users will have different feature sets they need to learn in order to be productive. Think of sellers and buyers on EBay – each has a completely different set of features that they need to learn to start realizing value. A good onboarding experience uses as much contextual information as possible to tailor the experience to the user’s needs. Who is the user? What is their role? For B2B customers, how large is the company?, etc. All of these details can help to provide a more targeted experience.
In addition to user context, it’s also important to consider learning styles. For most users an in-app walk-through is the best tutorial, but some prefer offline learning. Some want to go through an entire program at once, while others will want to learn something, try it, and come back later for additional learning. You will need to experiment with a couple different delivery methods to find ones that work best for your specific users.
Experiment, Measure, Repeat
Speaking of experiments… Good onboarding is rarely the result of good luck, nor is it usually good on the first try. You should treat onboarding as a critical part of the product experience – which means you should continually test elements of the experience and measure the results.
Remember that results are not just the extent to which the user has engaged with your onboarding content (did they go all the way through the walk-through), but whether the content is generating meaningful user outcomes in the product. Is feature use increasing for items that are highlighted in onboarding? Do customers that complete the onboarding spend more time in the product, or login more frequently? And ultimately, are you seeing a reduction in user churn? These are the key measurements to consider.
Look for opportunities to run controlled experiments with different content for user segments. Try changing the sequence of learning content. Train some users offline, and others in the product. Try varying the amount of content. Each of these experiments will tell you more about your users, and identify opportunities to reduce churn.
Ultimately, not all user churn is preventable. Business conditions that have nothing to do with your product experience or customers for whom the product was never a good fit, may churn no matter what you do. However, an effective, tailored onboarding experience can have a significant impact user churn, and prime your business for rapid growth.
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