Is Churn Dead Ep 167

Summary Notes


In a detailed discussion on customer retention, the host emphasizes the importance of understanding churn and its impact on business growth. They highlight that while very small and small businesses focus on acquisition, larger enterprises prioritize customer engagement and lifetime value. The host challenges the common approach to churn as a lagging indicator, advocating for identifying and addressing leading indicators instead. They outline three key strategies for improving customer retention: setting realistic expectations, increasing customer qualifications, and identifying an activation point that correlates with increased customer loyalty. The host shares personal experiences and insights from their company, Gym Launch, illustrating the effectiveness of these strategies in reducing churn and enhancing overall business performance. They conclude by urging businesses to focus on the activation experience to drive customer retention and lifetime value.

Summary Notes

The Importance of Churn in Business

  • Churn is a critical metric in business, especially for those in the software industry.
  • Businesses of varying sizes focus on different aspects; smaller businesses often prioritize acquisition, while larger ones focus on client engagement and lifetime value.
  • Churn is a lagging indicator of business health, revealing issues that occurred in the past.
  • Tracking churn is essential, but many businesses struggle with it.
  • Addressing churn requires understanding its leading indicators and taking proactive measures to prevent it.

"Now I know before you, before you're like, oh my gosh, this isn't about client acquisition, which means it's less interesting... And so what's interesting is that if you look at where everyone is focused at each of those levels, the people who are the most focused on acquisition and marketing and sales and all that stuff are bottom part of that ladder. And the top part of that ladder are the people who are most interested in activation, lifetime value, client engagement, things like that, happiness scores."

This quote emphasizes the shift in focus from client acquisition in smaller businesses to client engagement and lifetime value in larger enterprises, suggesting that the latter is associated with higher profitability.

Lifetime Value Obsession

  • Lifetime value (LTV) is the speaker's primary concern, and they constantly look for ways to increase it.
  • Increasing LTV involves enhancing how much customers spend and the duration of their spending.
  • Focusing on LTV can lead to more profitable business strategies.

"So we know if you've listened to any of my stuff, that lifetime value is like, all I obsess about. It's all I care about. And I try and find as many ways that we can multiply and increase lifetime value of a customer."

This quote reveals the speaker's dedication to maximizing the lifetime value of customers as a key to successful business growth.

Churn as a Lagging Indicator

  • Churn is recognized as a lagging indicator, meaning it reflects past problems.
  • By the time high churn is noticed, the underlying issues have been present for some time.
  • Correcting churn is a slow process, often taking several months to see improvements.
  • Businesses must endure this period with resilience and patience.

"Well, is the problem is that it's a lagging indicator, which means that by the time you see that your churn sucks, it means that you've got issues that happened months prior."

This quote explains that churn's status as a lagging indicator makes it difficult to address promptly, as it signals problems that have already been negatively impacting the business.

Churn Correction Strategies

  • When businesses start to actively work on retention, initial churn can increase as dormant issues come to light.
  • A typical churn correction trajectory sees an initial increase followed by a significant decrease over a three-month period.
  • The process requires determination, as it can be disheartening to see churn increase before it starts to improve.

"When the gyms start using the five force for retention, typically the first month their churn doubles... But it takes twelve weeks and it takes a lot of intestinal fortitude, right?"

This quote describes the typical pattern observed when businesses implement retention strategies, highlighting the need for courage and commitment as churn initially increases before improving.

Leading Indicators of Churn

  • Instead of focusing on churn itself, it's more effective to identify and correct its leading indicators.
  • Addressing leading indicators allows for quicker responses and adjustments.
  • The onboarding experience can be optimized to target these indicators, potentially preventing churn before it occurs.

"And so what we are now focused on within our business businesses is not the churn, but what is the leading indicator of churn, right. What are the things that happen before someone's going to churn so that we can correct the leading indicator and we can see that happen faster."

The speaker highlights a strategic shift to concentrate on the precursors to churn, enabling faster and more proactive responses to customer retention challenges.

Expectations and Customer Experience

  • Setting realistic customer expectations is crucial to prevent churn.
  • Overpromising can lead to disappointment, even if the product or service is good.
  • Transparency about average and below-average results is important.
  • Properly set expectations allow a business to over-deliver and delight customers.

"So when a customer is coming in the door, the expectations of both the marketing and the salesperson of the result they're going to have, and then also the experience they're going to have to get there."

This quote emphasizes the importance of aligning marketing and sales messages with the actual experience and results that a customer will have.

"The reverse of that is kind of unselling, selling against people who sell like that to try and lower expectations of the prospect."

This quote discusses the strategy of unselling, which involves setting lower expectations to avoid overpromising and underdelivering.

"But the thing is, if you set the expectations to the moon, even if you do over deliver, you may still be below the super hot sale that a salesman made, right?"

The speaker highlights the problem with setting expectations too high, which can lead to customer dissatisfaction even when the product performs well.

"We're trying to be as transparent as possible. These are the numbers. Because we know that if we're transparent, then what happens is the expectations are properly set."

Transparency is key to setting the right expectations. By being open about the likely outcomes, customers can have a realistic understanding of what to expect.

Qualifications and Targeting the Right Customers

  • Increasing customer qualifications can reduce churn and improve outcomes.
  • Experimentation showed that working with more qualified customers led to better results and less effort.
  • Targeting the right customers can enhance the effectiveness of a product or service.

"And so we went totally the other direction. We're like, okay, let's be super high qualifications in what we bring in."

This quote reflects a strategic shift towards higher customer qualifications, aiming to improve client retention and results.

"We five x the results of the product by changing the qualifications of the person coming in."

By increasing the qualifications of their clients, the company significantly improved the performance and impact of their product.

"All right? So if you think about that, if you can change the result that you are producing simply by changing the people that you are bringing in, that has massive ramifications."

The speaker suggests that the success of a service or product can be greatly influenced by the caliber of customers they accept.

Community Engagement and Support

  • The host does not run ads or sell products on the podcast.
  • The host's request is for listeners to help spread the word to support entrepreneurs.
  • Sharing and promoting the podcast is seen as a way to contribute to the entrepreneurial community.

"And so the only ask that I can ever have of you guys is that you help me spread the word so we can help more entrepreneurs make more money, feed their families, make better products, and have better experiences for their employee and customers."

This quote is a call to action for listeners to share the podcast, emphasizing the goal of aiding entrepreneurs and improving the broader business ecosystem.

"And the only way we do that is if you can rate and review and share this podcast."

The speaker requests listeners to engage with the podcast by rating, reviewing, and sharing, which is presented as the sole method of support for the podcast's mission.

Customer Reviews and Impact

  • Encouraging customers to leave reviews is a simple action that could have significant implications.
  • Positive reviews can greatly influence the reputation and success of a business.
  • Reviews can also impact others by shaping their decisions and experiences.

"It'll take you 10 seconds or one." "It would mean the absolute world to me. And more importantly, it may change the world for someone else."

The first quote highlights the ease with which a customer can leave a review, implying it's a quick and straightforward process. The second quote underscores the emotional and potential global impact a customer review can have on the business and other potential customers.

Setting Expectations and Selective Clientele

  • Establishing expectations is crucial for over-delivering in marketing and sales.
  • The onboarding experience is essential for setting the tone of the customer relationship.
  • Being selective with clients ensures that the business can deliver exceptional results and build a strong reputation.
  • Working with the right clients leads to positive referrals and avoids negative impacts on the business's reputation.

"And so if you're looking at the three things that I was talking about, the first one is expectations, right?" "Because we only work with these types of people because we know with these types of people, we can help them crush it, right?"

The first quote introduces the importance of managing expectations as part of the customer experience strategy. The second quote emphasizes the strategy of selective clientele, focusing on working with individuals who are most likely to benefit from the service and contribute positively to the business's reputation.

Activation Points and Customer Retention

  • Identifying the 'activation point' in a business is crucial for understanding when customers become significantly more valuable.
  • For Netflix, the activation point is when a show becomes addictive, increasing the likelihood of a customer watching the entire series.
  • ClickFunnels focuses on getting customers to set up a personalized domain and landing page, leading to increased retention.
  • Businesses should aim to get customers to the activation point as quickly as possible to improve retention and lifetime value.

"So there's a key point in most businesses where after something happens, the lifetime value massively expands." "Because it's a leading indicator rather than a lagging indicator."

The first quote describes the concept of an activation point, a moment after which a customer's lifetime value significantly increases. The second quote distinguishes between leading and lagging indicators, suggesting that reaching the activation point is a proactive measure that can immediately influence business processes and customer retention.

Business Model Specifics and Customer Engagement

  • Different businesses have unique activation points based on their model and customer engagement strategies.
  • Orange Theory discovered that if a new member works out five times in the first month, their retention rates increase.
  • Businesses should analyze their most successful customers to identify patterns and replicate the activation point strategy.

"But they figured out that if they could get someone to work out five times in the first month, that the likelihood that the person is going to stay with me is significantly higher."

This quote reveals Orange Theory's specific activation point and the strategy they employ to increase customer retention, highlighting the importance of tailored strategies to different business models.

Analyzing Customer Success for Business Growth

  • Investigating what makes customers successful can inform promotional strategies and business growth.
  • Running a front-end promotion, challenge, or trial can provide valuable data on customer behavior and preferences.
  • Understanding customer success helps in focusing efforts on activities that lead to higher retention and satisfaction.

"And so for you in your business, if you can look at the people who are the most successful, the easiest thing to do is if you just ran, if you're running a front end promotion right now, you're running a challenge, you're running a trial, you're running whatever, right?"

The quote advises businesses to examine their most successful customers, especially during promotional periods, to identify what contributes to their success and how the business can leverage that information to enhance customer experiences and outcomes.

Understanding Customer Retention and Churn

  • Examining customer cohorts can reveal patterns in behavior leading to retention or churn.
  • Activation points are critical moments that determine the likelihood of a customer's long-term engagement.
  • Identifying and optimizing these activation points can significantly increase customer lifetime value.
  • Churn is a symptom of deeper issues in the customer experience and focusing solely on it doesn't address the root cause.

People who converted. And then you can also look at the people who stayed for six months, and you can look at both those as cohorts, as groups of people, and look at the actions that happened before that, right?

This quote emphasizes the importance of analyzing customer groups based on their conversion and retention over time to understand common behaviors or actions that might have influenced their decisions.

So if you're looking at all the people who converted at the end of your challenge, for example, whether it's a detox or whatever, if you know that all of those people made it in for the first two weeks and they came in six times or whatever, then the likelihood that.

This quote suggests that frequent engagement, particularly in the early stages of the customer journey, may be a strong indicator of future retention.

And there's a reason that companies, as soon as they figure out their activation point, they explode, because then it gives you something that you can quickly iterate off of, that, you know, you can drive everyone towards, which is going to multiply lifetime value, rather than constantly playing in the rear view mirror with churn.

The quote highlights the transformative impact of discovering the activation point on a business's growth and customer lifetime value.

And so churn is important so that you know that there is a problem, but it is very difficult to implement solutions to try and fix churn.

This quote acknowledges the challenges in addressing churn directly, implying that understanding the underlying causes is more beneficial for devising effective solutions.

The Importance of Early Customer Experience

  • The initial stages of the customer journey, particularly the sale and onboarding experiences, are crucial in shaping the customer's decision to stay with a business.
  • Customers evaluate their willingness to continue a business relationship based on early interactions, even after making a purchase.
  • The concept that "the sale begins after the sale" underscores the ongoing effort required to maintain and grow customer relationships for long-term value.

Like, do they know how to check? Did someone say all that stuff? That happens super early on is typically when customers are actually choosing or making the decision of whether or not they're going to stick with the business in the long term.

This quote identifies the importance of the initial customer experience and how it influences their long-term commitment to a business.

And so the two times that customers are really making decisions early on is between the sale and when they onboard or when they start.

The quote pinpoints the critical moments in the customer journey where decisions about continued engagement are made.

And then the actual onboarding experience, the first real beginning of them receiving value in those two time periods is when the majority of customers are actually making their decision, believe it or not, whether they're going to come back and stick with your business.

This quote reinforces the significance of the onboarding experience in determining whether customers perceive enough value to remain with the business.

Activation Points and Business Strategy

  • The discovery of an activation point enables a business to focus its efforts on achieving customer milestones that lead to retention.
  • Activation points should be a central topic in business discussions and strategy, shifting the focus from churn to proactive customer engagement.
  • The iterative process of identifying and leveraging activation points is crucial for improving the customer experience and increasing lifetime value.

I just needed a good headline. But what you are tracking, and this is an iterative process, meaning you try it multiple times to try and reverse engineer.

This quote introduces the concept of an iterative process in refining the understanding of activation points and improving business strategies.

It, is if you can figure out what the activation point is in your business, where if this one thing happens, then the likelihood they stay significantly higher, then that is where all of your attention, all of your resources, everything you talk about in your weekly team huddles is how many people did we get to the retention point, right?

The quote emphasizes the strategic shift towards prioritizing the achievement of activation points within the team and the allocation of resources.

Rather than rear view mirror, hey, we had X Churn. What are we going to do about it? Because churn is really an outcome. It's an output. But the process change has to affect the cause, and the cause is we have to get more people to this activation experience so that we can actually keep them longer and multiply off that value.

This quote distinguishes between the symptoms (churn) and the causes (lack of activation experiences) and advocates for addressing the root cause to improve retention and value.

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