Getting Good at Goodbyes: Optimizing for Retention from Hello with Patrick Campbell, CEO of ProfitWell

Patrick Campbell

Patrick Campbell: There are thousands of products for acquiring customers. There are next to no products for monetizing them and then there are very few products for retaining them, so we thought, “Let’s not be another one of the 6,000 companies for acquiring customers. Let’s try and have these high leverage areas and build some products.” That sounds probably great, nice, and clean, but it was a lot more complicated and all over the place over the years. To be intellectually honest, it’s a little more complicated.

Patrick Campbell: A lot of the stuff that’s plaguing businesses, and I use that very loosely, is pretty fixable, and to be very specific, things like credit card failures. If you’re a credit card-based subscription business, which there are a lot of those, it typically is about 20% to 40% of your lost customers, so if you lose 100 customers, 20 to 40 of them are because of payment failures, which is pretty out of control. That’s why we started building our Retain product to start there. This is a purely mechanical problem and it’s a problem that plagues all of these businesses.

Patrick Campbell: A lot of our views on growth, particularly in the subscription space, are more instinctual or more feeling-based than looking at the data of what works and what doesn’t. It is important because the value of your product is hard to measure and is also one of those things that are going to take a long time to get the right features, the right customer, and all these other things. There is all this more data-y mechanical stuff that can be fixed to buy you more time, essentially. It is not an either-or thing. It’s more of you got to be doing everything.

Patrick Campbell: There are a couple of prefaces to answer that question. I know that this is a subscription-oriented show, so a lot of people are probably already aware, but to make sure we’re on the same page, the beauty of the subscription model is that it is the first commerce model in the history of humankind where the relationship with the customer is built into how you make money. I don’t have to convince you to keep coming back each week. I don’t have to convince you with a coupon because you’re going to go to the store across town. As long as the value is still there, presumably, I’m going to stick around.

With that thought aside, the other thing to keep in mind is that the beauty of the model from a technical standpoint is you’re always theoretically improving the value of the product. You’re shipping new features. You’re getting better at your bug fixes. Depending on the type of product, you’re making that company more money or you’re saving that person more cost. There is this relationship that is much more equal than it used to be. All of a sudden, consumers probably still have more power, but it is a little more equal. The reason I say that is because there are so many different things that influence the value of your product besides just the price point.

When we talk about monetization and experimenting with monetization, the answer to your question is the best companies in the world are shipping some sort of pricing experiment every single quarter or every three months. That does not mean they’re raising their price or lowering their price every three months. What it means is in one quarter, they raise the price because they haven’t raised it in a year. You can only raise your price probably once per year because even if you have the best product and you’re shipping so much value, it’s a little rocking the boat to your point. In the next quarter, they’re doing localization and putting different price points in different regions around the world because everyone has a little bit of a different purchasing power. Netflix is one of the best companies in the world at this. Every single region has a different price. Evernote has 120 different price points across the world. It is crazy.

The next quarter after that, they’re like, “We’re going to take this feature out because not everyone uses it, but the people who use it get a lot of value from it and it looks like they’re willing to pay for it so we’re going to make that into an add-on.” All of a sudden, their revenue per customer is going up. The thing I would say is the best companies are doing something every three months, but the reason is because anything that influences your revenue per customer, your ARPU, ACV, etc., is a pricing experiment. Those are the things that I would focus on. The reason a lot of people don’t do this is because they’re scared. They don’t realize there are so many other things they can do besides raise the price.

You have these brilliant businesspeople, but pricing sits at the intersection of uncomfortable and important, and whenever you have something at that intersection, everyone gets a little squirrely because they don’t want to make a mistake, but as you make an experiment, you realize, “That experiment had some good and bad parts. Now, let’s fix this part and experiment with this.” You should be optimizing anything else in your business pretty continuously.

Patrick Campbell: I would start with either evaluating your value metric. It is how you charge per user, per thousand visits, especially if you are a B2B product, but if that’s a little bit of a harder lift or you are more of a consumer product, I would start with what’s an add on that we can sell. It might be a feature you pull out of your existing plan and make a separate subscription price for, or it might be something where you say, “Everyone keeps asking for this. It’s not going to be in the core product,” and go from there. Both of those have very time-boxed and also high-impact changes.

Value metrics are a little bit scary and a little bit harder to change, whereas things like add-ons are easy because it doesn’t affect anything. You can send a marketing email or something like that. Honestly, most companies are global, and I will go out of my way to say that the best starter project is typically price localization even if you’re a small company with only about 20% of your base outside of your home region. The reason is because it’s a tight thing to research. You can be like, “Our price in the US is this. Our price in Europe is this. Our price in the UK is going to be this.” You don’t have to change anything about your billing system. You don’t have to argue about features. You don’t have to do anything. It’s a straightforward exercise. If you have a very low politics culture, then you can go after, “Let’s raise our prices.”

Patrick Campbell: What I used to say is, “Start with your personas, profiles, or segments.” The entire point of your business is to drive a person or a segment to a point of conversion and then justify that price in that product, and if you have no idea who that person or that segment is, there’s no way you can set up your pricing let alone efficient funnels. That’s the real starter answer, but I want you to get some momentum before you do broader research because it’ll get the team on board with more research.

Patrick Campbell: You just need some momentum. If there’s any product people or marketing people reading this who think, “I know we need to fix our pricing, but I can’t get these folks on board,” start with something concrete as we talked about because when you go in and try to transform the whole company, people feel like the stakes are too high. In reality, they’re not, but people feel the stakes are too high, so start with something where you can get some momentum, and then you start getting addicted to answering more questions and getting more changes. All of a sudden, you have a full-time pricing person working there because there’s enough leverage in that lever for them to use.

Patrick Campbell: This is a very common thing I would say for products as well, like any product team. You try to change the behavior of your customer. Our customers are operators at subscription companies. Even if I convince them, “If you look at this lever, it’s so much more effective than this other lever,” they’re still like, “Yeah, but I’m still going to spend 60% of my budget on the acquisition, sales, and marketing on that lever,” which is fine. I don’t think people should spend less. They probably should be spending more, but it’s like, “You should do that and this other stuff.”

This is why we’ve evolved in making it easy. This is also why we’ve set up our Retain product. We call it Anti-active Usage. It’s more passive. You just set it and forget it. You don’t have to tweak anything or set anything up. If you’re relying on active usage, you have to be in the person’s workflow or you have to be something that’s so entertaining that they keep coming back. Most of us are fighting for that. We’re not that type of product, so we should do it for them. That is where the next wave of a lot of subscription products are going, both from the consumer side and the B2B side.

Person looking at a tablet
Optimizing Retention: A lot of the views on growth, particularly in the subscription space, are more instinctual or more feeling-based than actually looking at the data of what works and what doesn’t.

Patrick Campbell: First off, the most important thing I would argue, and I am not a good person to expound on it, but I can see it in the data, is onboarding. Onboarding is the thing that you should spend your time on. The way I look at this, and to maybe back up a second, is there is strategic retention and then tactical retention. What I mean by that is strategic retention is what most people think about when they think about retention. Do we have the right features? Do we have the right onboarding? How does our support look? How are we fixing bugs?

The largest bucket in that group is typically onboarding because you want to get people that moment of delight or that moment of value that you want the time to value to be really small. This is why you need a good product team because, as you already alluded to, they’re not always going to have the best understanding when it comes to what goes on with those users. All of a sudden, you have all these hundred different types of users and their fragments. Which ones are the best ones? Which ones are the worst ones? That takes a strategic brain and someone banging their head up against the wall studying all types of data and then making an instinctual decision. First, have a good product person or product team.

The biggest mistake I see is people allow growth to drive product too much, or the product is basically project management and the CEO is doing the product. You need someone who’s going to argue, sweat, and say no to every decision when it comes to product. That’s the type of person you need. Those people aren’t necessarily cheap. That’s where I would spend some money.

On the tactical side, this is where I would spend more easy money or quicker money, and these are things like credit card failures. You’re offboarding, which we can get deep into. Offboarding is one of the most underutilized pieces of any retention. It’s how people leave, which is the big theme of this show. The last thing is around reactivations and term optimization, which I alluded to before. These are four mechanical things that, even if you implement them in a crude way and have basic things implemented, I guarantee that your churn will go down.

It’s credit card failures or delinquent churn. If you’re an invoice product, meaning that’s how you make most of your money, it is still a problem but not that big of a problem, credit cards are still a pretty big problem. Even ACH has a problem. You’re offboarding, how do people leave? What do you do when they leave? Those include salvage offers. Reactivations, which is someone who has left and you’re trying to get them back. You’d be amazed at how little companies do even though people leave for reasons that have nothing to do with you all the time. The final one is term optimization. How do you get shorter-term customers from monthly or quarterly plans onto annual plans or even two-year plans depending on the type of business you are?

Those are the four pillars of tactical retention. If you get those taken care of, you can solve up to about 40% of your churn problem. It’s not going to be the majority, but the cost it takes and the time it takes to implement those things, it’s like you set it up then you don’t have to touch it, and it pays dividends over time. There’s always more you can improve. The strategic part with that good product person is death by a thousand paper cuts. The other stuff is we can take a couple of weeks and implement the basics and it’ll pay dividends for a long time.

Patrick Campbell: To use an overused metaphor, when you start dating someone, the beginning is great, but if it doesn’t work out, the way it ends is also pretty important. Maybe you’re not going to be friends, but you don’t want to leave that person hating you. Sometimes, that’s unavoidable. Offboarding is when someone hits that cancel button or sends an email to support saying they no longer want the product or calls in, and I don’t think you should force people to call in, but you should still allow people to call in to cancel, what does that process look like?

It’s not as important as onboarding, but again, it’s more tactical so we can implement some very cool things. We’ve got a lot of data on this that I’m sure I can share on what that looks like of how to save as many people as possible from canceling. that’s what you’re trying to do with good offboarding. You make sure that not everybody leaves who hits that cancel button.

Patrick Campbell: Let me explain the best offboarding flow or at least what we found in the data. This is not only for saving folks. It’s for learning. If you don’t understand why people are leaving or why people love you, you can’t fix those things. The natural question that everybody has, which is great, is why are you leaving? You should ask that. I don’t think it should be a free-form response. The people that are leaving don’t necessarily want it. Some people would give great feedback, don’t get me wrong, but you can follow up to get that deeper feedback. I like to give them 4 to 6 options. Those 4 to 6 options won’t be worded as I’m about to say, but they should relate to what I’m about to say.

It could be something like, “I’m no longer using the product, but I’ll be back. I didn’t see the value. You were missing a key feature.” You might word these a little differently depending on your type of product, but these things are very notable why they’re leaving. You’re going to take that data, give it to your product team, and your product team is going to scrutinize it and maybe follow up with some people with like, “Can you tell me more?” It also could be like, “Do you mind getting on a call?”

Some of those things also might be like, “I couldn’t get a support or sales question answered.” What most offboarding then does, and not everybody has this, 30% is generous, a lot of consumer companies do this because it’s a good best practice, but naturally what then happens is people go right to an offer after that. They’re like, “Stick around for $10 off.” That’s the wrong thing to do or at least it’s not the optimal thing to do.

Stack of coins and a graph
Optimizing Retention: By experimenting with pricing, you learn what works and you evolve with this rapidly changing market and the new competitors.

The next question I want to ask, and this is just the second question, is, “Why did you stay? What did you value about the product?” These are things you can say, “They fixed my features. I got so much value from it.” There are a lot of options you can give again, but the reason I asked that question is because the next thing I’m going to do is I’m going to say something along the lines of, “Considering you really loved our features, but you are leaving because you’re not using it right now, why don’t we get you on a pause plan?” I’m going to tailor that offering depending on what they said.

If they say something like, “I didn’t have enough time to see the value, but I liked your features,” I am going to go, “Why don’t I give you a free month?” If they’re like, “You’re a product that has real costs,” I might be, “Why don’t I give you $10 off this next month?” If they’re like, “I didn’t have a chance to talk to support, but I love the features,” I’d be like, “Here’s a Calendly link. Let’s get you scheduled with support, and let’s ‘save’ you.”

Patrick Campbell: Also, if you give them that option in multiple-choice, people will go to it. With value, if something’s valuable enough, you pay for it even if someone next to you won’t pay for it because they don’t see the value, so saying something like, “It’s too expensive,” is like a secondary emotion. It’s like, “Why is it too expensive?” They’d be like, “You didn’t have the right features. I didn’t have enough time to use it.”

I didn’t state this, but the reason the whole why did you stay or what did you value question is so important is because it serves two purposes. One, it helps your product team figure out like, “It turns out we’re doing well here.” The other thing is it causes this phenomenon that’s almost like a senioritis phenomenon, like, “It wasn’t that bad. It was great.” It reminds them that there is some value there. Most people who are leaving are not leaving because they’re aggravated. It’s a very small portion that those are the ones that we fixate on, but for a lot of people, there’s something that you couldn’t recognize because you have such fragmented user bases that you need to break through that somehow when they’re leaving.

Then, you can make offers. Maintenance plans are something that’s underutilized even in the consumer space. You can be like, “You’re leaving? What if you paid $5 a month so we save all of your data or save all of your settings?” I’d rather have that than a full churn because then I can send them emails about it, and as soon as they come back and start using the product again, I bump them right back up to the fully paid plan. We also learned a lot about pause plans. Salvage offers are a month free, $1 off, or $10 off. They’re these types of things, and then scheduling with support or scheduling with product to talk through things. All of these types of things incrementally lower your churn. This product’s in early access. We’ve worked on it a long time but we’re finally releasing it. We’ve seen even with the most basic things like people who can’t fully implement it, lower churn rates by 20%, and people who are fully implementing, we’re seeing cancellation rates dropped by 35% or 40% in some cases.

Patrick Campbell: If you have terrible retention to begin with, meaning your pre-product market fit is they say, nothing I said is going to help you.

Patrick Campbell: Two questions where you offer something to save them and your language is hopefully helpful, there won’t be a bad taste in their mouth. There are the purists out there who are like, “Let me cancel,” and that’s it, or like, “Don’t get in front of me.” You had a relationship with this person. There’s going to be someone who’s very upset. I ignore those folks. Unless it’s a very large number of people complaining, then I look at what’s going on. Also notice that we’re not forcing someone to make a phone call. I think that’s a big mistake.

Let’s say 100 people leave. They didn’t get saved through offboarding. 100 people are gone. Over the next twelve months, the average subscription company is able to get, depending on the type of vertical they’re in, somewhere between 20 and 40 of those folks back, because again, even if you didn’t get a lot of them with a salvage offer, they know you. Awareness is the hardest part of growth. That’s why we spend so much money on acquisition. All of a sudden, they’re sitting there and they’re like, “I do have that thing I need. I remember I used it. Let me check it out again.” There’s that feeling, but what we found is when people don’t offer some ability to self-serve, they cancel. All of a sudden, that reactivation number plummets. The plummets are somewhere 5% to 10%.

Patrick Campbell: To maybe close the loop on reactivations, it’s pretty straightforward. You just have to email them and maybe offer an offer of a certain dollar amount off or some sort of trial, but a lot of people do not email the people who know about your product and left not necessarily because of you. Those are the best people to email. Thankfully, the volume is not going to be the biggest. It’s not like emailing your marketing list, but it’s a very good segment for you to go after.

Calculator and computer on a desk
Optimizing Retention: The reason a lot of people don’t do a pricing experiment is that they’re scared. But pricing sits at the intersection of uncomfortable and important.

Patrick Campbell: The first part of what you said on whether you should force them into annual, you can do that unless you have a product that has heavy inside sales, meaning it’s a new multi-call close at least and it’s a product that takes time to set up. I think about HubSpot. For me, to set up my CRM or my marketing automation and I’m not using the free tools, but I’m buying the proper core HubSpot platform, it’s okay to charge me annually because it’s going to take me two months to set up and then it’s going to take me another three months to see the value. I’m committing as a customer to a value relationship. You are committing to like, “We’re not going to screw this up. I’m showing you through all my sales and getting the sales engineer on the phone and everyone involved about everything that’s going on.”

That’s okay. Most of us are not that. Most of us think we’re that, and then most of us are like, “There is a use for monthly,” or, “There’s use for quarterly,” or, “Our buyers are more comfortable with that,” because again, a monthly product is almost trying out the product. It’s like you’re giving them a chance to try it out before they make a bigger commitment, and the biggest mistake I see with people trying to optimize for a term is the only time they ask someone to be on a longer-term plan is when they first sign up.

To use the overused dating metaphor, it’s like, “I’m not going to get married to you on the first date or commit to moving in with you. I’m going to want to go on a few dates. I’m going to want to use the product for a month or whatever it ends up being.” The best way to do this is to identify whether it’s B2B SaaS. These are typically customers who are 2 months in or 1 month plus in up to about 10 months. Normally, if it’s subscription eCommerce, it’s the second month up to maybe about 4 or 5 months. It’s where your LTV starts to drop off. When you start seeing that drop-off, that’s when I want to have different campaigns that go out maybe every other month and offer them some discount.

The discounts are important here. People discount way too much. Normally, people who like the product are looking for a sweetheart deal or looking to get in the door, so I would start with one month if you’re a B2B SaaS company. Some B2B SaaS companies go for six months right away. I’d start with one month and maybe ratchet that up to two months, and make sure you phrase it as months. Oftentimes, people don’t understand percentages when it comes to discounts. We see this in the data. Offer two months versus the percentage equivalent. This is a study that has been done in retail for many years now, but it works in SaaS and subscriptions as well.

Patrick Campbell: That’s the exact point. We don’t understand percentages as humans. It takes us a second. If you give me $10 off, I’m like, “I know it’s $10.”

Patrick Campbell: Even my answer to that is not the shortest, so I’ll try to be short as possible.

Patrick Campbell: It’s probably my cellphone. My phone number is also the longest subscription I have ever had, so that’s exciting.

Patrick Campbell: I love my WHOOP. It’s the first fitness product that got me to do stuff I needed to do.

Person holding packages and ringing doorbell
Optimizing Retention: You don’t have the privilege of telling them all the things that your product can do until they fall in love with that first. The first thing you do is you give them value. And the second thing you do is show them more ways to get value.

Patrick Campbell: We’re doing a van tour. I have a camper van that’s branded. I want to go to Fargo and Kansas City. These cities have big subscriptions and SaaS communities, but no one visits them because it’s Fargo and Kansas City.

Patrick Campbell: That sounds great from a vacation perspective.

Patrick Campbell: Done is better than perfect on mostly everything. It’s never done. Nothing’s ever going to be done. It’s one of those things where it’s okay to do a basic version of some of the stuff we talked about and then come back to it a year later and then realize that you’re going to have to do a lot of little things and build time. That sentiment is what I’d want people to leave with.

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Robbie K Baxter

Author of THE FOREVER TRANSACTION & THE MEMBERSHIP ECONOMY; Leading expert on membership models and subscription pricing. http://www.robbiekellmanbaxter.com