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There’s a lot of Internet advice that makes a lot of sense, but not necessarily in SaaS. Somewhat bad advice that entrepreneurs share again and again, without having really tested the ideas behind that advice.
One bit of advice you hear again and again, that I 93% disagree with, is “Fire The Customers That Don’t Fit. Fire Your “Bad” Customers.” The ones that suck up too many scarce resources relative to the revenue they generate. I really think, at least in SaaS, this is some of the worst advice you can get.
Everyone gets the issue(s) that’s been through it. You get to a certain point, say 1,000 customers, or $2m in ARR, or wherever, and your customer base starts to segment. One piece of it — say 5%-10% — constantly complains. And/or, one piece of it — say 5%-10% — uses an edition of the product that you don’t really want to keep investing in and supporting, because you want to invest in the other 90%. Or more simply, sometimes the bottom 10% of your customer base in terms of ACV just takes way too much time. The small guys suck up all your customer success and support resources, even though they make up only a small percent of your revenue.
I totally get it. At Adobe Sign / EchoSign, the single largest consumer of our customer support resources was our Free users. The second largest consumer of support resources was our $15/month customers. The guys that paid > $100,000 a year? While they had a lot of needs from a solution architecting and onboard perspective, and got the majority of Customer Success resources … from a day-to-day basis, on a relative dollar basis … the least demanding. They paid 100x or more per year but took basically the same or less amount of customer support resources, and even when you add in customer success, they still took far less resources to support per $ of revenue than the smallest customers.
So fire the small ones, the annoying ones, the non-core ones, you say?
I say think about it differently:
- First, you will be shocked — shocked — at how little complaints are correlated to renewal rates and customer “happiness”. The customers that are really going to churn because they are so frustrated they aren’t going to renew … they don’t complain. They don’t whine. They just quietly leave the weeks before the renewal is up — for your competitor. Seemingly out of nowhere, sometimes. Complaints by contrast are often a sign of deep engagement with your product, coupled with frustration. No product is perfect. But these complaints don’t mean the customer isn’t all-in and committed. And complaints can also sometimes just come with the territory. Some customers just plain like to complain. I can tell you from personal experience, the most complain-y customers also renewed at very high rates. You should hear the complaints, try to address them, and recognize the learning in them. But don’t assume the customer is lost, or not worth investing time in.
- Second, those customers you fire may turn out to be the growth layer you want just a few months down the road. The ones that push your product in a way you don’t want to support today? That want stuff on your feature roadmap from 2 years from now? The ones that constantly threaten to leave, and that suck up tons of time from your support team? You may be surprised that they are actually showing you the future. A good future, at least a small part of it.
- Third, even the customers that cost more to support are probably ROI positive if you add in second-order revenue. I know you may think a customer that only pays you say $150 a year and creates 20 tickets a month can’t possibly be ROI positive. But … what if you keep that customer for 4 years? And she refers you 2 more customers, one way or another? All of a sudden, that customer is worth $1800. Is that really not enough to pay someone $15-$20 an hour to support? At least while you’re growing, I’d argue it might be. Not all your customer segments have to be profitable, as long as the (vast) majority of them are. You can still learn from the ones you just barely break even on. And if they are happy, your long tail of small and even free ‘customers’ can be your mightiest source of evangelism and marketing.
And finally, note there often is a bit of … laziness here. The team, especially your engineering team and sales teams, may just not want to deal with the drama of a complaining segment. It may not be in their interest to deal with the whiners when they need to hit the plan this quarter, to get those big featues out. So they may even push you to dump a complaining segment, when that’s not necessarily the right choice for the long term. Focus matters. But the team often has short-term focii. Your job is to extend the focus when folks can’t always see the forest for the trees.
So what’s my uber-advice here? If you have a customer segment that is (x) annoying, that you don’t really want today, that sucks up all a lot of your customer support time … but (y) that is generating at least $20-$100k in revenue per year as a segment, and/or at least 5% of your revenues … then don’t fire those customers. Instead, (z) hire them a psychiatrist. You don’t have to give them any more story points, or sales attention. Just the attention of this one brand new hire.
I mean this almost literally. Hire a new person to your team, brand new, without baggage. There’s enough revenue here in the segment, or will be, that you can at least cover her basic costs, this new hire. He or she probably can’t solve any of the complaints, the problems, the issues. But she can listen. Take over the complainers.
That alone can relieve all the stress on the existing team of having to deal with these issues.
This new hire or hires will just listen. Do on-site visits, maybe, where practical. Talk through the concerns. Track the issues and concerns with the customers … but probably not really change anything. Not burden the product and support teams. In fact, just be a buffer.
Then, you can keep the revenue. Capture any positive second-order effects. And, most importantly, see where these customers take you later.
The last thing you’d want to have to do is re-earn those customers later. It’s so hard and expensive to acquire customers in SaaS. Keep them as your laboratory to learn from, if nothing else.
(note: an updated SaaStr Classic post)