Customer Success for SaaS: How We Calculate the Point of Minimum Churn

How We Calculate the Point of Minimum Churn

June 29, 2020 | by Morten Poulsen

Facebook: Early on in the life of the company, the Growth team discovered that a Facebook user who added 7 friends within their first 10 days in the app was far more likely to stick around for the long-term. Hitting 7 friends (in 10 days) became Facebook’s North Star.

facebook 7 friends

Many companies start with a simple North Star-type metric, like Facebook's famous "7 friends in 10 days" success benchmark. Measuring one thing seemed very simple, so we tried it. But at Plytix, we had an extremely tough time nailing down one behavior that set the stage for customer success for SaaS. Our target customers had multiple paths to success and no two companies were ever alike.

Realizing this, we decided to adopt a concept that we knew worked well for our customer acquisition efforts — a type of “lead scoring system” that we named the Point of Minimum Churn (PMC). It worked wonders right off the bat, but little did we know that this would go on to become the most important metric in our organization and would be applied to everything we do.

This idea is very simple: We identified a set of behaviors in our platform and assigned each of them a score based on how much value we assumed this behavior would bring to the customer. It could be as simple as “one user in an account equals 3 points.” So if an account has three users assigned, it would have 9 points. The sum of all points in an account equals a score, and if that score is beyond a certain threshold (for us it was 25 points) then that client had reached PMC — their point of minimum churn. In short, we trust that any customer scoring 25 points or above, is gaining more value out of our platform than they are paying.

perceived value for customer

At any given point we know exactly what the score is across all of the thousands of accounts using Plytix and we use this to identify value-adding opportunities for our customers.

How We Drive Customer Success for SaaS by Identifying PMC Behaviors

Identifying these behaviors can be as straightforward as applying common sense, or they can be identified through regular engagement with our users.

When we started putting this into practice, we used a solid combination of both. We needed to start somewhere in order to validate behaviors and events that influenced product stickiness. The tricky part isn’t identifying the behavior, but knowing what value to assign the behavior.

Assigning the Value

To start, we assigned everything a score of 1. We did this even though we already knew that some behaviors would be more valuable than others. By giving everything the value of 1, we would have everything on a level playing field and start gathering data for assigning the ultimate score. As we gathered data, having everything start with equal weights meant that we quickly identified which behaviors actually had merit to our PMC score and which didn’t.

The next thing we did was to run simulations on all of our customers as well as churned clients. As we progressed, the values became increasingly more apparent. It was a bit like doing a jigsaw puzzle — it gets easier the further along you are.

Assigning the Value

 

At the time of writing, it is important to understand that we don’t see our values as fixed. With constant changes to the market, our platform, and our customer profile, we need to adapt all the time. We run constant diagnostics and simulations and make sure that our assigned values are fine-tuned.

Keeping Track

We continually iterate on our behaviors and their value, based on quantitative product behavior metrics and qualitative user feedback. We do this by tracking the user engagement in our platform, but we also record every engagement with our users and prospects.

And like ourselves, the technologies we are using to track these things are constantly evolving. We are now able to get pretty accurate sentiments on the added value for a certain behavior, sometimes even for functionalities that we have not yet developed on our platform.

How Are We Using PMC Scores for Customer Success In SaaS?

The beauty of the PMC score is that it can be widely used across the entire organization.

In finance: Revenue Forecasting

In any given month, we know exactly which accounts are up for renewals. Our finance department is using the PMC score to forecast the exact revenue churn each month and the results are frighteningly accurate. This way, we leave nothing to chance and we don’t have to incorporate an arbitrarily fixed churn rate that could lead to unpleasant surprises.

The finance team is constantly tweaking our revenue forecast based on PMC scores and the current market situation to make it as accurate as possible. A good example of this is the outbreak of COVID-19, where the finance department was able to predict that our churn would be more or less unaffected, but that many of our clients would switch from annual payments to monthly payments. This kind of change obviously affects our cash flow, but we came prepared.

Account Management: Planning

With this PMC score, we can give attention to people who might be falling behind in implementation or not reaching their success markers as fast as we anticipated. This is sort of like silent service at a restaurant. Instead of badgering users who are enjoying themselves, we observe their experience from afar and approach when necessary.

In our company, we have a rule that all of our customers should be “touched” at least once a quarter and at every touchpoint, our goal is to add value to them. The PMC score allows us to identify which goals would add the most value for each individual company.

Product: Roadmap Management

We can also plan our roadmap and releases to coincide with PMC trends. If there is a major feature we are missing, and we can see that the PMC scores aren't reaching their potential because of it, we can take necessary action. This might mean modifying the scope of a release, culling features, improving UX, or reprioritizing altogether.

We also use PMC to run simulations to see if improving upon an existing feature or developing a new feature would add the most value across the board for our current customers as well as prospective ones.

Customer Acquisition: Onboarding

This is probably where PMC becomes most valuable for us. At Plytix we don’t run standard onboarding processes. We acknowledge that every company is unique and has unique challenges and goals. So when we onboard a new customer, it always starts with a kick-off call between the customer, our Account Executive who’s been running the dialogue up until this point, and the Account Manager who is responsible for the client onward. And yes, each account is assigned a dedicated Account Manager.

The purpose of this kickoff call is to determine the shortest path to PMC, even though it might not seem like the logical journey at first. But as we always explain it, the important thing for us is that the customer sees a tangible return on investment as fast as possible, because that sets the foundation of a good relationship that is built on trust and mutual benefit.

We care a lot about the success of our customers, and the PMC score is our way to reflect accountability within our team. It’s also a way of getting new customers successfully onboarded as fast as possible. Our general rule within the company is that every new customer needs to have reached the PMC within the first 90 days.

We all know that the path to customer success in SaaS is different for every company and every service. Finding the right metrics and benchmarks is key to making sure all your users are as happy as possible.

Morten Poulsen
Written by Morten Poulsen

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