While the allure of customer acquisition can pull a founder’s attention, it’s equally important to dedicate resources to fighting churn and expanding revenue from existing customers. One company that has unlocked the secret to solid retention and revenue expansion is Brex, an easy-to-use corporate cards and spend management software in an integrated global solution.
In this edition of CRO Confidential, Sam Blond (former CRO at Brex and current Partner at Founders Fund) hosts his former colleague Lucas Fox (GM of Brex for Startups). They discuss how Fox helped build a churn-fighting, upselling, and cross-selling machine that continues to generate revenue.
Churn vs. Expansion: Where to Start
As many startup founders know, in the beginning, acquiring customers is key to getting off the ground. Still, ensuring that you keep your early customers by providing a positive experience is critical. As Blond comments, “I would say, especially for early-stage startups, oftentimes the focus on making customers successful and expanding revenue comes too late. Oftentimes, there aren’t enough resources that are dedicated to expanding revenue, mitigating churn, making customers successful, when you look at the potential opportunity there.”
Because Fox was the VP of Relationship Management at Brex for a few years, he had an up-close view of this particular shift in focus at Brex in its earlier stages. It was up to him to decide whether to focus first on fighting churn or to expand revenue through upsells and cross-sells. Fox shares the reasoning behind his decision: “The first thing I did when evaluating whether to start in churn mitigation or upsell was to look at our existing customer base. And the nature of our customer base meant that the majority were fast-growing, venture-backed companies that we would acquire at an early stage –– primarily seed stage, Series A stage –– and the nature of these companies was that they would grow a lot throughout their journey…So we started to realize that a customer churning today is really bad for the business because the value of that customer in the future is greater than their value present-day.”
Obviously, each company’s customer base will present unique challenges, but this focus on mitigating churn is applicable to most startups. It’s okay to acquire customers aggressively, but you need a plan to help support successful customer journeys almost immediately. Even if you’re seeing explosive growth, attention to churn should not waver. Fox emphasizes, “The challenge with some of these high-growth companies like Brex is that net new user acquisition sort of obfuscates the problems of customers churning because you’re still growing revenue a lot month-over-month. So despite having churn, you just don’t pay attention to it.”
Steps to Fight Churn
So as you’re building a strategy to combat customer attrition, where do you start? Fox describes five steps to creating a successful process.
- Understand the “Why.” Fox says, “The first step is understanding and measuring churn because it’s imperative to understand why customers are churning and if your churn is regrettable or not regrettable.” Get to the heart of why customers are leaving. Is it a broken product or lacking service? Something missing? Price? Friction in usage?
It’s important to note that these reasons might differ depending on persona, customer segment, or company type, so be mindful of the reasonings coming from each customer type. Remember, this is not a one-time exercise –– it requires continuous investment and attention.
- Set Up Tracking Processes. At Brex, they took actionable steps to monitor churn, including adding inputs in their CRM for AEs that signaled when customers were churning, sending automated surveys when a customer’s spending slowed on Brex, and they tasked a team with manually auditing a client to learn the reasons for the churn.
- Share the Findings. As you discover churn patterns and the factors that cause a customer to leave, it’s important to share them with your entire company. At Brex, the relationship management team wrote a quarterly memo citing the reasons for churn in detail and provided action plans for every department to help counteract churn.
- Predict Churn Signals. Over time and after adequate observation, your team will start to understand the early signals that indicate a possible future churn and can take steps to prevent churn. For example, at Brex, they started noticing a few tell-tale signs that prompted action, like if a credit limit dropped, if a bank integration failed, a certain volume of support tickets per customer, etc.
- Staff a Team That Can Cover a Portfolio of Accounts. Assign reps to look after a specific group of accounts. Hire strong candidates that resonate well with clients and display high levels of empathy.
How Revenue Expansion and Churn Mitigation Serve the Same Goal
Using the five-step churn process, the team at Brex began to gain some valuable insights into retaining customers and increasing the company’s revenue.
Firstly, they noticed that bank integration problems caused lots of churn, so they created an implementation team that would help address this early hurdle and acted as low-hanging fruit to fight a common factor in losing a customer.
However, while the implementation team focused on this set-up area, they also wanted a department dedicated to the long-term upkeep of a customer’s success, so they created a relationship management team. At first, this relationship management team not only worked on customer success but also worked on upselling and cross-selling. Eventually, as the business scaled, the relationship management team split again between churn-fighting and revenue expansion.
So when exactly did the focus shift to revenue expansion after the churn-fighting process was established? Fortunately, the time spent tracking churn meant that they understood that the customers more likely to churn were using other products instead of relying entirely on Brex. So that’s when revenue expansion served the double purpose of contributing to the company’s growth and fighting churn –– they had to convince customers to engage with Brex and make the product more sticky, simultaneously reducing the likelihood of attrition and increasing revenue from the customer. This strategy worked successfully, as half of the company’s revenue was from upsells and cross-sells from existing customers.
Fox says, “We started focusing on upsell as soon as we had a good pulse on churn, and we saw that cross-selling and upselling not only led to more revenue for the business, but also it improved our retention.”
- Don’t start too late with a plan to fight churn –– be ready to start tracking and monitoring churn and understand why customers leave.
- Hire strong candidates to manage customer relationships, particularly those with high levels of empathy and problem-solving skills.
- Use your learnings from fighting churn to help as you begin your revenue expansion strategy.
- Founders should spend more time with customers to gain valuable insight. Your focus on customers will ultimately create a more customer-focused product and service.
Published on February 17, 2023