BC Startup Sales Podcast – Driving Revenue Retention During COVID-19 With Ed Fry (Paddle)

This week we were joined by Ed Fry, Head of Growth at Paddle, to discuss driving revenue retention during COVID-19. This episode was largely inspired by an extensive blog Ed wrote about “Wartime Churn Reduction Strategies for SaaS.”

We kick the podcast off discussing what is different about revenue retention strategies in wartime vs. peacetime (in reference to Ben Horowtiz’s famous Wartime/Peacetime CEO blog). When thinking about driving revenue retention during COVID-19, acquisition and expansion have gotten much harder as budgets are more up in the air, as shown in data from ProfitWell. This means that retention is absolutely critical. In wartime, Ed likes to say you need a paramedic not a personal trainer, meaning you need strategies and tactics that you can apply today to have an immediate impact on revenue retention, not ones that will result in improvements 12-18 months down the road.

Next, we break the problem of churn into smaller buckets: active (clicking cancel), passive (credit card expired), pre-churn event (before the churn actually happens), and post-churn event (after the customer clicks cancel or their payment fails). Together these create a nice quadrant map (shown below) which we can use to organize our thinking and plan of attack for each bucket.

Source: Paddle blog https://paddle.com/blog/reduce-churn/

As you think about where to start when coming up with your strategy for driving revenue retention during COVID-19, Ed suggests starting with the lagging indicators (cancellation offers, payment acceptance/recovery) vs. leading indicators (keeping users engaged and happy) because they tend to have a more immediate impact on your revenue retention numbers.

Cancellation Offers (Active churn, post-churn event)

There is a spectrum of friction when it comes your customers’ cancellation path. You can make it frictionless (single click) or a huge pain (jump through multiple hoops, very manual), and everywhere in between. While you don’t want to introduce too much friction into the process (because, after all, people talk), Ed sees a common mistake SaaS companies make is not putting up any kind of offer or re-stating the value prop when a customer goes to cancel.

Here are some tactics you can implement today:

1. Re-state and re-highlight your value proposition using personalized data (where possible) around their usage and the key value metric that you’re driving. Using tools like Brightback can help streamline sending customers to a landing page to do this.

2. Capture insights on why they are leaving and relay this feedback back to the product team. This feedback can also help you identify leading indicators for churn going forward.

3. If they continue clicking through to cancel, try offering a discount. Logo retention is more important than revenue retention right now – better to keep the customer and push pause on their subscription or drop them to a lower tier than lose them all together. Zoom did an excellent job on this when I went to cancel my webinar account – and it worked! (screenshot right)

Payment Acceptance and Recovery (Passive churn)

Based on Paddle’s data, Ed sees that 20-40% of churn comes from failed payments. This is particularly common with credit cards and can happen for a variety of reasons: lack of funds, flagged as fraudulent, expired cards, or a communication breakdown between banks. Enter: the world of dunning tools. The goal here is to have implement an easy way to follow up with people and in that follow up making it really easy for them to auto-update their payment details. When you run into a problem with lack of funds, you want to be proactive about it – use smart retries based on country and payroll timing such that you retry payment when bank balances and credit cards are back to full funds. Ed just released this excellent deep dive on payment acceptance.

Here are some tactics you can implement today:

1. Optimize dunning tools you have in place – re-evaluate the number of messages you’re sending, the logic behind those messages, and the copy within each message.

2. Move off of credit cards onto PayPal and wire transfers where possible – Paddle sees significantly lower passive churn for companies that do this.

3. Run payments through a country’s local currency – this can help lead to up to 9% increase in payment acceptance (especially in countries like Japan). Local banks and local infrastructure better understand local currency, so there’s a higher chance of payments going through.

4. Local acquiring – make sure your payment processor has relationships with the largest acquiring banks in other countries (i.e. Cielo in Brazil). Run payments through local entities where possible to increase likelihood of the payment going through.

5. If the above seems like a lot to undertake, migrate to infrastructure that can run this on your behalf (like Paddle).

Keeping Users Happy and Active (active, pre-churn event)

This is something all companies are thinking and talking about; however, it’s much easier said than done. It is also very hard to generalize advice for this quadrant given every product is so different; however, there are some tactical things you can do no matter what kind of SaaS product you have. It helps to use that same leading and lagging indicator logic when tackling this quadrant, starting with lagging indicators as you can typically have an immediate impact on them.

Here are some tactics you can implement today:

1. Split your retention curve into different parts, and you’ll likely see the biggest drop off is at the beginning of the user journey. It’s probably in that first onboarding experience, and driving that activation. The users who fail to activate and see the value of your product for themselves are very unlikely to stick with it, so this is an important area to focus on optimizing.

2. Split users up by persona/use case and curate messaging and your value prop to each persona.

We wrap up the podcast talking about the importance of tying each initiative, whether it’s acquisition, expansion, or retention to ROI. Paddle put together an excellent ROI calculator to help with this.

Ed Fry runs Growth and Marketing at Paddle, the All-in-One SaaS Commerce Platform. Prior to Paddle, Ed led growth at Hull the customer data platform. His time in tech has been focused on finding new ways to grow SaaS companies. Outside of tech, cooking, flying, and amateur dognapping.

If you liked “Driving Revenue Retention During COVID-19” and want to read more content from the Bowery Capital Team, check out other relevant posts from the Bowery Capital Blog.