How to Reduce Churn with Product Qualified Leads – Webinar
In this webinar, Amaan covered Bonjoro’s growth story. Bonjoro’s churn jumped significantly in a short period of time and 80% of it was from users who essentially paid for the service before they had received any value (they entered their payment details too early in their journey). By understanding and introducing PQLs, Bonjoro was able to limit conversions to only users who hit a minimum usage metric (15 videos sent), thereby only converting users who had received value from our service.
In this webinar Amaan covered:
- How to identify an ideal customer profile (and more importantly, a least ideal customer profile).
- Replacing Marketing Qualified Leads (MQLs) with Product Qualified Leads (PQLs).
- How to create a value-based trial process to match PQLs.
- Why churn is a more impactful growth lever than new business.
Amaan explains that before moving onto PQLs, the team at Bonjoro used to rely on numerous analytical tools like ProfitWell, ChartMogul, and BareMetrics. Amaan and Bonjoro CEO, Matt had a bit of an obsession between themselves to check the metrics every time they used to receive an email from these services. In the past few months, they started noticing a customer churn rate through these tools.
To put it in perspective, their churn spiked by 63% in just a matter of few months. This sharp rise baffled the team and they decided to collectively focus on bringing this churn rate down. In the process, they were able to identify an effective blueprint that can help to reduce churn rates.
Identifying your Most and Least Ideal Customer Profile
To explain the concept, Amaan shares an instance here of the SaaStock Conference in Dublin where David Apple, VP of Customer Success at Typeform, shares his views about churn in one of his talks.
David shared that they segmented their churn and found some insights like:
- Not all churn is created equal. Different types of users have different types of churn.
- Different types of customers churn differently. This depends on their behavior.
To understand their churn, Typeform segmented their customers based on customer behavior. In the process, they realized that they have 4 different types of customers.
These were defined as:
- One-Offs: Customers who would come on Typeform, register, use it once, and then churn away.
- Casuals: Customers who would use Typeforms once in a few months.
- Re-activators: Customers who would start using Typeform regularly after a period of non-usage after registration.
- Stickies: Customers who would use Typeform on a regular basis.
All these segments were then taken and a retention curve was charted out for all of them. Here is what they found:
As you can see, the annual ROI of acquiring One-Off customers actually negative. They were burning more money for this segment than they were earning out of it. Similarly, the ROI of acquiring Casuals was 3x, Reactivators was 4x, and of Stickies was 7x.
Ideal Customer Profiles
As a result, Typeform was able to come up with the profile of an ideal customer by successfully defining his location, industry, role, company size, and use case.
Owing to the success of the process, Bonjoro followed the same procedure and segmented their customers based on their usage behaviors. 5 types of user behaviors were identified as a result:
- Non-starters: Customers who sign up on Bonjoro but send less their 5 videos per week to their customers.
- Beginners: Customers who send 5-10 videos per week to their customers.
- Medium Users: Customers who send 10-20 videos per week to their customers.
- Heavy Users: Customers who send 20-50 videos per week to their customers.
- Power Users: Customers who send 50+ videos per week to their customers.
Least Ideal Customer: Non-Starters
The first category of customers, the non-starters, were identified as the least ideal customer of Bonjoro. Amaan explains that further analysis revealed crucial information like:
- 80% of Bonjoro’s churn was coming from users who sent less than 5 videos per week.
- Majority of this segment was sending less than 5 videos in total.
- These customers were entering their payment details too early.
Replacing MQLs with PQLs
Original Sales Process
Bonjoro made use of Freshsales to chart out the intricacies of their original sales process. The following steps were identified:
- Identifying Marketing Qualified Leads: The sign-ups that passed the initial customer profiling based on the industry, use case, and company size. These were deemed to be more likely to close.
- Identifying Sales Qualified Leads: Leads that have booked demos are analyzed on the basis of their Budget, Need, and Timing to qualify them as ‘Sales Ready’.
- Closed Won/Lost: The deals were then identified as Won or Lost depending on if the payment details were added.
But this method had an issue.
MQLs are very subjective since they depend on evaluations like background details of the company and the prospect. In essence, it is based on the thought of who the ideal customer is.
Moreover, the product of Bonjoro is very self-serve/self-convert in the sense that people sign-up and test the product themselves.
Amaan explains that this means that Bonjoro has little to no control over the conversion process. As much as Bonjoro wants to try and speak to their customers, it usually has no impact since the customers want to get about on their own.
Product Qualified Leads
So the solution here was to move to Product Qualified Leads (PQLs).
Tomasz Tunguz from Redpoint defines PQLs as “Potential customers who have used a product and reached pre-defined triggers that signify a strong likelihood of becoming a paid customer.”
For example, Slack identifies the ‘pre-defined trigger’ as 2000 sent messages collectively sent as a team. This is considered as a defining threshold by them at which a team has received value. These customers are then converted at a 93% retention rate.
The same was implemented at Bonjoro where careful analysis of past data revealed that users who had sent 15 videos or more had greater chances of converting and were sticking with the company longer.
Therefore, from the POV of sales, the Bonjoro team started reaching out to only the users who had sent 15 videos or more. Prior to this, they had a combination of automated onboarding, automated messages from Intercom, etc.
Bonjoro also used to send a personalized welcome video to every customer who signed up. So instead of focusing on every customer, Bonjoro changed the strategy of reaching out to only the sign-ups who were hitting the 15-video mark.
But interestingly, there was no change in the churn rate. Customers still wanted to see a demo, have a conversation and see things on their own before they got onboard.
The solution here was to introduce a new trial process.
Value-Based Trial Process
Essentially, if you have a type of SaaS Product that is:
- Is heavily inbound lead driven
- Offers a free trial
- Has an average deal size of less than $2000
- Easy to set up and implement
Then, you are more likely to be a Customer Success-driven organization than a Sales-driven one. This was the immediate realization at Bonjoro after the implementation of the Value-Based Trial Process.
The 15 Bonjoro Promise
This realization led to the introduction of the 15 Bonjoro Promise. This is the biggest change that the company has made since the inception of Bonjoro.
The Original/Old Product Trial Process of Bonjoro worked as follows:
- A straightforward two-week trial of our paid plan
- Once the customer’s two weeks were up, they could
- Either downgrade to a free plan
- Pay and continue using the full version
The New overhauled process under the 15 Bonjoro Promise was that every user had their trial period end after 2 weeks or 15 Bonjoro’s sent, whichever comes later. This means that:
- Users can even send 500 videos in the two weeks of trial
- Users who sent 0 or 10 or 12 videos have the trial period running indefinitely till they had sent 15 videos.
This translates to the fact that only the users who were getting real value from Bonjoro would pay for it.
Customers who were paying for Bonjoro and churning were essentially not getting any value from it. The new process made sure that money only came from satisfied customers who reach the tipping point of 15 videos.
The result was a drop in the churn rate by more than 60%.
Why is Churn a more Impactful Lever to Pull than New Business
Sales is often regarded as the driving force that indicates the growth of a business. But the process executed above proves that churn is a much better lever to pull than continuous sales.
Amaan puts this into perspective by mentioning about a SaaS Calculator from Nickelled that enable you to measure the growth ceiling of your SaaS business.
Growth ceiling here is defined as the moment when the number of customers churned become equal to the number of new customers added.
The calculator runs the numbers by asking you details like:
- How many customers do you have?
- How many new customers do you get a month?
- Monthly churn %
- Monthly revenue per account
Bonjoro ran the numbers both before introducing the PQL and after it. In the Pre PQL trials, the calculations revealed that the business will hit the growth wall in May 2018. At this time, the growth would have slowed down dramatically since Bonjoro would have reached 75% of the possible growth at the current growth and churn rates.
Moreover, the business would have reached a growth ceiling in June 2018, which was just two months away from when Bonjoro ran the numbers. The business would not have grown past 310 customers $9920 in recurring revenue.
So after they introduced PQLs and dropped the churn rate by more than 60%, they ran the numbers again in a Post PQL Trial. Interestingly, the growth wall had shifted to June 2019 and the Growth Ceiling to July 2024.
Hence, by dropping their churn by 63%, the team had bought themselves 6 more years of Bonjoro.
Recommendations from Amaan:
- Watch David Apple’s SaaStock Presentation on Youtube in which he explains in detail about the whole process they followed at Typeform to bring the churn down.
- Analyze the product behavior to segment the customers into a few groups.
- Measure the retention of each group and identify your Most and Least ideal customers.
- From your most ideal, look for a tipping point that is an indicator of users getting value from your product.
- Make that tipping point your new Product Qualified Lead metric + build your onboarding and conversion process around that PQL metric.
- Update your trial process or shift sales focus on interacting and converting as many of those PQLs as possible.
Now, sit back and enjoy lower churn
Identifying your Ideal Customers by Nichole Elizabeth
How to use Bonjoro to Improve Sales Performance by Patrick Barnes
This webinar was brought to you by Freshsales CRM. Freshsales is a sales CRM built to help you stop juggling multiple tools. It’s ideal for small businesses and refreshing for enterprises.
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