For SaaS companies, it’s important to regularly acquire new customers in order to increase revenue and keep your investors happy. But should you be acquiring customers at any cost? It might seem appealing for your salespeople to attract a high volume of new customers, but it’s not so great when these customers “churn and burn”.
When salespeople acquire bad-fit customers, potentially through misrepresenting the product, this can result in high churn with no ability to recoup your customer acquisition cost. Churn and burn customers are actually costing your business money because they don’t stick around long enough to make it worthwhile acquiring the customer in the first place.
Having fewer but more highly engaged customers, then, is preferable to acquiring a large volume of customers who might not like your product. It’s up to the sales team to find these ideal customers and sell your software to them.
What is a Churn and Burn Sales Strategy
Churn and burn in sales is when your sales team indiscriminately hunts for leads for your product without thinking about whether they will be a good fit for your company. They don’t consider who the customer is or how they will use the product when they’ve paid for their subscription. They may sell your product using features that don’t actually exist, or recommend it for use cases that won’t fit.
The churn and burn sales strategy results in high customer churn just a few weeks or months after buying the product. It’s not an effective way of increasing revenue because these customers don’t stick around in the long term. This method actually inhibits growth and puts the health of your SaaS company at risk.
How Churn and Burn Hurts Your Business
Churn and burn negatively impacts your business in a number of ways. First and foremost, it hurts your company’s reputation as you end up with a high number of dissatisfied customers. Negative reviews and word-of-mouth puts off lots of potential would-be customers who would actually be a great fit for your product.
Incentivizing churn and burn behavior among your sales team encourages bad habits in your representatives. If their compensation is dependent on bringing in as many customers as possible, these won’t be the ideal customers for your SaaS business. It’s better to have a smaller number of loyal and satisfied customers rather than a high volume of customers who will churn quickly.
With churn and burn, you ultimately lose out on revenue as it costs more to acquire that customer than you’re receiving in revenue. When customer acquisition cost is high, this results in significant losses for your business. It’s better to motivate your sales team to spend time thinking about the ideal customer and pursuing quality leads, so they’re not wasting resources on customers who won’t be successful.
How to Minimize Churn and Burn
Change how you motivate your sales team
If you’re emphasizing high customer acquisition at all costs, then you are incentivizing your sales team to develop bad habits. Change your pay structure so sales reps are no longer motivated to focus on volume. Introduce an NPS survey a few weeks after the rep closes the deal with the customer and reward high NPS scores for those agents who have brought in satisfied customers.
Align your sales reps so they are focusing on the health of the company rather than their own short-term goals. Customer-centricity should be embedded in your company culture, meaning that your sales team works closely with teams like customer success team to make sure every customer is successful.
Encourage longer subscriptions
This one might be harder for your sales team to achieve but it’s better if you encourage longer-term contracts for your new customers. Customers subscribing to annual plans are much less likely to churn because they have more time to get accustomed to the product before they think about whether to renew their subscription.
Make it so that your annual plan represents savings for customers who choose longer contracts. Potentially offer your sales reps a higher commission if they can persuade customers to opt for the annual subscription.
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Train your sales team well
No sales team will be effective without regular product training. Especially for those SaaS products that undergo regular updates every three or six months, you need to make sure your sales reps intimately understand every feature and use case. This can involve working closely with teams like product and engineering to ensure they keep pace with development.
Focus on making your sales team the biggest fans of your product. When your sales reps are excited about what your product can do, this attracts high quality leads who will be able to get the most out of your software.
It’s very clear that indiscriminately acquiring new customers hurts your business more than it helps. Churn and burn means your sales reps have no regard for your customers’ long-term success and are narrowly focused on their own short-term goals. It’s up to every SaaS business to structure their company so that sales reps have incentives to prioritize high-quality leads.
When customers don’t churn and burn, this translates to a better customer experience overall and customers who will sing your praises to others. You have a much better customer retention rate and higher monthly recurring revenue as a result.