A Pause is Better Than a Cancel. And A Downgrade is Not Churn.

Many of you will come under a lot of pressure these days to pause accounts, to downgrade accounts, and more.  Even Marc Benioff, CEO of Salesforce, said they are still seeing intense downgrade pressure today.  Even at Salesforce.  And many of you are pushing back when you get these requests, especially where growth has slowed.  It’s challenging almost everywhere.  The “app layoffs” in many cases are in their third year.

And when NRR is dropping, and new logo growth is way down … it’s tempting to make it harder to leave.  Almost all of us are seeing more of this these days, in fact.

Should you let folks easily downgrade? Should you let them even pause their account, and pick it up later when their business picks up?

You should.

This is a Customer Satisfaction lesson we should all take away from Slack’s early hyper-growth and Stewart Butterfield. Way back in 2015, it seemed crazy that Slack would auto de-provision un-used seats. I didn’t even believe it when Stewart came to the first SaaStr Annual and talked about why they did it.  But it didn’t stop them.  And it won’t stop you today.

• A pause is better than a cancel. They will come back later, if they love you and need you.
• A downgrade is better than a cancel. Your top customers will grow with you. You should also take care of them when they go through more challenging times. Downgrades are not churn. They are just less need for your product — for now. It may be time to segment your “churn” into lost customers vs. downgrades. They both may have similar hits to your MRR. But they aren’t the same vis-a-vis your long-term growth.
• Not charging customers for more than they need is better than a perpetually frustrated customer. Fair pricing is always the best pricing. Assume every customer knows what everyone else pays. Especially right now.
• A positive customer experience, even for a customer that leaves, is a new brand ambassador for your product. You need a lot of these to win.

Beyond that, you need to take a long view. The 7–10+ year view.

• In a recurring revenue model, a customer that churns is a customer you never really had at all.
• But a customer that pauses, and comes back later (or downgrades, but upgrades again later) … is just a customer with a somewhat lower CLTV.

Focus more on logo retention, and logo happiness today, than raw ARR growth.  Even now.  Even when of course, you have to focus on both.

Keeping your base is your future (vs your present), even if spend comes down a bit, for a while.  And in SaaS, it’s really only the future that matters.