Dear SaaStr: “Something I’ve noticed as the economy has gotten tighter, big enterprise customers seem to think when they get their budgets cut that it’s okay to simply call the vendor and say yes that multiyear contract we signed? We can’t fund that anymore. What should we do?”
As you begin to scale and add a sales team, you’ll encounter more and more drama with “bad” customers. These so-called “bad” customers from a sales team perspective will include:
- Folks that share licenses that shouldn’t be sharing them. Sales will get mad they aren’t buying more seats.
- Folks that use SMB or other editions that should be on your more expensive enterprise plans. Sales will feel they are getting ripped off; and
- Folks that sign contracts and don’t pay!! They signed a contract after all!
The bottom line is all these scenarios will consume a huge amount of internal energy, create tons of drama, burn management team and distract folks from closing happy customers … and have no positive ROI. You have to let things go. And just learn from it. Learn how to do better next time.
Let’s talk here about the seemingly most frustrating scenario, the last one — the customer that signs a contract that then doesn’t pay. “They signed the contract!!” your exasperated rep will say, worried he will lose his commission.
First, let’s assume the customer is actually in the wrong (somehow). Before we even go there, take a breather and think about it from the customer’s perspective. Are you sure they are / were “wrong”?
Ok, if they are in the wrong, then of course, you can just turn off the service. This is SaaS, after all. If the customer has deployed the product and is using it but has not paid, that will certainly get their attention. But … if you shut off a mission-critical service and disrupt their business, watch your NPS plummet below zero. You have to give them notice and a grace period before doing this. Assuming you have done that properly though, shutting off the service generally gets folks to pay. It certainly did for us at EchoSign / Adobe Sign. A big red banner at the top of every page, with a 14-day countdown to service shutdown, got 99% of the deadbeats to pay. Or today, if a sponsor for SaaStr Annual doesn’t pay us after signing a contract … well … we just don’t build their booth. You move on. They may well sponsor SaaStr 2025.
But what if they aren’t using your product, and never have? Then what?
Here’s where you know you have a churn-and-burn deal. A deal you never really should have closed at all. Even if the customer signed a 3-year contract, if they never even used the product, one way or another, the deal wasn’t real. The sales rep might have sold them on functionality that doesn’t exist, or is too complicated to deploy. Or the product may be too much business process change for the customer in the end.
Whatever it is, if a customer spent weeks or months looking for a vendor, evaluating a vendor, and signing a contract … and then never used your product … they certainly weren’t playing games. They wanted to solve their problem. They wanted your product to work for them. It is just, in the end, you couldn’t provide the right solution. And that is on you.
Similarly, if they started using your product and then 100% stopped … no matter what a contract might say, that’s on you. You failed them. No customer wants to do all the business process change of deploying an app into production and then have to stop using it and find another vendor. No one wants to do this. They only do it when the vendor simply does not meet their basic needs.
When that happens, you may be frustrated. But it’s time to just move on.
You can threaten them. You can attempt to send them to legal (but your legal fees will quickly grow larger than the deal value). You can send them to collections (but most collections agencies won’t do all that much in the end but send some letters and emails and maybe threatening phone calls. It’s not enough money.).
But if you do any of these things to not let them go after you’ve failed them, then whatever goodwill you had during the vendor selection process will be gone.
It’s better to move on. Perhaps you will get them next year, if the project just stalled. This is actually pretty common. Or perhaps you lost them to a competitor. But even if you lose a deal to a competitor, assume in 2-3 years you’ll have another shot at the deal. Be cool, and you might be able to get the customer back if the competitor stumbles.
And remember, if you are going long — prospects and customers all talk to each other. Tons of companies producing large events talk to me, for example. I tell them which apps have been great for us, and which didn’t work for us but still might work for them. Vendors that we didn’t select, but treated us well, I often recommend to others based on their needs. But I really only advise them not to use the handful of vendors that have treated us poorly.
So when a customer wants to leave, let them go. Thank them. Smile (even if it’s frustrating). Don’t try to enforce a (potentially dubious) contract for a service they aren’t even using.
And then your chance of getting them back again later has just gone way up.
Think of the old days. When folks gave Money Back Guarantees. Think if you did that. You might lose a nickel here, a dollar there. But think of how much friction that would take out of a risky buying process. And think of how much goodwill it would earn. At least some.
And stop playing Rip Off the Customer games. We’ve all bought 100+ SaaS apps now. We know the good vendors from the bad ones. Be a good one. That’s the key to 140%+ net revenue retention.