I’ve decided that the biggest threat to a software as a service startup isn’t anything sexy or mysterious. No, it’s the annoying fact that so many credit cards get cancelled by no fault of the user. SaaS companies, like Pixily, rely on retaining customers to achieve our target lifetime value and to recoup our marketing costs/costs of customer acquisition. When MasterCard or whoever cancels a user’s credit card it is a real pain to gently remind them to enter a new card number.
As Bessemer Venture Partners says, “It’s very difficult and expensive to grow subscription businesses if you have moderate customer churn– and prohibitive if your churn is high.” Pixily’s users are really important to us. We work really hard to get them and it is painful when one cancels. When some one’s credit card fails, we email and eventually phone to follow up and get them back into our system. We’ve had customers who have been “gone” for more than a couple of months re-engage and pay for past months/bring their accounts up to date. It’s worth the effort to try to keep them in our system, even if it is a pain. But since the majority of our churn comes from credit card cancellations, everything we can do to reduce it really helps our metrics and helps the company grow. And when technically do they count as churned, if so many of them eventually come back?
I know that large SaaS companies have these problems too. I’ve spoken with the heads of very large SaaS businesses, and they have a person or even a small group in charge of trying to get customers to re-enter their billing information. This is a real issue.
I’m afraid that this problem will get even worse. It seems like credit card companies are becoming pretty nonchalant about canceling cards. I only really use two cards; one was re-issued to me this year and last year the other was. Both were canceled by my card company because one of the vendors I bought something from had a security breach. I actually think it is nice that they were able to cancel my card before any fraud could possibly have happened, but I did get some emails from the subscriptions I used asking me to re-enter my credit card information. And it was a pain, and I’m sure there were a few that I didn’t end up updating.
I hope that credit card companies don’t end up being the achilies heel of the SaaS business model. Anyone else seeing this problem with their SaaS businesses?