The EU Data Act: Wave of involuntary churn

Navigating the new reality: How proactive customer operations have become your most valuable asset

For many years, the SaaS or PaaS business model has been built on a comforting notion called Annual Recurring Revenue, or ARR for brevity. There was a time when this number held a great deal of meaning, as businesses could plan and align their roadmaps accordingly for growth and success. All of that is about to come to an end. Today, regulations such as the EU Data Act, and many more that will follow suit, are going to upend this world and give each and every customer an unconditional, perpetual right of cancellation, all within a fraction of notice time. Behind all this freedom and flexibilities lies a grave risk, one that has received little, if any, attention this is, of course, involuntary customer churn risk.

Estimating the value of involuntary customer churn

Involuntary churn is a stealth bomber of revenue. It is not about the customer deciding they want to churn, but rather about a customer service being ended because of a mere brownie point of administrative neglect. It is not a commentary on products, it is a commentary on process. Think of a finance team buried under quarter-end close, or a key contact being away on extended vacation, or possibly just an important renewal notification that is lost in a crammed inbox.

And then comes a system-automated shutdown of access. This abruptly revokes all accessibility, thereby bringing a customer’s business operations to a grinding halt. Think of the shock of an entire team of people being barred from accessing their critical resources on a busy Monday morning because of an absent link click. Among the immediate effects is that all systems grind to a halt, and productivity is significantly inhibited, all of which culminates into a serious crisis that easily reaches your senior executives because of a minor billing issue that has gone rogue.

But now, because of this new environment, this risk has multiplied itself many times over. Under previous regulations, auto-renewal of contracts was a fall-back mechanism that helped to prevent any interruption of service, no matter if, for a brief time, the customer had temporarily forgotten their end of the deal. But this fall-back mechanism has now been effectively removed by regulations that stress customer consent as a way of doing business. Even this is no longer an implicit or automatic occurrence, as it had to be, but now is something that requires a deliberate and affirmative step by the customer themselves.

Re-engineering SaaS Operations for Resiliency

To succeed under this paradigm, SaaS businesses need to rev up from hoping that customers remember their renewal dates. There has to be a paradigm shift from designing customer lifecycle management on ways that prevent failure, and below are some of the key areas that need a transformation.

Multi-Channel, Proactive Communication: One or two emails are insufficient as renewal notifications. You need a comprehensive notification system that notifies your clients through multi-channel notifications like emails, app notifications, or even text messages before the actual date of renewal, and for high-paying clients, you can have a personal notification from your customer success or account manager.

Liberal and Realistic Grace Periods: A typical grace period of 14 days is not realistic from a practical standpoint of doing business. Customers have vacations, attend to emergencies, and have busy schedules. Set up a realistic period of grace that allows your customers enough time to deal with the renewal notification before you cut them off.

Intelligent Service Degradation: Rather than going all out and deactivating all services, a staged service restriction is required. If a payment has gone overdue, non-critical services, such as analytic or new user sign-up functionality, may be turned off, leaving essential services intact. This helps businesses keep operating, preventing panic and giving time for a payment issue to be resolved in a friendly manner.

Streamlined Emergency Access Restoration: Assume that issues will happen and have a solid and documented system for remedying issues in case of accidental cancellation of service. Even better, this system could be partly or wholly automated, and just be sure that your support and success teams are fully equipped and knowledgeable on how to promptly deliver this capability and turn potential disaster into reliability proof.

Comprehensive Audit Trail Systems: Such system details all interaction experiences extensively. All messages sent and received, and all grace period times, are documented explicitly, and these have an extensive role, not only as a means of internal control, but as proof of compliance and proof of any issues that may arise concerning customer disputes.

From Regulatory Challenge to Competitive Advantage

Although this is a challenge that one has to adapt to, it is a huge opportunity as well. In a market where one can easily exit, having outstanding operating reliability is a big competitive tool. Think about this for a moment: your competitors’ inflexible systems kick a team out unexpectedly, while your initiative and concerned systems maintain business operations.

How does one earn their loyalty as a provider? This is the paradigm shift applied to this sector as a whole. First, it is pertinent to note that the EU Data Act has altered more than just the conditions of its user contracts, namely, from customer lock-in and into customer loyalty through superior customer services and, more importantly, through superior resiliency and customer-centric design and operations. Ultimately, it is up to the SaaS community as a whole to create this ‘Safety Net’ for its clients. It is all about intelligent notifications, flexible ‘Grace Periods,’ and recovery plans, and, through this, you build trust on a daily basis. It is going to be, and not the ‘contract’ as we know, that holds these clients, but your ‘unwavering dedication’ towards keeping them up and running on a daily basis, no matter what!

Interested in discussing this further? I’d be happy to connect.