Working with AI: Making Client Churn a Thing of the Past

Is it really possible for professional service companies to make customer churn a thing of the past?

And why are we so attracted to winning new clients when the foundations of our businesses are rooted in deepening relationships with existing clients?

Hi, I’m Courtney Baker and this is AI Knowhow from Knownwell, helping you re-imagine your business in the AI era.

As always, I’m joined by Knownwell CEO, David DeWolf, Chief Product and Technology Officer, Mohan Rao, and NordLite CEO, Pete Buer.

We also have a discussion with Peter Kang about how professional service leaders can avoid the quiet killer known as silent churn.

But first, break out the binoculars and compasses because it’s time for another installment of AI in the Wild.

PBR joins us as always to break down the business impact of some of the latest and greatest AI news.

Hey, Pete, how are you?

I’m good, Courtney.

How are you doing?

I’m doing great.

The Pew Research Center recently conducted a study that found there’s a pretty significant gap in how the US public and AI experts view AI.

Pete, what did you take away from this study?

First, quick highlights on the results.

As you’d perhaps expect, the general public is much more negative about AI’s impact than quote unquote AI experts.

Regarding AI at large, 56 percent of AI experts say the technology will have positive impact in the next 20 years.

While just 17 percent of US adults overall believe that to be true.

As relates to work, 73 percent of AI experts believe the technology will have a very or somewhat positive impact on how people do their jobs versus 23 percent of US adults overall.

I don’t know if it’s obvious or if it’s counterintuitive, but it would appear that those who know the technology better have a more positive view on its net effect on our collective futures.

When no one’s looking, I’ll breathe a private sigh of relief over that discovery.

What’s the takeaway though?

I’m a little surprised actually, maybe it’s because we’re inside the fish bowl, but I’m surprised at how negative the sentiment around AI still is in the general population.

I think the main takeaway is that there’s just still a lot more work to be done to get folks comfortable with using AI, particularly in a business setting.

But if expertise, AI experts, if expertise is the proxy, then I think this is a good indication that education is in fact going to be able to turn the dial ultimately and change perspectives.

Pete, do you think this is all stemming from just kind of the negative media that’s been there for AI?

Because I got to tell you, this mom of a second grader used ChatGPT several times last night to check homework papers.

Especially one question that I could not figure out which vowel sounds matched and thanks to ChatGPT, it told me there was no right answer.

So I was very, but the ease of use, the helpfulness.

Do you think people just aren’t utilizing it that way to leverage that thing?

Or is it just the bigger, darker, scarier, unknown of AI?

I think there’s a lot of moving parts.

I think there’s a piece that’s a set of the population that has no reason to engage with it, and so is only able to form opinion based on what they read or see or think.

I think those with light touch on AI have a taste for what it’s capable of, but they don’t have the experts’ view on ultimately the limitations, why and how it could be contained, why some of the fears aren’t perfectly well founded.

And then I think there are also some experts who have gotten a glimpse into the darkness who may be standing across the line or at least have some familiarity with what the dangers are.

All that comes together in a way where, like in the same way that society makes up evil monsters and demonic deities to explain away the things that they don’t have an appreciation for or are afraid of.

I think you got all of that going on here.

Well, interestingly enough, I’ve been reading a book, a novel that is set in the time where the good old telephone was released and people were scared of the telephone.

Really had to work to get people to be willing to lay down their pen and paper and use a telephone.

It was just a good reminder that this is an age old story and will be really interesting to see how people begin to adapt and utilize AI more over time.

Yeah.

I think in all this that the acknowledgement that there’s still so much we don’t know and there’s nothing wrong with being cautious ends up being an important part of the story.

Absolutely.

So much we don’t understand how it works.

Also, I don’t really know how a telephone works either.

So maybe we can work on that one.

Pete, thank you as always.

Thank you, Courtney.

I sat down recently with David DeWolf and Mohan Rao to talk about one of our favorite topics here at Knownwell using intelligence to reduce customer churn.

David, Mohan, welcome back.

Today, I want to talk to you about something we all hate, client churn.

We would all like it to go away.

Today, I want to talk about how could we do that?

How could we make it a thing of the past?

So quick note here, a little bit of a backstory.

You know that I love to bring up things that we’re talking about with our team.

Recently, I read a post called The Myth of Unavoidable Churn.

So even though this was written long before AI came into mainstream, it felt like it was really speaking to some of the biggest pain points we hear for professional service firms when it comes to churn.

So what did you guys think?

What if anything resonated for you?

Yeah, I think for me, it just has refreshed and helped to refocus on all of the research that we have found on churn.

One of the things that’s always driven me nuts that I think is reflected really well in this article is it’s so easy to excuse churn as inevitable.

To excuse, well, there was this acquisition that we couldn’t have prevented or it wasn’t our fault for this reason, or there is budget issues.

The brutal reality is most churn is a symptom of some upstream issue.

It could be service quality perception.

Maybe it wasn’t actually a fault of service quality, but the perception of that.

Maybe it was a lack of engagement.

Maybe there was misalignment of budget and those types of things.

All of those things that you can get ahead of.

If you are delivering impact and value on an ongoing basis, you will retain your customers.

Ultimately, I think this mindset of getting rid of the excuse and really embracing that churn is something that we can manage and that we can improve.

We shouldn’t get used to it as inevitable.

Then the second thing is just a reminder of how AI changes the equation on these things that we can get ahead of us.

It gives us this high precision ability to really look at, understand the nature of our commercial relationships and get ahead of it, and take action in ways that historically was just very, very hard and expensive to do.

I’m curious from you, how do you think it hurts us when we get into that mindset of just churn is inevitable?

You know, it’s just gonna happen.

Yeah, you know, it’s, you essentially kind of lower your basis for performance by just accepting that there is such a thing as unavoidable churn, right?

So that is the slippery slope you’re talking about.

We all know that this is a headline, right?

You know, there is sort of, there are some clients that are highly desirable and there are some that are not desirable.

And those, if you churn, you don’t care as much, right?

So you wanted to churn it when you’re scaling, right?

So, but at a headline level, just accepting that some churn is unavoidable is not a healthy thing to have in a company, right?

So you’ve got to, you know, you’ve got to think like a sports person, which is, right?

So when you’re in sports, you say, I’m going to control the controllables, right?

I’m going to do everything possible that’s in my control.

But if you’re playing golf and the wind is blowing and you didn’t realize that the wind was blowing and it takes the ball, of course, so what are you going to do about it right after you hit the ball, right?

So it just kind of came in time.

There’s nothing you can do about it.

You couldn’t have planned for it, but that has to be really like 5%, 10%, whatever, like a minority of the cases.

But if you’re controlling the controllables, you really kind of should not be making excuses about unavoidable churn and just kind of loading the basis of performance.

You know, the way that I hear this come out in actual client conversations is, oh, well, we have a certain percentage in the budget for churn.

And I hear it quite a bit, and I’m always kind of surprised by it because we all know when you decrease churn, I mean, that has incredible implications on the business, but I think sometimes it’s thought of just like, oh, we’ve got that budget, so I don’t really have to worry about it.

Yeah, yeah.

No, it’s so important that people focus on this because there is a Bain study that gets quoted often that 5% improvement in retention can cost 25 to 95% increase in profitability.

You know, there is this number that’s out there, right?

So which is true, and it kind of can focus your mind on if you have the right set of clients and you got to do everything possible to keep those clients.

And then just having this allowance for, hey, every year 3%, 10%, 50% is going to churn, that’s a leaky bucket, right?

So that’s no way to run a business.

You just make an excuses as a formula now.

Well, I think what happens there, there is some degree of just prudent planning, right?

Because some of this is going to happen.

But what happens is that cascades into resignation.

And I think what we want to prevent is not prudent planning, right?

Prudent planning is prudence.

And we should be realistic in our budgeting, right?

And probably base that off of historicals, et cetera, et cetera.

But we should never allow it to become resignation.

If we have historically been doing 8% churn, how do we get that down to 5% or 3%?

And how do we keep on pushing that?

And to Mohan’s point, that can have a disproportionate impact on our profitability and on our growth.

But so often folks just shrug it off and it becomes just what happens in business.

And it doesn’t have to be true.

Yeah.

You know, Courtney and David, early in my career, when I was at Deloitte, right, they did something that was so counterintuitive that has always stuck with me for a global company, billions of dollars in revenue.

They decided that they wanted to focus on what they called mega clients or mega relationships within the same set of clients.

They wanted a lot more projects within the same set of, I can’t remember the number, it was like 50 clients or something for a global multi-billion dollar revenue company, right?

So it was something along those lines which kind of baffled me because you’d think that you wanted to just keep growing the number of logos you had in the company, but they did something so counterintuitive.

They said 80% of their effort is going to go on these set of clients.

So that means that they had a deeper relationship and they would not let those clients go and serve them as well as they could.

And that is an example of focus that can allow you to not get spread too thin.

Mohan, do you remember the results were of that?

Did you see it play out?

Somewhat anecdotally, I was a junior guy in the whole hierarchy there.

But I remember Deloitte having number of prosperous years after that, generally speaking.

And that was because they knew these clients so well.

And these clients didn’t have an option to go anywhere else, because if they wanted the results, they needed to go back to Deloitte.

What strikes me about that, and this has always perplexed me about the industry that we’re in, is I actually find that as a whole, businesses tend to operate this way.

It’s the shiny object of that new business development, that new client.

Look at all the software platforms that have been built for revenue intelligence, sales intelligence, prospecting, automate.

There are more AI solutions for going out and qualifying leads and giving you this next-generation leads, and nobody’s in the customer space.

Nobody’s in the client space, and how do we really manage those relationships?

It’s shocking to me because we know, take professional services as an industry, 80% of your revenue, if you want to be healthy, should be coming from next year, 80% of next year’s revenue should be coming from this year’s client base, right?

That’s where growth comes from, right?

The companies that grow are the ones that are doing 104, 106, 108% net revenue retention, not those that are just selling more and more and more.

Selling more and more and more to brand new customers, brand new relationships is hard.

We have it backwards.

The human nature, for some reason, I think, orients towards landing the next one, versus taking care of those that we’re already working with.

Yeah.

Sometimes, I think, organizationally, you set it up in such a way that it incents that behavior.

You’ve got a new sales team versus a retention team.

What is the new client team, new logo team supposed to do?

They just keep getting more new logos at small value which creates this leaky bucket.

It was so illustrative for me back then, just thinking of it that way and thinking about revenues per client, and increasing the service, and it was just a shocking thing for me to see them shedding clients that would not go to them.

I think that is one way you can get to lowering your churn rate.

Obviously, you need to pick the right set of clients that are growing and have business to offer to you and all of that.

There are things that you’ve got to qualify.

That’s right.

Well, I think, David, on the point that you just brought up of, on the revenue side, there is so much emphasis, so many robust processes within the organization, really well-tooled machine, usually.

And then you flip over to the retention side, the growth side of customers and clients, and it looks completely different, you know, not merely as robust of a management system or, you know, not been operationalized the same way, which is fascinating to me.

Yeah, totally.

Okay, so I think we’ve laid out a pretty interesting case for churn and really our mindset about churn and why it’s so important.

So what do we do with that?

What do we do as leaders of professional service firms to think about our clients and how we do this differently?

Would it be self-serving to say, buy Knownwell?

Yes.

I mean, that would be one way to put it front and center and have the data to actually act upon it, right?

Yes, that is one answer.

And I do like it.

Mohan, you got anything else?

You know, instead of saying, buying Knownwell, let me tell you what Knownwell does and how you could achieve this.

Right?

So it really comes down to segmentation, right?

You’re looking at your client list and saying who the desirable clients are and who the not so desirable ones are, whether it’s on their own journey or in your ability to serve them, their growth prospects, so on and so forth.

And then for the ones that are desirable, kind of looking at it from what’s everything that’s internal to you that you can control, and what is external that you can completely know and be knowledgeable about.

And just kind of getting to like a two by two of saying, let me segment my clients and let me do an internal, you know, operations in terms of how well I’m serving them versus am I knowledgeable about the external things that are going on with that client.

And just having this view and having this two by two segmentation will go a long way.

I like it.

And if you bought our platform, that’s what we’ll do for you.

So awkward.

We’re not supposed to do this.

No, but we’re not doing that.

That’s why I’m part of it.

These guys are so, they’re so subtle and just nuanced.

And it’s amazing.

I will give you one last tip.

And it’s something we say a lot.

But I think when you think of your clients and the growth of your clients as, it’s an all hands on deck team sport for the company, not just a forward-facing, it really takes the whole organization being focused on clients and the idea of retaining and growing those clients.

It can’t just be the account manager’s job.

It really has to be every person in the company’s job to retain and grow.

Amen.

David, Mohan, thank you as always.

Thanks, Courtney.

Thanks, David.

Every silent client departure leaves revenue on the table.

Knownwell’s AI-driven commercial intelligence platform flags churn risk before they happen and prescribes the next best action.

So you keep more of the clients you’ve already earned.

We’ve all heard the stat, just a 5% boost in retention can lift profits by up to 95%.

Ready to protect your revenue?

Visit knownwell.com today to see your company’s data on the Knownwell platform.

Peter Kang is the co-founder of Barrel Holdings, a portfolio of agency businesses led by growth-minded entrepreneurs.

He sat down with Pete Buer recently to talk about how to avoid silent churn.

Peter, welcome.

Thank you.

You recently wrote in a piece on LinkedIn about the notion of silent churn, and it can be not just a morale killer, but an agency killer, if left unaddressed.

Tell us more about silent churn as a problem.

What causes it?

How does it hurt?

Yeah, just going back to, you know, when we were in the day-to-day and operating, I think it was interesting.

There was like a star case was, you know, we’d have an account leader who would always report back, like, you know, what’s the status on this account, for example?

And the response was, all is good, right?

And so every week, it’s a, you know, we’d hear back from this person, you know, all is good, all is good.

And then one day it would be like, oh, the client has canceled their engagement with us.

And so it came to a point where we’re like, you know, all is good is actually something we need to be on the lookout for, like, you know, and that all is good is not enough.

And also all is good is actually probably a warning signal as well, because, you know, there’s an actively engaged client is going to have questions, is going to, you know, push back on certain things.

There’s going to be interaction and out of that, there’s going to be more to talk about.

But the ones that kind of go silent and just don’t say anything, there’s probably something more to that underneath the surface.

So, you know, that got us kind of thinking.

And, you know, one of the things we started to get more sensitive to was, you know, hey, what is that the cadence of communication with a client like, you know, what is their experience like?

Are we being proactive, you know, in terms of having quarterly business reviews?

Are we, you know, are we doing a good job of, you know, asking good questions on a regular basis?

And I think, you know, we started to, yeah, build greater awareness across all of our accounts of, you know, which ones were, you know, active and engaged and which ones were kind of slacking off, maybe starting to skip our weekly check-in meetings, maybe some of them stopped replying to our emails.

So those things started to become more and more apparent to us.

Got it.

So I understand that your solution is the notion of a systems approach in those circumstances.

What does that look like?

Yeah.

I mean, a lot of this is, you know, so there’s a book that I’ll go back to, you know, almost like every few weeks called The Fifth Discipline, you know, by Peter Senge, I think is how he says his name.

But a lot of that is, you know, kind of thinking about, you know, nothing is, nothing happens in a vacuum, you know, everything is kind of interrelated.

And so, you know, once you kind of grasp that fact of, you know, especially in the agency business, you know, like you start to approach problems differently.

It’s not like, hey, you know, if a client is, you know, unhappy, you know, like instead of scrambling to, you know, do extra work for free to try to solve the problem, you know, maybe it’s taking a step back and understanding, okay, like what led to them being unhappy?

And, you know, what are other things that we have in place or don’t have in place that precipitated in the situation we’re in now?

And so, you know, the simple way to think about it is like, it’s just what’s the more holistic approach to solving the problem?

And what are some of the underlying things that might have caused this?

And so it’s getting deeper into looking at problems and, you know, even going back as far as maybe, hey, maybe this client isn’t a good fit and doesn’t meet our ICP.

And, you know, we were doomed from the start at new business.

And so maybe that’s the problem.

And, you know, we need to address it a totally different way, which might mean, hey, we should walk away from this client part ways because that’s the better solve versus trying to brute force fix it in the short term.

NPS.

Do you think NPS is still relevant nowadays, asking the question, you know, to the customer directly?

And do you put stock into any longer?

No, I mean, yeah, we had a period where we had NPS going.

But, you know, I found it to be almost like a lazy way to think about client sentiment because, and it’s skewed, like, it was really, you know, one extreme or the other.

So first of all, client participation wasn’t always easy.

Like, you know, you’d have, you know, especially if you have a lot of clients, let’s say, you know, let’s say 50 different clients, and within that, you have multiple stakeholders that you’re sending this to.

You know, if participation rates are like 20, 30% or even less, like, then you’re not getting much of a holistic data at all.

And then the ones that tend to participate are ones that like feel comfortable giving a high score or occasionally somebody who’s like really upset about something and this is this one outlet.

And by which point, like, you’ve probably lost that account or it’s very high at risk.

And so, yeah, like over time, it just didn’t give enough fidelity slash like, yeah, nuance to the situation.

And so we’ve moved away from kind of reliance on an NPS style score.

I enjoyed in the reference in your writing to case studies, not just focusing on the shining examples, but also the epic fails.

What’s the usefulness of a lost client case study?

Yeah, I mean, I think it just kind of gives the agency something concrete to reference as like, hey, let’s not make that mistake again and let’s build off of it.

We had a saying, like turn setbacks into opportunities.

And I think the way to do that is to really examine the failures, especially where did it go wrong?

And have a culture where it’s not taboo or is frowned upon to talk about it.

It should be like, hey, let’s dig into it.

And part of systems thinking is thinking about all the processes and the infrastructure there that led to the problem and trying to address that versus trying to blame somebody.

Because I think when you have a culture where it’s like, hey, let’s find whose fault it was and try to hold them accountable.

I think you end up creating more fear and there’s little learning.

But if you have a learning organization, it’ll be more about, okay, mistakes can happen or like, this thing happened, this undesirable outcome happened.

But how do we change the way we work or the way things are structured or the way our teams collaborate so that next time, this doesn’t happen?

And so I think framing it that way and having productive conversations around that can lead to new processes, new SOPs and new ways of interacting with clients that can be very productive in the future.

On a large scale, I like turning that kind of a process into data also, like using reason codes, have a menu of the 10 things that could have gotten wrong and start to observe patterns across time.

Yeah.

I love that.

Actually, one of the things that we’re working on with our agency, like systems playbook, where we’re pretty good is like, there’s common scenarios that happen over and over again.

I mean, the silent churn is one of them.

Another one might be like leadership bottleneck.

Some of these are team burnout.

So it’s like once you identify them, there’s really nothing new under the sun.

It’s just seeing handful of patterns repeating over and over again with slight variation.

But yeah, it really helps.

Knowing where to shift your focus, where to drive campaign efforts, and where to train the team to be able to handle different types of problems.

Tips or tricks for helping account managers shift from delivery execution to strategic relationship ownership.

Yeah.

This is always something where an account management, depending on the orgs maturity as well as level of complexity in what they’re doing.

In many orgs, an account manager functions more like a project manager.

They’re just trying to get certain workstreams through and just tell the client, things are going well or, hey, we need this.

But I think the unlock happens when the account managers are able to take the time and have the training and the resources to understand the client’s business.

And so going from delivery deliverables to outcomes and that shift of like, hey, oh, I see what the client’s business is about.

I see the model.

I see what success looks like to them.

I see what, if we do this for our stakeholder, this will make them look good.

Once they start connecting those dots, then the work that they’re doing takes on a different meaning.

And it’s less about, hey, let’s meet that timeline or check to make sure the quality is good.

It’s more like, are we doing the right things?

Is this going to drive the needle for the client’s business?

And if not, how should we help them and advise them so that we can use our collective skills and talents to help them move their business in the right direction?

I think we’ve observed also that there is a time barrier.

Increasingly, account managers are having to carry a greater load, right?

More accounts per, because you’re looking for efficiency.

And this is a place where AI can help, right?

You can, AI can help make the work more efficient and give you better information so that you’re able to, if you appreciate the importance of the mindset shift, you’re able to sort of invest yourself or take the guidance from the team to develop yourself in that direction.

So, I think there’s…

No, and I think AI is super powerful in that regard, because if an account manager knows the right questions to ask, AI becomes just that much more powerful and useful in their work.

So, but then, you know, if you’re stuck in, you know, the Gantt charts and just trying to, you know, corral people on Slack all day, like, it’s just, you know, you’re gonna have little bandwidth to think and ask good questions.

Yeah, awesome.

Andy, on a high note in the piece that you wrote, you landed at the end with some bullets around what success looks like for folks who are listening who are struggling with churn and some of the other issues that we’ve talked through.

What does success look like?

Yeah, I mean, you know, those are just some examples listed, but at the end of the day, success looks, it’s almost, I think a garden is a good metaphor.

Maybe it’s like you’re tending your garden and it’s like, you know, you’re very proud and happy with how you’re tending it.

And so, you pull the weeds out, you’ve fertilized the right things, you water the right things, and there’s a bounty of harvest to be had.

But like, you know, everything is healthy and, you know, sometimes you’re going to have some things you’re going to have to, you know, triage and, you know, and take care of.

But like, it’s just, it’s that mindset of like, yeah, you’ve really created the systems processes and, you know, the team capacity to be able to tend, you know, your garden or clients in a really effective way.

Your operating system is a garden.

I love it.

Peter, thank you.

It’s been a pleasure.

Yeah.

Same here.

Thanks for having me.

Thanks as always for listening and watching.

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At the end of every episode, we like to ask one of our AI friends to weigh in on the topic at hand.

Hey, Gemini, this episode, we’re talking about how AI can make client churn a thing of the past.

So, what do you think?

I think AI can be a game changer by spotting those early warning signs of unhappy clients way before they actually leave.

By understanding their behavior and offering personalized solutions, businesses can build stronger relationships and keep customers around for longer.

Now, you’re in the know.

Thanks as always for listening.

We’ll see you next week with more AI applications, discussions, and experts.