DEAR STAGE 2: We're a Series A company doing about $6M ARR with five AEs. New logos are up 4x year over year, but 30% of last year's new customers churned within the first 12 months. How do I diagnose this CS problem? ~LOGO CHUR
DEAR LOGO CHURN: Honestly, this probably isn’t a CS problem, at least not entirely. When we see high top-line growth but decreasing GRR or decelerating NDR, the mistake often stems from how you picked accounts and how you incentivize the people closing them. This week I chatted with Brian Hagen, who spent six and a half years leading sales at Airtable (sales-led revenue went from $8M to roughly $400M on his watch) to help weigh in diagnosing churn and fixing the leaky bucket problem. Read on for his lived experiences and insights…
Remember, you wrote the comp plan
Charlie Munger put it simply: “Show me the incentive and I’ll show you the outcome.” Nowhere is that truer than in sales, where so much of a rep’s paycheck rides on variable comp. That gives you real leverage to drive the behavior you want. It also means a poorly designed plan will actively work against you. Your comp plan isn’t just a payout formula; it’s the clearest statement of strategy your reps will ever read.
Airtable went through a land-grab phase where market share was the whole goal. During this period, comp plans were set up so that 50% of variable comp was tied to an ARR goal and the other 50% was on new logo count. Hitting the revenue target wasn’t enough, you had to hit the logo volume target too to maximize comp.
It worked. “We landed a ton of new logos,” Brian says. Then the long-term viability of those customers came into question.
You’re likely familiar with Airtable, a truly horizontal product. A hundred seats could be a product team running their end to end product lifecycle management process, or Blue Origin sourcing rocket parts to develop revolutionary space vehicles. Or, as Brian put it, “sometimes we run the office birthday calendar. Nobody’s going to continually pay $60 a seat to run the office birthday calendar app.”
The comp plan didn’t care about use cases or criticality, so reps didn’t have to either. A logo was a logo. But not all revenue is created equal. A hundred seats running a mission-critical workflow will renew, expand, and pull in other teams. The birthday calendar won’t. The plan paid the same for both.
ICP definition is a top-down effort
And then there is the question of qualification and which customers are best fit. Asking a rep to turn down revenue is asking them to act against their own incentives. “Reps have such a hard time qualifying deals out and turning revenue down,” Brian says. “Every time you ask a rep to walk away from a deal that retires quota, you’re asking them to choose between your strategy and their paycheck,” Brian says. “They’ll pick the paycheck, and they should. That’s not a rep problem. It’s a territory design problem, and it belongs to rev ops and sales leadership.”
I see the early-stage version of this constantly. A new rep starts and we hand them a geography. You get Texas! Go find customers. Then we act surprised when the book fills up with whoever answered the phone. Why would a rep who’s been at the company six weeks be good at figuring out your ICP? It’s your job to hand them guidance, a list of accounts that are best-fit and vetted, and to point their energy at the *right* targets.
“Territory design and segmentation is the thing the company owns,” Brian says. “What you assign to your reps is within your control.” If you skip the step of defining a clear ICP and target account strategy, you will feel pain in retention a few quarters down the road.
Putting these learnings into action to stem churn
First, define your ICP. Start with the customers you already have. Pull your fastest adopting customers and highest-NDR accounts and reverse engineer what they have in common (size, persona density, use case, who bought, what they replaced). Airtable eventually turned this into two numbers: a potential account value (PAV) for every account, and a Growth Propensity Score (GPS) that stack ranked accounts by how closely they resembled those winners.
Then design the territory and the comp plan around it. Books got smaller and named, so reps went deep on accounts that fit instead of wide on whoever answered the phone. And the comp plan paid for the right ones: “We decided to pay more on high PAV logos versus low PAV logos,” Brian says. If you pay on logos at all, pay more for the ones on the list and less, or nothing, for the ones left off it.
When you are seeing the kind of churn you are describing, it’s easy to point to CS, but we’d encourage you to dig deeper and look upstream. Your reps are chasing exactly what your comp plan and territories told them to chase. Look first at your comp plan (it’s steering behavior), dig into your ICP and territory design, and make sure you’re setting AEs up to support the long term goals of the business.
Until next week!