How to Reduce SaaS Churn
Your customer churn rate is probably the most important metric that SaaS companies have to track. The churn rate of a SaaS business measures the rate at which the existing customer base cancels their subscription payments over a particular time period. High customer churn means that you'll end up with fewer customers and lower revenues, which is why it's important to calculate the churn rate regularly and accurately.
In this article, we'll cover the ways you can reduce SaaS customer churn in your organization.
How to calculate your customer churn rate
Customers churn when they stop paying for their subscription; the churn rate is the percentage of customers who churn over a specific time period.
To calculate your churn rate, divide the number of customers who lost during a specific time period (e.g., a year) by the total number of active customers at the beginning of that period. Then, multiply the result by 100 to arrive at the percentage.
If your company had 2000 customers at the beginning of the year and lost 100 customers by the end of the year, your churn rate is 5%.
Most Saas businesses charge customers a monthly subscription fee, which the effects of churn are compounded even more over time. Acquiring new customers is far more expensive than keeping your existing customers happy, which means that it's pivotal to retain customers any way you can.
Why Do Customers Churn?
Understanding why customers churn can go a long way towards combating and preventing churn in your business. Some of the reasons why customers cancel or abandon their subscriptions include the following:
- Pricing: Asking customers to pay for a product when they aren't experiencing enough value to justify the expense will usually result in churn.
- Product: If your product doesn't live up to expectations or doesn't meet their requirements, clients are very likely to look elsewhere for one that does.
- Competition: If a competitor offers a product that is the same or even better than yours at a better rate, customers are more likely to switch.
- Poor experience: If there are implementation or adoption failures, customers will probably give up on a product in the early stages.
- Customer fit: Sometimes, a customer just isn't a good fit for your solutions or company. Perhaps you are too expensive; perhaps they just don't match your ideal user persona. Either way, it's not something that you can easily fix.
How to Reduce Churn
Customers may churn because of payment failure, poor customer service, or financial difficulties. Not all of these issues are within your control, but addressing the issues you can control and reducing churn should be a priority for every SaaS company. Here are just a few of the ways to reduce churn in your Saas business:
1. Keep an eye out for red flags
Knowing which customers are at risk of churning is a pivotal part of every customer retention strategy. Keep a close eye on your users' activity and analyze the behavior of churning customers so you can pinpoint the red flags that point to the customers who are most likely to stop using your product or service.
Generally, the length of the first session and the frequency at which a customer logs in are the best metrics to look at. If users aren't logging in very often, they are not using your software. If they take longer than the average user to complete very simple tasks, they are probably struggling to use your product. And if their visits are shorter than the average customer, they probably aren't using the software to its fullest potential.
Once you know which behaviors signal possible customer attrition, you can address the issues. If you have a customer success team, make sure they reach out to these customers to offer assistance. Training, answering questions, or even moving customers to a different tier or service level can go a long way toward reducing churn.
2. Address issues during the onboarding process
According to Patrick McKenzie of Intercom, 40-60% of customers who sign on for a free trial of your software will use it once and then never again. Technically, free trial users aren't part of your churn rate because they don't contribute to your revenue. But if the customer journey rarely progresses past the free trial stage, you probably aren't providing enough value upfront to customers to keep them hooked on your product. Every customer should enjoy an "aha moment" when they experience the real benefit of your service. The quicker and more frequently they reach that point, the better your odds of retaining them over time. Make sure that you package demonstrable wins into your software and onboarding process to prevent revenue churn and boost the customer lifetime value of your accounts.
3. Provide cues that assist customers as they use your software
Most SaaS companies will tell you how important customer service is, but as the company scales, it becomes harder and harder to provide telephonic support to every customer. Luckily more customers are willing to use self-service channels to guide them through problems or queries.
Make sure you have a knowledge base containing solutions to common customer problems, along with a help center widget that can offer self-service support without friction (and without having to call an agent). This should contain FAQs, tips and best practices, how-tos, and troubleshooting information. If users are able to navigate your software and solve problems easily, they are far less likely to churn.
These help centers have an added benefit: they are great for customer engagement because it keeps them in the app for longer.
4. Gathering customer feedback
Sometimes the best way to prevent a customer from churning is to check in with them. Collecting and organizing customer feedback is an important part of reducing churn. As your business scales, there may be some customers you can afford to lose and others (e.g., enterprise customers) that you have to retain at all costs because they contribute to a significant portion of your revenue.
Segment your customers carefully so that you can review the feedback coming from your top-tier clients and power users as well as newcomers. You should consider the feedback you've received from your own surveys, as well as unsolicited feedback received through other channels.
Listening to your customers is key as well. If customers are identifying weaknesses in your product, you have to listen - those flaws could lead to churn down the road.
Wherever possible, respond to negative feedback quickly and empathetically. Following up on negative comments may not be pleasant, but you may be able to convince the customer not to cancel their account. If you do repair a consistent flaw or lower prices, don't forget to let your current (and past) customers know about it. Your ex-customers may be enticed to come back, while your current customers will be happy to know that you've taken their feedback into account.
Sometimes you absolutely can't prevent churn, and customers will leave. Conduct exit surveys whenever your customers cancel. Some won't be forthright about their reasons, but others will provide valuable insights you can leverage to keep your remaining customer base happy.
5. Keep adding value
Your SaaS business will grow and evolve over time; so will users' needs. Your product may have been perfect five years ago, but it is still providing your customers with everything they need? If not, there are probably competitors that can fill the gaps.
It's important to keep customer experience front and center; whether you need to improve functionality, enhance features or reward them for their engagement and participation, adding value and positive experiences can strengthen your position and reduce churn. Happy customers are far less likely to churn.
This doesn't necessarily have to mean rolling out expensive new features every single time. You can add value through training sessions or helpful tips and newsletters that unlock the value of your product even further.
6. Reward loyalty
Customers will be less likely to churn if you reward them for using your service. Incentivize your loyal customers with discounts when they reach usage milestones or offer discounts or extra features for extending a subscription.
You could also add gamification elements that allow users in the same team to view and compare usage stats or earn badges for completing tasks. These fun elements will encourage users to keep making use of your software, which will increase the value they receive, which and reduce the likelihood of churning.
7. Maintain the personal touch
You won't have the time to pick up the phone or drop in on every customer, especially when your company scales and grows. Thankfully, there are plenty of tools that can help you add a personal touch to your communications. Automated emails or text messages with a client's name and details about their account can go a long way to helping customers feel as though you are speaking directly to them. Take complaints seriously and address them quickly. Your clients should always feel like their needs matter. If it doesn't, they'll go where they feel more appreciated.
8. Don't forget to upsell and upgrade
Are your customers on the correct tier or service level? Promoting additional packages and add-ons can go a long way to keeping your customers from churning and boosting your revenue at the same time.
Make sure that users of your product understand the services and benefits they can access by upgrading or adding new additions to their package. The more benefits they can access, the more of those pivotal "aha" moments you'll create.
9. Extend commitments
Sometimes the best way to keep your churn rate low is to lock customers into longer contract terms. It's a double-edged sword, though. A longer contract term may make acquiring customers harder at the beginning, especially if they haven't tried and tested your product ahead of time. Customers who are unhappy or unable to afford a longer-term contract may also come to resent your contractual lock-in. Not only will they churn - they'll spread the word about how unhappy they've been.
Extending contracts work best when customers are already satisfied with your product. Customers who love your service want to remain customers for longer, so make sure that you incentivize happy customers to sign on for longer through add-ons or promotions. Tying someone to a long contract that they don't want to be tied to isn't going to help your churn rate, except in the short term.
10. Implement dunning campaigns
Not all users churn voluntarily. Sometimes subscription payments fail because credit cards expire or lack funds or because cards are flagged (rightfully or wrongfully) for fraud. When this happens, customers who are happily subscribed to your business churn - without intending to.
This is fairly common with card payments, especially for self-service businesses. Digital wallets like PayPal have multiple payment methods, as do bank wire transfers that are tied to a direct source of funds, which lead to higher authorization rates and payment acceptance. You can reduce involuntary churn by ensuring that you have several different payment methods available to customers, but that alone probably won't be enough to eliminate the problem.
Make sure that you implement a dunning solution to recapture failed subscription payments. Dunning solutions automatically retry payments and send emails and in-app notifications informing customers that their payment method has been declined.
Reducing SaaS churn is an ongoing battle. Implementing the right strategies and tools will help you combat churn in your business and result in myriad other improvements that will benefit all of your customers in the long run.