pixel

How To Reduce Churn For SaaS Businesses

How To Reduce Churn

 

When you’re running a SaaS business, being successful isn’t just about getting new customers. It’s also about keeping the ones you have.

As a matter of fact, for SaaS companies, customer retention is more important than customer acquisition. After all, it is more costly to acquire a new customer than it is to retain an existing one.

What’s more, reducing churn and being able to keep your customers happy can lead to customer acquisition through positive word-of-mouth.

That’s why it’s so important for you to know how to reduce churn SaaS business style.

In this article, we will talk about churn and how to reduce churn for SaaS businesses. We’ll look at how to measure churn rate, how to identify the causes of churn, and how to prevent it.

By understanding how to reduce your SaaS business’s churn rate, you can increase customer loyalty and satisfaction, as well as attract new customers through referrals from loyal customers.

So let’s get started.

 

What Is Churn?

 

Churn, also known as customer attrition or defection rate, is the percentage of customers who discontinue using your SaaS product over a given period of time.

It can be expressed as a percentage of how many customers leave your product versus how many remain over a certain period of time, usually a month or a year.

What’s more, churn can be voluntary or involuntary.

Voluntary churn happens when a customer decides to unsubscribe or discontinue using your product because of dissatisfaction. While involuntary churn happens when the customer is unable to use your product due to unintended factors, such as technical issues with their payments.

 

How To Measure Churn

 

Measuring churn is essential to managing it. To measure how much your SaaS business is losing due to customer attrition, you need to calculate your churn rate.

And there are two types of churn rates that you need to track: your customer churn rate and revenue churn rate.

 

Customer Churn Rate

 

Your customer churn rate is the percentage of customers who unsubscribe or discontinue using your product in a given period.

It’s typically expressed as a monthly rate, so you can track how it changes over time. Although tracking your annual churn rate is also important for understanding your long-term stability and forecasting your future growth.

To calculate your customer churn rate, simply divide the number of customers who have canceled their subscription to your SaaS product by the total number of customers at the beginning of the month.

For example, if you started with 1,000 customers and 100 unsubscribed in one month, then your customer churn rate for the month would be 10%.

 

customer churn rate formula

 

Revenue Churn Rate

 

Your revenue churn rate is how much recurring revenue you lose due to customers canceling their subscription.

It’s calculated by dividing the amount of recurring revenue that was lost due to customer cancellations by the total amount of recurring revenue at the beginning of the month.

For example, if you started with $10,000 in recurring revenue and you lost $500 due to customer attrition, your revenue churn rate for the month would be 5%.

 

 

Common Causes Of Churn In SaaS Businesses

 

They say knowing is half the battle. And when it comes to churn, the first step is identifying why customers are leaving in the first place.

And once you know how and why people are churning, you can take steps to address the problem.

Here are some of the most common causes of churn:

 

You’re Attracting The Wrong Customers

 

One of the reasons why your customers are leaving may be that they aren’t the right customers for your SaaS product in the first place.

Maybe you’re marketing your product towards the wrong target audience or you’re offering features that don’t resonate with your customer base.

Either way, attracting the wrong customers can result in a high churn rate and low customer satisfaction.

 

Poor Customer Experience

 

If customers are having a bad time with your product, they’re more likely to unsubscribe.

Poor customer experience could be due to a number of reasons, such as:

  • Slow-loading pages
  • Frequent downtimes
  • Buggy features
  • Unappealing design and layout

 

Poor Customer Support

 

Good customer support is key when it comes to retaining your customers.

If your customers are having problems with your product and don’t get the help they need in a timely manner, they’re more likely to unsubscribe and look for another solution.

So make sure you have dedicated customer service reps available to answer questions and address any issues that may arise.

 

Lack Of Features

 

Sometimes, customers may unsubscribe because they don’t feel that your product has enough features to meet their needs.

What’s more, the SaaS and tech industry as a whole is quickly innovating, so you need to keep up on the latest trends, like AI and machine learning, to stay competitive.

If you’re not regularly adding new and exciting features to your SaaS solution, then you may be missing out on potential customers who would otherwise find your product useful.

If you don’t, your existing customers may look elsewhere for solutions that offer more up-to-date features.

 

Your Customers Aren’t Achieving Their Desired Outcomes

 

At the end of the day, it all boils down to how much value your SaaS product delivers to its customers.

If they aren’t seeing results or achieving their desired outcomes with your product, then it’s likely that they’ll cancel their subscription and look for another solution that will do the job.

In order to reduce churn, you need to make sure that your customers are getting real value from using your product. You can do this by regularly evaluating how successful customers are in achieving their goals and making adjustments accordingly.

 

Your SaaS Product Isn’t Scalable

 

Now, even if your SaaS solution does help customers with their goals, if it isn’t able to grow with them, you will still find yourself saying goodbye to your customers.

For example, Let’s say you’re offering only one basic package that can only accommodate small businesses. Then customers who eventually grow into larger companies will have no choice but to find another solution that will meet their needs.

So make sure your SaaS product offers scalability and the ability to upgrade their plans as their business grows.

 

Your Customers See Better Deals From Your Competitors

 

You may be losing customers if your competitors are offering better deals than you

For example, if they’re providing more features for a lower price or giving discounts that you can’t match, then it’s likely that some of your customers will switch over to their service.

 

You Have A Weak Relationship With Your Customers

 

It’s important to build strong relationships with your customers and nurture them throughout their journey with your product

This can help create a sense of loyalty and trust that will encourage customers to stick around even when they encounter issues

You also need to make sure that you’re engaging customers on a regular basis and making an effort to understand how they are using your product. This can enable you to anticipate any potential problems or needs in advance.

 

Payment Issues

 

A classic cause of involuntary churn is payment issues. Perhaps their credit card expired or your payment gateway is acting up.

In order to reduce churn from payment issues, you should have a system in place that regularly checks customer payments and sends out reminders when their billing information needs updating.

You can also make sure that customers know how to update their billing information quickly and easily on your website or app.

 

How To Identify YOUR Causes Of Churn

 

Now, you know the most common causes of churn for most SaaS businesses. But how about your SaaS business? How can you identify the factors that are causing customers to unsubscribe from your product?

The key is listening to your customers.

And there are various situations and opportunities that enable you to do so.

Here are some of them:

 

Look For User Reviews

 

User reviews are an invaluable source of information. They can provide valuable insights into how customers feel about your product and how they are using it.

That’s why it’s good to make a habit out of visiting SaaS review sites like G2, Capterra, and TrustRadius. By regularly monitoring user reviews, you’ll be able to identify any common pain points or issues that customers may have with your SaaS solution.

This will enable you to take the necessary measures to address them before they become a major cause of churn.

What’s more, some customers may outright say what features they wish your SaaS product had. You can take these suggestions into consideration when building and improving your product.

 

Track Customer Satisfaction Metrics

 

It’s also important to measure how satisfied your customers are with your product.

There are a few customer satisfaction metrics that can help you do this:

Customer Satisfaction (CSAT) Score: This metric measures how satisfied customers are with their experience with your product.

You can start finding your CSAT score by launching a survey to your customers. It would ask them something like “How would you rate your overall satisfaction with our SaaS solution?”

Then they can answer with a rating from 1 to 5, 1 being “Very Disappointed” and 5 being “Very Satisfied.”

To calculate your CSAT score, add the number of all respondents who answered 4 or 5 and get the percentage of the resulting figure.

Net Promoter Score (NPS): This metric measures how likely customers are to recommend your product to others.

Again, you can launch a survey and ask them something like “On a scale of 1 to 10, how likely are you to recommend our SaaS solution to a friend or colleague?”

You can then group your respondents into three: Promoters (those who answered 9 or 10), Passives (answered 7 or 8), and Detractors (answered 6 and below).

To calculate your NPS score, subtract the percentage of Detractors from that of the Promoters.

 

net promoter score 1

 

Customer Effort Score: This is a customer service that metric measures how much effort a typical customer has to put in to interact with your SaaS product and its other services.

That may include some interactions before they make a purchase. But it also measures how easy it is to get help or how quickly their problems are solved when they reach out to your customer support team.

Like the two previous customer satisfaction metrics we discussed, this also involves a survey answerable by a Likert scale (a scale of one number to a higher one).

With a survey for Customer Effort Score, you can each customer that receives customer support a few questions asking them about their experience with your support team.

These may include the following questions:

  • How fast were you able to solve the issue?
  • How much effort did it take to solve the problem?
  • How knowledgeable was the customer support representative about the problem?

All these questions could be answered with a Likert scale. And you could be creative with it. Instead of using just numbers, you could also use sad, expressionless, or happy emoticons as choices to convey how they feel.

To calculate your Customer Effort Score, sum up all of your customers’ ratings and divide it by the total number of survey respondents.

If you’re using emoticons and other non-quantity metrics, you’d have to assign a value for each scale level first before coming up with your final Customer Effort Score.

 

Track Customer Usage

 

In addition to customer satisfaction metrics, you should also track how often customers are using your SaaS product.

One of the best metrics for that is the Customer Engagement Score. This metric will enable you to measure how much value each customer is getting from your SaaS product.

Now, tracking this metric involves a few key steps:

Identify customer engagement events: First, you have to identify key events or interactions that may indicate that your customer is engaged with your SaaS product.

For example, if you have a customer relationship management (CRM) platform, these events could be segmenting a contact list, creating a customized sales pipeline, or closing a deal.

Assign a weight value to each event: The various customer engagement events you identify will have different levels of value. For example, a customer closing a deal will have more value than simply segmenting their contact list. So you could assign a higher number for that event.

Multiply event weight values to event frequencies: Various customer engagement events will  happen at different frequencies. For example, in a month, a customer may segment their contact list more than ten times while closing a deal only three times.

So, multiply the weight value assigned to each event by how often it happens. That will give you an engagement score for that specific event.

To calculate your overall Customer Engagement Score, add all the engagement scores for all the events you tracked.

 

customer engagement score

 

Tracking the Customer Engagement Score for each of your customers can help you understand how much they are using your product.

From there, you could use this data to understand how many of them may be at risk of churning and how to reduce the risk.

You may also be able to identify at which areas your SaaS product is falling short.  And use that information to work on how to make your product more engaging and how to reduce churn.

 

Maximize Your Off-Boarding Process

 

Churn is inevitable. And while you can try to reduce it to as little as possible, there will always be  customers that will eventually leave.

That’s why it’s important to optimize how you off-board your customers. This process involves how they unsubscribe from your product and how you deal with their exit.

Provide a smooth off-boarding process: First, make sure that there are no technical issues when a customer tries to unsubscribe. Ensure that the process is smooth and hassle-free for them.

Send them an exit survey: Try to understand why they chose to leave. You could do this by sending them an exit survey or by talking directly with them if possible.

This step is helpful in understanding what areas of your SaaS product need improvement so as to reduce churn in the future. It also helps improve how you onboard new customers since you already have the information you need to provide a more tailored experience.

Ask if you can keep sending them emails: Finally, you can also ask if they’d like to continue receiving emails from you. This way, you could keep them close and send them updates on how your SaaS product has improved or any new features added

This would also allow you to re-engage them in the future should they decide to come back.

 

Perform A Root Cause Analysis

 

The Iceberg Model in problem-solving and systems thinking states that whatever problem you are facing in your business, it’s only the symptom of a much deeper issue.

And the only lasting way to solve that problem is to address the root of the issue.

For example, your customers may seem to be leaving because of poor customer service. A root cause analysis on your customer support team may reveal that the poor service is coming from a system that incentivizes reps to close tickets quickly rather than providing an in-depth resolution.

That can give you a deeper perspective on what’s really causing your customers to leave. So instead of implementing generic improvements to your support team, you can address the real issue, which is (in our above example) the ineffective system currently in place.

There are a lot of ways to perform a root cause analysis, including the 5 Whys and the Fishbone Diagram.

These methods will help you find the underlying problems that are causing your customers to churn and how to develop real and long-lasting solutions for them.

 

Best Practices To Reduce Churn For SaaS Businesses

 

When you know the reasons why your customers are leaving, you can create a highly specific plan to reduce churn for your SaaS business.

While you can take a tailored approach to reducing churn, there are still several best practices  that you can use.

Let’s talk about these best practices:

 

Provide Excellent Customer Support

 

As we discussed earlier, one of the common reasons why SaaS customers leave is poor customer support. So naturally, one of the best ways to reduce churn is to provide excellent support.

But that is easier said than done.

Here are some tips  to help you provide better customer service:

  • Make sure your support team is well-trained and knowledgeable about how to use your product.
  • Ensure that customers can reach out to you easily via phone, email, chat or social media.
  • Provide an in-app live chat tool for easier access to your customer support team.
  • Respond to queries quickly so that customers don’t have to wait too long for answers
  • Follow up with customers after resolving their problems to make sure they are satisfied
  • Personalize how you interact with customers by using the data collected during onboarding.

 

Level Up Your Customer Success Efforts

 

Another way to reduce churn is to focus on customer success.

Customer success is how you help your customers get the most out of their experience with your product.

You should work towards understanding how customers use your product and how you can help them become more successful in achieving their goals with it.

What’s more, it helps to be more proactive with customer success. This means reaching out to customers before they contact you, offering them advice and helping them get the best results with your product.

Here are some tips for better customer success:

Have a thorough onboarding process for new customers: Make sure that customers are able to use the product without any issues. You can provide how-to articles, support videos and tutorials to help them get started.

Offer help based on their usage: Tracking each user’s Customer Engagement Score and their usage can also be highly beneficial for your customer success strategy.

Monitoring how users interact with your product helps you understand how well they are using it and whether or not they need help.

You can then reach out to them with personalized recommendations on how to use the product better. You can even take it up a notch and create a highly specific customer success plan for each user

 

Reduce Involuntary Churn

 

Again, remember that not all customers who churn do it voluntarily. Involuntary churn occurs due to payment issues or other external factors like credit card expiration or poor billing management.

Here are a few practical tips for how to reduce involuntary churn:

Set up payment reminders for customers: You should also set up payment reminders for your customers so that they are aware that their subscriptions are about to expire. This helps them stay on top of their subscription renewal before it lapses, thus reducing involuntary churn.

To maximize the effectiveness of your payment reminders, let customers know how much time they have left before their subscription expires.

You can also use every channel you have to send payment reminders — email, social media, in-app notifications and even SMS.

Provide a generous grace period: A grace period is a time period where customers are allowed to renew their subscription plan even if the payment has lapsed.

This can be very helpful in reducing involuntary churn and giving your customers time to update their billing information.

Use account updaters: Account updaters are a great way to make sure your customer’s payment information is up to date. This will help ensure that your customers’ subscriptions don’t get canceled due to expired credit cards or other billing issues.

Payment gateway solutions like Stripe and Braintree have account updater tools and can help you stay on top of your customer’s payment information.

 

Achieve Product-Market Fit

 

Product-market fit is how well your product meets the needs of your customers. It’s an important part of reducing churn as it helps you understand how well your product works for its intended audience.

To achieve product-market fit, you should actively gather customer feedback and use this to refine and improve your product. Here are some tips on how to do it:

Collect feedback through surveys: Surveys can provide valuable insight into how users feel about your product and how satisfied they are with it. You can then use this data to make improvements that will address the real pain points in your target market.

Look at your competitors’ user reviews: You can also take a look at how your competitors are doing in terms of user reviews. You may want to see what they are doing right and what leaves their customers wanting.

If their user reviews include features or tools that they wish their SaaS solution had, you can use this information to make updates that better fits your target market.

You never know. That update may just be what makes them switch over to your product.

Be open to making changes: It’s essential to be open to making changes based on the feedback you receive from customers.

Sure, you may have your product roadmap and vision, but if you aren’t willing to make some adjustments every now and then, you may end up with a SaaS product that your target market doesn’t really need.

If something isn’t working as intended, don’t be afraid to pivot and try something new until you find the best solution for your target audience.

The key is to keep iterating until you find that product-market fit, as this will help reduce churn and increase customer satisfaction.

 

Build A User Community

 

Building a user community is another great way to reduce churn. This can be done through social media platforms, forums, blogs and even other platforms like your website and third-party community solutions.

Here are some practical ways to build customer loyalty using a brand community:

Provide exclusive content to community members: People love exclusive content. You can provide this by creating user-only webinars, eBooks, FAQs and other helpful resources that your customers will appreciate.

Give members an opportunity to influence brand decisions: Customers like to feel they have a say in how your brand is run.

So give them that opportunity by allowing them to provide feedback and vote on upcoming features or changes.

Not only will this make them feel valued and heard. It may even turn them into fierce advocates for your SaaS product and brand.

Share your customers’ success stories: Showcase how your customers are using your SaaS product to succeed in their business. And make sure to tag these users when you share their stories in the community platform or on social media.

This is great for customer morale and helps demonstrate how valuable your SaaS solution really is.

 

Aim For Longer-Term Plans

 

According to MarTech Zone, monthly subscription plans have 14% higher churn rates compared to biennial plans or longer.

So another great way to reduce churn is by offering customers longer-term subscription plans that are more cost effective

You can also offer subscription packages that include additional features and incentives for signing up for these longer-term plans.

For example, you could create a pay-up-front annual plan that offers discounts on certain products or services. Or you could give customers bonus points or rewards when they sign up for a two or three year plan.

Creating incentives like this will make it easier to encourage customers to stay with your SaaS product and help you keep customer retention high.

 

Expand Your Integrations

 

Integrations are a great way to reduce churn because they make it easier for customers to use your product, especially if they’re already using other SaaS solutions for their other business processes.

For example, let’s say you just created an integration with a popular CRM platform that your customer is already using. Then they won’t have to worry about switching over their data and having to learn how to use another piece of software.

This solidifies your relationship with your customer. And if your SaaS product is connected to a big part of their tech stack, it will be much harder to leave and switch to another solution.

Plus, by expanding your integrations you’ll make it easier for new customers to try out your SaaS product. They can just connect their existing CRM or other software solutions to yours instead of having to start from scratch.

 

Final Thoughts About Reducing Churn For SaaS Businesses

 

Reducing churn for SaaS businesses is essential for long-term success.

And addressing the cause of churn at its root can take a lot of time and effort. But the payoff can be huge in terms of customer loyalty that will help you retain more customers in the long run.

By identifying the root cause of churn and taking the appropriate steps to address it, you can reduce customer attrition and maximize your bottom line.

Looking for more guides to help you grow your SaaS business? Check out our blog here.

 

Get fresh updates in your inbox 👇

Ken Moo
0 Shares