15 SaaS Churn Reasons and How to Overcome Them
Customer churn is an ever-present reality that every SaaS founder must address.
It’s normal for customers to come and go, but if it seems like your retention rate is rising slower than new sales are coming in, something has to change.
According to McKinsey, 92% of SaaS businesses with yearly growth rates of less than 20% failed and one of the most common reasons for failure was a lack of solid retention strategies in place.
In this blog post, we provide insight into some of the most common SaaS churn reasons and actionable advice on how to combat them – so you can keep your subscribers engaged with your solution and onboard more new users through powerful retention channels.
Whether you’re just starting out or already have an established user base, these tips will help ensure that every user of your SaaS gets the best experience from your product – allowing you to succeed long-term.
SaaS Churn Rate – An Overview
SaaS churn is a term used to describe the process of customers unsubscribing from SaaS tools. It can refer to both individuals and larger groups that decided to stop using the service altogether.
By understanding churn, you can clearly see how your customer base is evolving over time, and what action you need to take to ensure that customers are retained and satisfied with the service they are using.
This data allows for smart decisions to be made about customer retention in order to improve the overall effectiveness of your SaaS tool – ultimately leading to an increase in revenue and market position.
Basic Churn Formula
SaaS churn rate is usually measured as the number of customers who have canceled in a given period divided by the total number of active customers at the start of time period.
The churn rate formula is as follows:
(# of Customers Who Have Canceled ÷ Total # of Active Customers at the Start of Time Period) x 100
For example, if your business had 500 customers at the beginning of the month and lost 10 customers by the end, you would divide 10 by 500. The answer is 0.02. You would then multiply 0.02 by 100, resulting in a 2% monthly churn rate.
In SaaS, the average churn rate is typically around 5%, with a “good” churn rate being 3% or less. However, this can vary greatly between businesses and industries, so there is no one-size-fits-all “average” churn rate.
Note though that while SaaS churn rates can provide useful metrics on customer engagement, they won’t tell you why your customers aren’t interested in your service any longer. To reduce SaaS churn, understanding the needs and motivations of your customers is key so that you can tailor your product accordingly.
Top Reasons Why SaaS Customers Churn
Below are the 20 most common reasons why customers stop using a SaaS product:
1. Bad onboarding process
Onboarding is an essential part of any SaaS customer’s experience, as it sets the tone for their relationship with the company. However, when the process is bad, customers can become frustrated. Bad onboarding processes are typically inefficient and full of irrelevant steps, leading to confusion on the part of the customer and a lack of trust or confidence in the product.
Additionally, if customers feel overwhelmed or discouraged during onboarding, this can be a determining factor in whether they decide to stay with that particular company.
The way to overcome this issue is to:
- Create a streamlined and straightforward onboarding process that makes use of only necessary steps that are easy for customers to understand
- Provide personalized guidance throughout. This is beneficial since employees with firsthand knowledge about the product can help new customers navigate through any potential issues more efficiently and make sure that every step before launch is properly taken care of.
Check out How to Create a Successful SaaS Onboarding Strategy—The Ultimate Guide for more tips.
2. Wrong customers attracted
Sending the wrong messages to the wrong customers is a surefire way to drive away SaaS customers. Prospective buyers may be enticed by attractive offers, but if those promises aren’t fulfilled they’re not likely to stick around. This is why it’s important to be thoughtful when targeting and pitching potential customers; after all, you want to attract people who would truly benefit from your SaaS tool.
To combat this issue:
- Make sure your customer base understands what you have to offer and that you can meet their expectations. Take the time to research similar services and outline exactly how yours stands apart from the competition.
- Keep in mind that onboarding should be tailored for each customer and provide them with lots of support until they become comfortable using the service.
- Ask any existing customers how they are using your product so that you can accurately target new prospects with genuine use cases instead of appealing directly to features.
3. Poor customer support
Not responding promptly to customer inquiries, or providing inadequate support, can cause customers to become frustrated and eventually churn. This is especially true in the age of social media, where a poor experience with customer support can quickly be shared with others.
To reduce churn rates due to poor customer service, SaaS companies should:
- Invest in online self-service tools that allow customers to handle tasks on their own such as making changes to their accounts or getting answers to commonly asked questions.
- Train your customer service team well. Highly responsive customer service teams can make sure customers get quick answers when they need more intricate help.
4. Lack of ongoing customer success strategies
Without ongoing customer success strategies, customers can quickly feel like they’re not getting their money’s worth or become frustrated at any roadblocks they might hit.
To prevent this kind of churn, you need to:
- Take a proactive approach and continually nurture relationships with customers – aiming to exceed expectations and help them get the most out of their investment in the product. Proactively address customer pain points and provide resources, educational materials, and onboarding processes.
- Share success stories frequently to remind customers of the value they gain by being with your product.
5. Bad pricing model
It is common for customers to churn when they think a product is too expensive or too cheap – this is because companies are often unable to properly align the value of their product with the pricing. It can be a challenging situation for SaaS companies especially, as it is difficult to make pricing reasonable for a wide range of potential customers.
Fortunately, there are some steps you can take to overcome these issues:
- Provide customer feedback surveys. This can give valuable insight into customer perceptions regarding price and value which can help you identify any shortcomings and make adjustments accordingly.
- Utilize automation software. This can significantly reduce costs associated with services that have traditionally been offered manually, enabling you to pass those savings onto your customers in the form of more competitive pricing without sacrificing quality or service.
Read Your Complete Guide To SaaS Pricing to learn more.
6. Payment issues
Payment issues can be a real headache for both customers and SaaS companies. With payment delays, missed payments, payment declines, and more, it can be hard to run a smooth operation! The main issue is usually due to complexity or inflexibility in the payment process – if customers don’t understand or are unhappy with the payment arrangements, or if they simply don’t have an easy way to make their payments on time, then frustration and churn will inevitably result.
So what can you do about mitigating payment related customer churn? Strive for simplicity when creating your payment process:
- Provide multiple options for making payments (whether it’s credit cards, PayPal, Debit/ACH, etc)
- Make sure the onboarding of new customers is as straightforward as possible
- Use automated reminders so that customers won’t forget when payments are due
7. Competitor-driven churn
Competitor-driven churn occurs when a customer decides to switch over to competing software that offers similar features. As customers become more conscious of their available options and expect perpetual innovation from solutions, businesses are left scrambling to consistently offer the best product on the market.
To overcome this issue you need to:
- Focus on creating an amazing user experience for customers.
- Offer virtual support
- Build valuable relationships with customers
- Perform regular market research to keep up with industry trends
- Stay engaged with your customers
- Make sure they have all of the information they need to make an informed decision when it comes to selecting the right provider for their needs.
- Regularly provide them value through updated features and services
- Offer supplementary customer services such as additional product demos or personalized attention
8. Users are not achieving their desired outcomes
It can be hard to understand exactly what customers want, and SaaS companies need to tread that fine line between giving too little and too much.
To stop this churn:
- Regularly check in with customers, both at onboarding and throughout the customer journey as a whole.
- Use analytics tools to detect pain points early on. If customers are feeling stuck, you can offer guidance before they reach a stage where they want to cancel entirely.
Ultimately, this kind of proactive approach helps ensure customers are getting what they expect – and it also shows that a company values its relationships with its customers!
9. Lack of features
Whether the customer’s needs have changed since they subscribed or the software just hasn’t kept up with the times, if customers don’t see the features they need they’re sure to go elsewhere.
The best way to overcome this problem is to:
- Focus on customer data and feedback – look at what customers are requesting, and what their use case is, and invest in feature requests that will encourage retention.
- You should also consider using analytics tools so you can better understand customer behavior and preferences, and tailor feature developments accordingly.
10. Too many features
Too many features can be confusing for customers, leading them to become overwhelmed and ultimately churn. This phenomenon is common in the SaaS industry because customers are more likely to favor apps that are easy to use and navigate, with as few features as possible.
In order to combat customer churn due to too many features:
- Focus on providing the most important features that benefit their customer base the most.
- Make those most important features highly visible, ensuring that even those who are not tech-savvy can easily access them.
- Provide helpful tutorials and support systems so that customers understand how they can best utilize every feature in a way that meets their individual needs.
11. Cash Flow crisis
Cashflow crises occur as the customer simply doesn’t have the money in their accounts to pay for their services any longer. This can happen to a customer during financial hardship or even due to poor budgeting decisions—whatever the case, it can be tough to overcome.
Thankfully, there are plenty of strategies that you can employ to help prevent this problem from occurring:
- Communication is key: if a customer is struggling with cash flow problems leading up to their payment date, getting in touch and offering alternative payment plans or usage caps can enable customers to keep up with their payments without putting too much pressure on their account.
- You can also provide new customers with free trials so that they can experience a service before committing any funds.
12. Loss of key users
The loss of a key user can happen for many reasons such as changes in job roles, attempts to reduce costs, or even moving to an alternative product.
When this occurs it can be devastating for the SaaS company as a whole, removing some big insights that are taken into account when predicting future sales and customer behavior.
To prevent such events from occurring:
- Start building relationships with users
- Have regular check-ins with them to ensure that they’re getting what they need from your product. Should anything change then you’ll be aware ahead of time.
- Offer onboarding programs. They ensure that users are familiarized with how to perform certain tasks faster and easier
13. Product problems
Product problems occur when the software doesn’t work as it should, and customers become frustrated with its performance.
Product issues can range from minor inconveniences to major bugs, both of which can lead to customer churn.
To combat product issues:
- The need for a speedy resolution when problems are encountered is key – customers have an expectation of getting help quickly in order to keep productivity up.
- Prepare your product proactively. QA testing can go a long way toward catching common red flags and giving clients confidence in what they’re using.
- Have service and support teams available to answer questions or troubleshoot any problems that come up in real-time
14. Scalability and integration issues
Scalability and integration issues are common reasons for SaaS customers to churn not just because of functionality-related issues, but because the customer’s business requires specific solutions that may not be available with your SaaS tool.
The lack of flexibility and/or real-time personalization can lead to frustration among customers when they try to meet their business needs.
To prevent this from becoming an issue:
- Undertake an evaluation using business analysts and software engineers to identify any potential gaps between the customer’s current state and what best practices would require. This should help avoid any widespread problems with scalability or integration before they start.
- Ensure that any SaaS application is integrated into existing IT infrastructure seamlessly, providing users with clear steps on how to quickly integrate the system for maximum results with minimal risk.
15. Leaving the early market
Leaving the early market is an increasingly common reason for SaaS customers to churn because many new products and services emerge quickly, giving customers plenty of different options to choose from. When the solution that was once seen as innovative no longer stays ahead of the competition, customers may prefer to switch to a new service.
To overcome this issue:
- You must continuously work on developing your products
- Stay up-to-date with your customer needs and expectations by regularly maintaining dialogue with your clients.
- Keep up with industry trends
- Implement feedback
If a SaaS company can remain responsive to customer demands and consistently provide innovative solutions – even before the competition – it leads to increased customer satisfaction and encourages loyalty over time.
If you’re experiencing high churn rates, don’t despair – you’re not alone. Churn is a common issue among SaaS businesses, but there are ways to overcome it.
The key is being aware of the potential pitfalls and taking proactive steps to prevent them from happening. Start by analyzing customer data, then focus on building relationships with customers, improving user experience, and staying ahead of the competition.
By understanding the top reasons for churn and taking steps to address them, you can reduce your churn rate and keep your business growing. For more tips on reducing churn and growing your SaaS business, be sure to visit our blog.