5 Surefire Tactics to Reduce SaaS Customer Churn
All subscription-based business owners know that churn is unavoidable. Some customers will inevitably cancel subscriptions because of a poor product-market fit or simply because the product isn’t relevant.
In the SaaS domain, the mythical 5 percent is considered to be an acceptable annual churn rate. At this churn rate, you can maintain sustainable growth by acquiring new clients or boosting revenue from them through upgrades or add-ons. This makes up for the churned clients.
But customer churn, if not tracked, can prove to be a silent killer for SaaS businesses. This “acceptable” churn rate, if not monitored can quickly leap up, thereby preventing your business from growing sustainably.
In this guide, we will throw light on the top signs your SaaS business has a churn problem and discuss strategies to reduce it.
But first, let’s understand SaaS churn.
What Is SaaS Churn?
In simple terms, SaaS churn is the percentage of customers who cancel their recurring revenue subscription. In the SaaS world, there are several variations of churn:
- Client churn: The percentage of clients lost over the total paying clients.
- Revenue churn: The revenue lost due to canceled subscriptions or unrenewed contracts over the total revenue for a given period.
- Gross churn: The total absolute amount of clients or revenue lost during a certain period due to canceled recurring revenue subscriptions.
- Net churn: The change in recurring revenue owing to expansions, cancellations, and downgrades.
In this post, we will focus on client churn or client attrition, when the customer stops using your product, leading to the non-renewal of the subscription.
Red Flags of Customer Churn
Running a SaaS business is exciting because the market is lucrative and is expected to grow at 18 percent per year. However, customer churn is one issue SaaS business owners need to constantly deal with to boost their monthly recurring revenue (MRR) and ensure sustainable growth.
Though a churn of up to 7 percent is acceptable in SaaS, it doesn’t necessarily mean businesses should panic if their churn rate has touched 9 percent.
So when should you start worrying?
Here are a few red flags.
Churn is outpacing new customers. If your business is losing more clients than it’s acquiring, it’s a potential red flag. This is particularly true if you aren’t upselling to your existing clients.
Your LTV is shrinking. Customer lifetime value or LTV is the predicted money a customer will spend on your product or service during their relationship with you (lifetime). So, the longer the customer stays the higher will be the LTV. If your churn is high, you will see a steady decline in LTV, indicating that you need to take effective action to curb the churn.
There's an increasing trend in downgrades. In the SaaS world, upgrades are a constant source of revenue. If your business is experiencing more downgrades than upgrades, it’s a sign that your clients aren’t enjoying your services and will soon leave.
The churn rate is greater than 10 percent. A double-digit customer churn is a sure-shot sign that your product or the marketing strategy isn’t working. It could be that your SaaS content marketing isn’t working or your customer acquisition or onboarding isn’t effective enough. Regardless of the reason, more than 10 percent of your clients leaving isn’t a good sign for your business.
Tactics to Curb SaaS Customer Churn
Most articles talk about how to “make it tough” for your customers to leave or sell annual plans to prevent clients from straying. But that will not solve the root cause of customers leaving.
Hence, we have come up with five effective tactics to deliver delightful and effective experiences for your customers, giving them strong reasons to stay.
1. Get to the root of the issue.
In a competitive industry like SaaS, losing customers directly impacts long-term business growth. Hence, the first thing you need to do is understand why customers are moving away from your services.
The easiest way to achieve this is by sharing a survey asking customers why they want to cancel. Notice how Emsisoft, an antivirus software company, shares a short survey asking customers why they are leaving.
The responses to such surveys will help you prioritize customers by cancellation reasons that are costing you the most money. It will also point out common issues leading to churn.
For instance, Usersnap discovered that when its application is project-based, customer lifetime is limited, causing them to leave, Based on this feedback they launched a new service line that gave customers a reason to stay.
Similarly, these surveys could surface other reasons for churn, namely steep pricing, a new product launched at competitive pricing, technical issues, missing features, and more.
2. Improve customer loyalty.
Customer loyalty speaks volumes about how happy the customer is with your product and services. In SaaS, it means repeat purchases and recurring revenue.
Here are some ways to build customer loyalty.
- Apply business expansion tactics. Approach your loyal customer base for upselling and cross-selling to generate extra revenue. Subscription renewals are another way to generate more revenue while persuading your customers to stay. This will help you achieve a negative churn rate.
- Offer customized support. Loyal customers deserve more than mere off-the-shelf solutions. Offer tailored solutions to prevent them from looking up the competition. This will help you nurture a strong long-term relationship with your customers.
- Reward loyal customers. One of the most effective ways to win SaaS customer loyalty is by rewarding your repeat customers. For instance, you can offer a bonus time limit or some free space for those who renew their subscription. These rewards make them feel privileged and encourage them to stick with your company.
- Add value. Every touchpoint you make with your customers should add value to their lives. For instance, SaaS brands can offer useful content that explains product benefits and applications, how customers can use them, and the challenges they face on the way.
Adopting such a SaaS content strategy can help businesses establish their authority in the field and boost a brand’s trustworthiness. Check out these SaaS content marketing examples and content types that help companies engage and add value to their customers.
- Long-form blog posts
- Original studies and reports
- Case studies
- Product comparisons
3. Improve the onboarding process.
An increasing number of SaaS firms are realizing the importance of a seamless onboarding process, especially when it comes to client retention. After all, onboarding is the first step to engaging your customers and growth will happen only if the experience is consistent.
As per Wyzowl statistics, 90 percent of customers feel that SaaS businesses ‘could do better’ when we talk of the onboarding experience. In fact, 8 of 10 users left a platform because they didn’t know how to use it effectively.
Here are a few quick tactics to implement to create a compelling SaaS customer onboarding experience.
Audit your platform’s onboarding flow. Review your platform’s onboarding flow and understand where customers are hitting the wall. Fix those issues first.
Check out your user’s “aha moments”—the time when they truly realize your platform’s value. These moments are reasons for your customer to stay and set the tone for the future journey.
Use a software stack comprising Google Analytics, Amplitude, Mixpanel, and Hotjar to discover relevant critical actions. For instance, Hotjar can help you with heatmaps and Google Analytics can track macro actions like the pages having high bounce or exit rates.
Communicate your product value first. Prioritize telling and showing the user how your platform will solve their problems. Make sure you front load your product value.
For instance, if your product is a project management platform, walk them through creating a board while including tasks and due dates.
Begin with a customer welcome email series. Setting up a series of welcome emails is one of the best ways to guide your users on specific features and educate them about the platform. Check out how GitHub greets its users with welcome emails, offering them various options to know more about their platform.
Keep product tours short and simple. Sharing too much information, in the beginning, can be overwhelming for users, causing them to leave. Avoid sharing unnecessary information before they are ready to take it.
Minimize priction in the sign-up process. During the sign-up process, ask for information that’s necessary for the user’s first experience with your platform. Long sign-up forms can switch off the user.
4. Listen to Customers.
Whether a customer is appreciating or complaining about a product feature, it’s a sign that they want to use your product. At this stage, it’s important to listen to what they have to say.
Are they facing an issue? Do they have a suggestion? Is there a feature they cannot do without?
Hearing out to your customers and acting on their suggestions is a sure-fire way to reduce churn. Check customer comments and reviews by engaging in social listening. Platforms like Capterra, G2 Crowd, GetApp, and TrustRadius among others are places where SaaS buyers are most active.
Further, you can keep a track of what customers think of your product through NPS (Net Promoter Score) surveys. Implementing NPS surveys can help resolve unsatisfied customer issues while reducing churn.
Check out this short, easy, and flexible NPS survey template that can help reveal the exact customer insights you are after.
5. Incorporate retention hooks.
A few value-adding built-in features in a product act as retention hooks that encourage users to return to the platform. These can help inactive users to revisit the platform while seeing value in the product.
Check out how LinkedIn encourages its users to come back to its platform to connect with people within its network. By doing so, it’s getting inactive users to interact with its platform while emphasizing the value it adds to its audience.
Customer churn occurs when customers do not see value in your product or your offerings are not helping them achieve the desired results. Most businesses believe in reducing churn by applying marketing gimmicks and offers to delay customers from leaving.
But reducing churn is more than that. It means helping customers achieve their objectives while providing them with delightful experiences. We are sure the tactics outline here will help you reduce churn and boost your business revenue.
Lucy Manole is a creative content writer and strategist at Marketing Digest. She specializes in writing about digital marketing, technology and entrepreneurship. When she is not writing or editing, she spends time reading books, cooking and traveling.