Quick Guide to Reducing SaaS Customer Churn

Customer churn is a vital metric that businesses should not disregard, especially in times of downturn. SaaS and subscription companies constantly analyze churn, thus understanding where they stand regarding business profitability and retain customer strategies. Follow our quick guide to reduce churned revenue and grow your user base.

What is SaaS Churn?

The churn rate reflects the number of customers who stop doing business with an organization. It shows you if you are losing customers and at what rate. To understand if your churn rate affects your business, consider calculating your Saas’s growth rate and comparing it with your churn rate. As a rule, your growth rate should always exceed your churn rate

Why struggle to fight churn?

The churn rate is of enormous importance for your SaaS business for several simple, straightforward reasons:

Churn prevents your business from growing.
By understanding customer expectations and how many customers you are already losing, you can be proactive about operating and take the correct measure to increase customer engagement.
Reducing churn in SaaS will create the right conditions to increase recurring revenue.

Churn can kill a business, and instead of fighting for success, once you’ve hit full churn speed, it’s only about survival. Unfortunately, leaving churn completely unattended and investing your entire budget in acquiring customers is a mistake, so many entrepreneurs make. Acquiring customers is a significant goal. However, so is retaining customers. It’s funny how people focus on getting more and more customers on their boat, and at the same time, it almost feels like they are pushing them back into the water one by one just to fit more newcomers. While your focus needs to be on your customers, it’s not just the new ones that matter.

If you want a trusted sidekick to help you fight churn, you need to look for retention.

Understanding churn rates

Most companies, if not all, have customers that decide to say goodbye. In other words, everyone is faced with churn. So, there is no reason to churn alarm yourself until you’ve reached a specific rate.

Churn is acceptable up to a point. A reasonable churn rate is somewhere between 5-7% annually. Above that, you must take measures to decrease churn.

The 3 Phases of SaaS Churn

When considering how to reduce churn, SaaS developers need to consider the phases of this phenomenon. Because they need to apply specific churn decrease strategies. If not, all your efforts might be in vain without this detail in mind.

Short-Term CHURN

The first few months after users sign-up for your product or service, you need to expect a higher churn rate. That is short-term churn. During this time, users are merely testing your product, trying to figure out if your offer fits their needs and if it delivers the core value they were looking to obtain.

To retain customers during this period, you must prioritize proactive customer service and ensure that your new customers have that A-HA moment when using your product. Poor customer service and a complicated onboarding process will most certainly cost you part of your customer base.

To ensure that customers stick, provide them with the means to understand how your product functions. Tutorials, guides, articles, and videos all are encouraged and welcomed. Also, consider improving customer experience. New users should benefit from specific onboarding experiences and be provided support and help when faced with complicated situations or problems during the customer journey.

Mid-term CHURN

Once your customers actively use your product, they will start enjoying some value. If the customer decides to leave regardless at this point, it is considered mid-term churn. It is a tough time because users expect the desired outcome to follow immediately after using the product, while you, the SaaS developer, know this is impossible.

The good news is that churn reduction strategies exist at this point, and they revolve around something you can control, meaning your product. Remind users why they signed up first and what pain points your solution solves. Use well-crafted emails to inform them of these facts. Start those engines on customer support and customer experience, make everything run smoothly, and help your customers understand that you are by their side every step. This is when things start to get a lot more personal.

Long-term CHURN

Long-term churn appears when a user has already established history with your product. Even after actively using your solution, your customers feel that improvements are required, and they might show you this by leaving.

Now, if you are wondering how to fight churn in this phase, you need to consider upgrading accounts to recover churned users. Re-introducing your current customers showing signs of churn to your solution is the only way to minimize churn. Think about reactivating inactive customers through campaigns explicitly made to display the core value of your product.

How to calculate the churn rate

While fighting churn is a complicated matter, calculating it seems a bit more straightforward, as there is a formula out there that can be applied.

To calculate the churn rate, you need to consider a specific period and divide your lost customers by the number of total customers at the start of that period and multiply the result by 100.

4 things you can do to reduce the churn rate

Implement a credit card dunning system

There is a larger percentage of payment failures, which is usually noticeable in your MRR churn rate. You need to implement a system that can allow you to recover all these customers and get them to the dark side.

By definition, the dunning process refers to the act of notifying a customer when their credit card is declined and asking them to provide new information. Through dunning, churn can be reduced. Your clients might not be aware that their payment details are not updated, and when notified, they would be willing to solve this problem to continue using your product. Using an established system, you identify at-risk customers and take immediate measures to solve this problem.

Encourage users to interact with your product

Put your product in front of your customers, and keep them focused on it. Show them exactly how powerful your solution is and how much it can help them achieve their business goals. Email marketing can become an essential connection at this point because it is through a strategy of this kind that you can re-grasp some of the attention your product once had. So, you need to keep your customer up to date with everything you do regarding upgrades or improvements.

SaaS email marketing can do wonders. Use newsletters to inform your customers of offers or what you have published on your blog. While no one wants an inbox filled with messages, you still have to reach out to your customers. So, make it worth their reading time and run effective SaaS email marketing campaigns.

Update your pricing

Establishing the correct pricing for your product is a complex endeavor. It takes time, effort and knowledge on various aspects connected to your product. Indeed, several things need to be considered when pricing your SaaS. From your target audience to your competition, setting the correct price is hard work. Getting it right could help you win customers. Getting it wrong will certainly be a turn-off.

Yes, pricing matters greatly when discussing the acquisition. And churn is about already acquired customers. So, where do these two meet? Each monthly beginning represents your customer acquisition moment for SaaS companies functioning on the subscription business model. As time goes by, the pressure diminishes as your user becomes more accustomed to your product. But incorrect pricing could influence their decision to continue with your product in the early usage stages.

Customer feedback is gold

Feedback is crucial for any business, not just SaaS. However, in our line of work, things tend to get a bit more personal, as you want close relationships with your customers. You want them to use your solution for a long time. This signifies a steady income; in some cases, depending on the pricing model you selected, your revenue grows from the in-app purchases.

Plus, they need to get accustomed to your solution and provide adequate, relevant feedback that could lead to user-centric system improvements. Run surveys and SaaS email marketing campaigns, and reach out to your users in any way you can to understand what is functioning well and requires improvements. Involve your SaaS customer service to strengthen relationships. A well-trained SaaS customer service team can do wonders.

Most subscription business model companies have an onboarding process. Understand the high friction points of your onboarding process, and ask your users what else you could do to offer support and assistance. Turn your users into partners and use their knowledge and the unique customer experience SaaS products offer to enhance your offer.