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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.
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.
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.
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 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
Encourage users to interact with your product
Update your pricing
Customer feedback is gold
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