Keeping customers happy is important for any business, but it’s especially critical for subscription-based SaaS companies. After all, if your customers churn too quickly, you’ll struggle to build a sustainable business, and it will be very difficult to maintain an upwards trajectory.
Fortunately. there are a few things you can do to dramatically reduce customer churn, so that you can keep scaling while ensuring that your customers are satisfied with your service.
In this article, we will explain what customer churn is and how it can impact your SaaS business. We’ll also explain how to reduce churn so that you can keep your customers happy and coming back for more.
What is Customer Churn?
Customer churn is the rate of customers cancelling their subscription to your SaaS service. It’s an important metric to track, because it can give you an idea of how your company is progressing. If your churn rate is high, it could indicate a need for improvement in your SaaS product or service. A low churn rate, on the other hand, can indicate that your company is in a healthy place and customers are happy with what you’ve been providing.
There are a few different ways to look at churn:
Revenue churn vs customer churn
Customer churn is how many users you lose over some specified time period and revenue churn is how much revenue you lose over that period as a result of all the customers that have churned.
Voluntary churn vs involuntary churn
Voluntary churn is when a customer chooses to cancel their subscription or let it lapse, whereas involuntary churn is typically the result of a technical failure or payment lapse — for example, if a customer's credit card expires and they forget to update their account with a new one.
Why is Low Customer Churn Important in SaaS?
Low customer churn is important in SaaS because it means that you’re retaining customers, which is vital for the long-term viability of your business.
A low customer churn rate means more revenue, which in turn means that you’ll be able to continue improving your service and attract even more customers.
It’s like a snowball, when customers are happy, they remain loyal, and more customers get on board. Likewise, when customers are unhappy, they will leave, post negative reviews, and more customers will leave.
As an example, if your monthly churn rate is 3%, you'll be on track to lose half your customers (or revenue, depending on what you are measuring) in two years. If your monthly churn is 5%, you'll lose 85% of your users or revenue in 3 years and things will quickly get worse from there.
This is why it is so crucial to make churn your lodestar metic.
Main Causes of Customer Churn - Voluntary
There are several reasons why a customer might churn from your SaaS business. These reasons are different depending on whether that churn is voluntary or involuntary.
Voluntary churn may be attributable to the following causes:
- Customers change their minds
- Customer needs go unmet
- Customers have consistently negative experiences with your support team, your product or your brand in general
- Customer success managers do not do enough to demonstrate the value of your company
- Sales reps. sign up the wrong clients
- Pricing issues
- Your competitors have a better product/lower pricing/more incentives
Customers change their minds
Customers sometimes sign up for your SaaS product with the best of intentions – they’re committed to using it and benefitting from it. But then they change their minds, either because they no longer need the product or because they’ve found a better alternative.
Customer needs go unmet
When a customer subscribes to your SaaS product, they’re hoping to achieve something. If their needs aren’t met, they’ll churn. Therefore, you should consider offering them a trial period, and you should have a new customer onboarding process in place to ensure each new customer understands how to use your platform.
Customers have consistently negative experiences
Customers who have consistently negative experiences with your brand are bound to churn. For example, users who can’t get satisfactory answers to their questions or concerns about your product in a timely manner will grow frustrated and leave. So, if your customer support team is unresponsive or unhelpful, then you should plan on having a high churn rate.
If your product is overpriced, or if the price doesn’t align with the value it offers, customers will churn in favor of a solution that meets their needs and is more affordable.
Ineffective customer success managers
Your customer success managers need to sit down with priority clients and decide what goals they are hoping to achieve using your product and what KPIs they want to hit. If your customer success team is not good at following up with your customers and ensuring they hit those targets, clients will churn – especially bigger accounts.
Your sales team is signing up the wrong customers
This is an important but often overlooked cause of churn. If your sales team signs up the wrong prospects without fully vetting that they are a fit for your company, you're almost guaranteeing they'll churn down the line.
Main Causes of Customer Churn - Involuntary
The causes of involuntary churn are completely different and include:
- Payment processing issues with soft declines such as insufficient funds, credit activity limits, payment timeouts and expired credit cards
- Payment processing issues with hard declines like stolen credit cards or invalid credit card data.
A survey on involuntary churn found that it most often came down to the following reasons:
- Recurring payment failure due to insufficient funds - 53%
- Recurring payment failure due to insufficient credit card limits - 42%
- Recurring payment failure due to credit card changes - 40%
- Recurring payment failure due to technical issues - 32%
- Recurring payment failure due to credit card restrictions - 30%
- Recurring payment failure due to other technical issues - 29%
Please note that companies surveyed were allowed to choose multiple options on this list, given the question was “What are the primary causes of involuntary churn for your organization?”.
The same study also found that auto-renewals account for 35% of all renewals, so making sure those are running flawlessly is incredibly important to avoid churn.
10 Ways to Reduce Customer Churn - Voluntary
Now that we’ve gone over what customer churn is, why it’s important, and some of the most common reasons for customer churn, let’s look at how to reduce churn and keep your business growing at a steady pace. These 10 tips should help.
- Churn is a team sport
- Customer support is key
- Minimize time-to-value
- Nail your onboarding
- Lean into your best customers
- Be proactive with communication
- Define a roadmap for your new customers
- Offer incentives
- Ask for feedback often
- Analyze churn when it happens
- Stay competitive
- Create a community around your customers
- Have customer success managers for your most valuable customers
Churn is a team sport
Because churn can be attributed to a number of causes, it really is a team sport; it requires a company-wide effort to manage. From sales signing up the right clients, to CX designing the best experience, to customer success demonstrating ROI and customer support being proactive, churn is everyone's business. Working to keep customer retention high and churn low cannot be palmed off to just one department.
Customer support is key
One of the most important things you can do to keep your customers happy is provide excellent customer support. When you have customers who are having issues, need help getting started, or want to learn when and how they can use your product, you need to be there for them.
If your customer support team is responsive and helpful, it will go a long way to keeping your customers happy and reducing the chances that they'll churn. Remember, customers expect companies to respond to them quickly, but they also want those responses to be helpful.
If you’re able to help customers who have questions or issues, you’ll build brand loyalty and reduce the chances of customers churning.
When it comes to SaaS, demonstrating value as early as possible is key to improving retention and decreasing churn, so make sure your product and experiences are designed to do just that.
Nail your onboarding
A great onboarding flow is essential and can get customers to their 'aha' moment during their first interaction with your product, massively decreasing churn. In fact, the folks at Heyday managed to reduce churn from 8.5% to 3.3% just by changing their onboarding flow.
Lean into your best customers
If you have customers who love your product, who use it frequently, and who are enthusiastic about their experience, you want to nurture those relationships. Also, if you have beta customers who are actively using your product, you might want to extend their beta phase and keep them in your customer base.
This will allow you to continue gathering feedback from these customers and improving your product. These types of customers can help you to mitigate churn from your less-engaged customers because they are more likely to advocate for your product and recommend it to others.
Be proactive with communication
Depending on the type of product or service you offer, you might have communication and education requirements. Customers who have purchased a service that requires them to take certain steps to use it need guidance and instructions.
When you have customers who are struggling or not making progress with your product, you need to stay in touch with them and try to help them succeed. Not only will this help you reduce churn, but it will also help you prevent negative reviews and improve your product based on real-world feedback.
You can use a technology like session replays for this. Session replay tools record user activity within your app so you can actually see how your customers interact with it, and any issues or frustrations they may have. Software like this also highlights instances of rage clicking, so you know exactly what step a user became frustrated at and churned.
Customer support and product teams use Fullview Replays to reach out to users directly upon observing an issue before it causes that user to churn.
Define a roadmap for your new customers
If you have a customer base that is growing quickly, you should think about how you’ll move your customers from beginner to advanced. You want to guide your customers so that they can become successful with your product as quickly as possible. This will help you increase customer retention, but it will also help you acquire new customers by demonstrating the value of your product.
We've explored how to perfect your onboarding process in detail before, so make sure you read that article as a primer before you get started.
If customer retention is a big concern for your business, you might want to consider offering incentives. People who pay for subscription-based services are making a long-term commitment. They may be hesitant to do so because they’re worried they’ll churn before they get their money’s worth.
Therefore, offering incentives can help you reduce customer churn and increase customer lifetime value. You can offer customers discounts for paying annually instead of monthly, rewards for referring new customers, or special bonuses for reaching a certain milestone.
Ask for feedback often
When you’re actively trying to reduce churn, you can’t only focus on the customers you have. You also need to keep an eye on customers who churn and understand why they leave. Asking for feedback often will help you learn what you can do to keep your existing customers happy and reduce churn.
Asking for feedback can also give you some insight into how you can acquire new customers moving forward. When you ask for feedback, you can learn what customers like and dislike about your product and what they wish you would do to improve your SaaS offering in the future.
Analyze churn when it happens
The best way to understand why customers churn is to analyze it when it happens. You might have customers who are paying on a monthly basis, yet they don’t renew their contracts at the end of the month. When a customer fails to renew, send them a message and ask why.
Or better yet, review their recorded session replays to see exactly where they decided your product wasn't for them. You can do this by reviewing what events took place during their last session or when they rage clicked during a particular sequence or process.
By analyzing customer churn in this way, you’ll be able to understand what went wrong and how you can improve. This is also an excellent opportunity to reach out to your customers with an offer to try and retain them before they subscribe to a competitor's service.
One of the best ways to reduce churn is to make sure you’re competitive. Customers will churn for a variety of reasons, but one of the most common is that they’re switching to a better product. When you’re trying to retain customers, you have to make sure your product is better than the alternatives.
You need to be constantly monitoring what your competitors are doing and making sure your product is better. For example, if your product is 10% more expensive than a competitors’, that might not be a big deal if your product is better than theirs. But if you’re, for example, 30% more expensive, you’re may lose customers regardless of how much more you’re offering.
Create a community around your customers
If you have an SaaS product, you might want to consider creating a community around your customers. Most SaaS companies have a small group of customers who are active with the product and are trying to help other people get started.
If you have a way for these customers to communicate and collaborate, you could encourage other customers to participate and build a community around your product. This can be a powerful way to reduce churn, especially if you’re offering a skill or knowledge-based product.
Have customer success managers for your most valuable customers
If you’re having a lot of success with your product, you might want to consider offering customer success managers for your most valuable customers.
A customer success manager (CSM) can help you prioritize your time and focus on your most important customers. A good one can also demonstrate ROI and work with customers to get there as soon as possible.
CSMs can help customers with their problems, provide support, and even help you retain and upsell customers. If you have a few customers who are using a lot of your time and resources, but are bringing in a lot of revenue, it might make sense to hire a CSM to manage their accounts.
2 Ways to Reduce Customer Churn - Involuntary
While most companies focus on reducing voluntary customer churn, because it's easier to notice when it's happening, involuntary churn often goes overlooked. It doesn't happen immediately and is a lot more inconspicuous when it does occur, so it's easy to miss.
However, it can really ruin your unit economics, so it's just as important to make sure you're putting proactive measures in place to staunch the bleed. Here are a few ways to reduce involuntary churn:
- Targeted in-app messages: Send these out when a customer's card is about to expire or their account is about to be closed due to payment failure
- Email follow-ups: Send these after a payment has failed for whatever reason
Targeted in-app messages
Proactively identifying and reaching out to customers whose cards are about to expire and asking them to update their information can be immensely helpful in preventing involuntary churn. If you send these as in-app messages and point your customers in the direction of the account settings page, they're more likely to take action.
Following up once a payment has failed
Sending out an email once a payment has failed or an in-app message before someone is about to be locked out of their account can also prompt them to update their payment information or take other necessary steps to keep their account active. One company (cited above) even managed to retain 19% of customers who otherwise would have churned. You can find more insights like this in our proactive support report.
You can also find an email template for when customers churn here.
Customer churn is a harsh reality in the world of SaaS, however, by following the tips and tricks discussed above, you’ll be able to keep your customers and keep your business on an upward trajectory.
Remember, the most important thing to understand is that customer support is everything. If your customers are happy then they will remain loyal, but the second they become dissatisfied, then they will leave you for one of your competitors.
Want to reduce churn? Fullview can help. Learn how.