Reducing your SaaS customer churn isn’t as challenging as it sounds. You just need to know what to do in order to achieve it. There are three primary elements of the SaaS business model. Companies must acquire customers, retain customers, and upsell or resell to those customers. The second of those components, customer retention, is the most important.
Why You Must Reduce Churn
It’s common sense that no business wants to lose customers. For SaaS companies, though, it’s even more critical. They rely on having ongoing revenue from clients to make a profit. Where retail firms get the bulk of their money at the point of sale, SaaS businesses get paid over a more extended period.
Signs that you have a churn problem
If you run a SaaS or subscription business, you’re in a constant battle to reduce churn as much as possible because it improves your monthly recurring revenue (MRR) and creates more sustainable growth.
But you should also keep in mind that it’s ok to have a little churn—emphasis on little.
It’s generally accepted that anywhere between 5-7% is a “healthy” monthly churn rate.
Within that range, your business is at a point where you’re losing some customers, but not enough that you can’t balance things out by acquiring new more or expanding your current customers through offering upgrades, add-ons, etc.
If you’re curious about how your churn stacks up with similar companies, our Open Benchmarks show you average churn rates based on average revenue per user.
So, when should you start worrying?
Should you run around with your arms flailing in terror if your churn rate hits 9%?
Not necessarily. Every business is different, and what’s considered “high” for one might be ok for another.
There are some red flags you should look out for though. Here are a few signs that you might have a churn problem:
- Your churn is outpacing new customers: This one is pretty obvious, but if you’re regularly losing more customers than you’re acquiring, it’s a potential red flag. Particularly if you’re not upselling your current customers.
- LTV is shrinking: In most cases, The longer your customers stay with you, the higher the lifetime value (LTV) of your average customer should be. So, if customers are constantly churning, you’ll likely see a downward trend in your LTV.
- Your churn rate is above 10%: Like I mentioned earlier, 5-7% is considered an average churn rate. But when you start getting into double digits, it’s usually a sign that something in your process isn’t working. It could be the way you’re acquiring customers, your onboarding, or another part of your business. But if over 10% of your customers are cancelling, it makes it difficult to grow long term.
- More downgrades than upgrades: If you offer different plans or add-ons for your product, you want to have more customers upgrading than downgrading. Otherwise, you’re likely to deal with a revenue churn problem.
Those are just a few signs of a churn problem. But chances are, if your churn is getting into uncomfortable levels, you’ll feel it all across your business.
Even if you don’t have a high churn rate, there’s no reason why you shouldn’t aim to get it lower if possible.
Make Customers “Sticky”
It’s no secret that churn is directly related to engagement with your product or service (or lack thereof).
Simply put, the more customers interact with your product, the less likely they are to leave.
Your biggest competitor for your subscription business is not the rival service; it is your customer’s inertia in not using your service.
The goal, then, is to invite subscribers to interact with your product or service as frequently as possible.
Or, put another way, make them “sticky.”
Offer Added-Value Elements
Reducing churn goes hand-in-hand with improving customer satisfaction. A tried and tested way of boosting customer satisfaction is by giving them more for their money. Think about different ways that you can add value to the service you provide to clients.
Added value elements don’t have to be things that cost you much money. You don’t need to be running promotions or providing service features for free. What you could do, though, is to offer free tutorials on how to use your service. You may even go one step further and provide guides or resources about the wider industry your product exists within.
Target Customers at Risk of Churning
Customers at risk of churning are a crucial segment of your base on which to focus. If you can proactively solve the issues they have with your service, you may be able to keep them on board. That’s an intelligent and effective way to reduce churn.
They are a few things to watch out for to predict who may be at risk of churning. Look for those customers whose use of your product is gradually diminishing. If you want to take things further, you may also wish to consider SaaS customer churn prediction.
Keep Adding Value & Tell Users About it
In business, you never want to be standing still. You should always be striving to improve your products and services. Stay on the lookout for ways to add value to what you offer to your customers. When you do intro new services or features, make sure you tell customers about it.
Send customers a quick message telling them how the excellent service you offer has got even better. You may also wish to share news of how your product is helping customers. Email case studies detailing how beneficial your product is being in practice are a good idea. They will help to convince customers further that they’re with the right company.
PRO TIP: How to Track the Right Metrics for Your SaaS Company
It’s not easy to know which KPIs to track for sales, marketing, and customer success in a SaaS company. There are many possibilities, and so much to do! Why not start with the basic metrics that determine the health of your company?
- Sales (Gross) Volume: How much revenue did your sales team bring in this month, this quarter, or this year?
- MRR Growth: How fast are you growing revenues from recurring subscriptions?
- Customers: How many customers do you have right now?
- Customer Churn Rate: What’s your customer churn rate, and how much revenue have you lost to churn?
- Health Score: How do you identify risks and opportunities during all lifecycle stages? How do you build smart health profiles based on any interaction?
You can track all of that with journy.io and send it to your desired platforms or tools. The setup is straightforward so that you keep your most important data at your fingertips.
Educate the customer
This churn-prevention trick naturally flows from the point above.
You have to provide enough good quality educational or support materials, which will help increase retention and reduce churn. Offer free trainings, webinars, video tutorials, and product demos – whatever it takes to make your customers feel comfortable and informed.
In other words, you have to not only to give them the tools that work, but also offer the training on how to use these tools at a maximum profit. In this way you will demonstrate the full potential of your products and services, and ensure that customers have a successful onboarding and implementation.
Lengthen Subscriptions & Commitments
Offering longer contracts is a simple yet effective way to reduce churn. By tying a customer to a longer deal, you are literally guaranteeing they won’t churn for a longer period. You need to be careful about when you lengthen contracts, however.
Extending your customers’ commitments works best when customers are already happy. Happy customers are more likely to want to sign up with you long-term. If levels of customer satisfaction aren’t what they might be, our other ways to reduce churn may suit you better.
Build customer loyalty
We all know that one person who is loyal to a specific brand. The one who wouldn’t dare wear a pair of Reeboks out of their loyalty to Nike. Or the person who refuses to go to any grocery store except Whole Foods.
The reason they’re dead set on only buying from specific brands is because the companies have built customer loyalty, or brand loyalty.
Customer loyalty isn’t just limited to huge international brands that sell physical products. There are plenty of smaller brands (including SaaS companies) that have die-hard customers that are loyal to them.