In any Software-as-a-Service (SaaS) business, customer churn is terrible news. Lowering churn can improve almost everything related to revenue ‒ from your Lifetime Value (LTV) to your Customer Acquisition Cost (CAC) payback period and your growth rate. Researchers at Bain & Company found that increasing customer retention by just 5% can increase profits by a whopping 25–95%.
But how do you go about reducing customer churn rates efficiently? This article contains all the insider secrets and techniques you will need.
In the SaaS business world, customer churn (also sometimes called “attrition rate”) is the number of customers who cancel their subscription to a product or service over a certain period. The rate of customer churn is usually measured as a percentage. This is what the equation looks like:
For example, if your business had 800 customers at the beginning of the quarter, and you lost 40 of them by the end of the quarter, you would have a 5% customer churn rate. Evaluating your customer churn rate is vital to consider when you’re assessing your retention strategy. A high churn rate means it’s time to nurture your existing customers and improve the product, service, or experience you offer.
A high customer churn rate means your business is losing customers and, therefore, revenue. The high churn can also make it hard for you to cover your CAC and generate a good cash flow. Ultimately, it will hinder your company’s growth.
A little churn is natural for SaaS businesses operating in a highly competitive environment. About 5–7% is considered within the “healthy” range of monthly churn, though this is quite a general estimate within the industry. If your customer churn rate is within this range, you’re probably able to balance it out by acquiring new customers or expanding your current customer base.
A high churn rate can be a sign of something bigger, like underlying problems with your product or service. Customers churn most often because of poor onboarding, a low-quality product, or a lack of access to an effective customer support team. It’s therefore vitally important to keep an eye on this rate.
You may find you have a problem if:
Many businesses only turn their attention to churn once they’re losing customers. This is a reactive strategy that could cost you dearly. Being proactive against customer churn means starting at the moment of customer acquisition. There are three main stages to the lifecycle of customer retention. Understanding these will help to inform your strategy throughout the customer journey:
Early-stage retention usually refers to the first week a customer is engaging with your SaaS product or service. This stage tends to contain the most significant drop in retention. Here the focus should be on encouraging customers to use the product or service more than once, helping them find the benefits, and ultimately realize the value of what you offer.
Mid-term retention refers to the period of weeks two to four. These few weeks are vital as customers need to develop a usage pattern with the SaaS product or service. Building customer loyalty and engagement are critical at this stage. The more the product is integrated into a customer’s life and becomes a habit, the less likely they’ll churn.
Long-term retention runs from week five for the duration of the customer’s time with the business. Here, the focus is on making the product indispensable to the user and ensuring that they continue to receive value from it. Engaging customers in the early stages of retention is most likely to keep them around for the longer term. Making improvements in the later stages will also help you to sustain a good subscriber base over time.
Your user onboarding needs to help you shorten time to value and get more customers to experience your product’s core value. The best way to do this is through your onboarding process. For a full breakdown of SaaS onboarding best practices, see our recent blog post.
Key Tips For Improving User Onboarding:
If you build good relationships with customers and understand them, you’ll be able to continue providing users with a valuable product or service as time goes on. An honest and transparent relationship with a customer builds trust, trust builds loyalty, and loyal customers are far less likely to churn. This relationship-building process can start from the moment a user signs up for your SaaS product or service.
Key Tips For Improving Customer Relationships:
If you build solid relationships and a smooth customer experience, your users are more likely to reach out if there are problems and stick around while you address them. They’ll also be more likely to stay with you for longer periods and through other changes in their lives. And if they do cancel their subscription, you’re more likely to get feedback on why they did it.
Part of being proactive about reducing churn is identifying “unhealthy” or “at-risk” users before they have a chance to cancel their subscriptions. To identify at-risk customers, you need to build a profile of these customers and use micro surveys to collect information to inform your retention strategy.
You can collect information about at-risk users by looking at churn indicators specific to your business. Two examples are your Net Promoter Score (NPS) and your customers’ engagement with your software. Read more about the most critical SaaS metrics here.
Poor customer service will only worsen your churn. However, when you prioritize proactive customer service, then your teams can make personal contact with at-risk customers to prevent customer churn by checking if they’re getting the necessary value from the product. Nothing is more effective at reducing churn than offering stellar customer service.
Also, have a good look at the users that aren’t using your product, those using it far less frequently, and those suddenly not engaging at all. Identifying these users means you can build a specific strategy to reach them and fix the root issue — sometimes before they realize there’s a problem.
Improve customer retention and increase your revenue with the complete list of 10 secret tactics for lowering customer churn in SaaS on PayPro Global’s blog.
ActiveCampaign is a marketing and sales automation platform that helps growing businesses meaningfully connect and engage with their customers. Its SaaS platform enables businesses to create optimized customer experiences by automating many behind the scenes processes and communicating with their customers across channels with personalized messages.
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