SaaS churn: A simple and proven strategy to reduce churn rate under 2%
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SaaS churn: A simple and proven strategy to reduce churn rate under 2% in SaaS
This article will show you how to reduce your SaaS churn by following the proven strategy that we have already successfully implemented. So grab your salted caramel iced mocha, and let’s make you the churn hero of the company.
For us, it all started in 2020, when our monthly SaaS churn rate was 6.22%, more than double our target benchmark (high pressure, you bet). We sat down with the team for preventing customer churn and were able to combine churn analytics with customer feedback to reduce it down to 4.26%. And when we thought we are on the path to success, the COVID-19 pandemic put a halt to our progress.
A few months later… June 30, 2021, our SaaS churn rate was back at 6.12%. The aimed benchmark was 3%. “Tension” is in the air.
As the OKR driver for reducing SaaS churn, I faced an unknown opponent because I was unaware of why our customers were leaving us. In general, people are afraid of the unknown and tend to avoid it. As I didn’t know what was going on, whenever someone mentioned the customer churn topic, I usually smoothly redirected them to another one (or swept this churn topic under the carpet, whatever you like more). People can be really good at avoiding what they don’t want to talk about and yep, I wasn’t an exception.
However, as concerns and questions kept coming from the top, I was eventually pushed into a corner and had to do something about it. This time, I needed to take it very seriously.
If your retention is poor then nothing else matters
And together with the team, we were able to bring the SaaS churn rate down! After several months of experimenting, including changing the way we think, making changes to the product, implementing the customer health score rather unsuccessfully, and improving communication with customers, we were able to cut the customer churn to the target benchmark. In fact, we surpassed it significantly.
This is the story of how we at Usersnap ate our own dog food and reduced the churn below 2% – 1.98% to be exact!
If you don’t have time to read the full article, click on the section that you are interested in the most below.
Nowadays, with the growth of subscription business models, and your competitors watching you constantly, SaaS churn is probably one of the most important metrics that should be tracked by every SaaS company.
Let’s start with the basics.
What is churn and why it’s a vital metric for product managers
SaaS companies rely on client retention to generate revenue, hence churn is an important growth indicator for them. Fun fact, it costs five to twenty times more to bring in new customers than to keep the ones you already have, therefore it’s critical to keep an eye on SaaS churn.
Understanding why customers are leaving your service is possible via an examination of customer churn. Your brand’s reputation, customer loyalty, and overall lifetime value may all be improved by using these tactics.
That’s one of the reasons why preventing customer churn rate from exceeding the optimal value should be the primary goal for product managers who want to ensure sustainable growth. A product manager can only enhance the Lifetime Value (LTV) of the customers if churn is in a reasonable range.
If the churn rate is high, the growth can reduce even if your average recurring revenue (ARR) is increasing. This means that your SaaS company is acquiring new customers but failing to retain the existing ones. This can highlight a major flaw in the product as it can potentially mean that while customers are driven by the promises your SaaS product makes, they are not satisfied with the execution.
This is why it is crucial for product managers to focus on predicting customer churn with precision so it can be managed effectively.
How is SaaS churn calculated
You can’t improve what you can’t measure, so be as meticulous as possible with your churn calculations.
Ryan Law, VP of Content at Animalz
In order to compute the SaaS churn rate, the calculation is simple: subscription cancellations in a certain time period, divided by the total number of clients at the onset of that period.
Essentially, the churn rate of your customers is the proportion of users that discontinue using your product during a certain time period.
Despite this, our research into a multitude of individual SaaS firms has shown a great deal of intricacy hidden under the surface of this apparently straightforward calculation. Some companies have resorted to breaking down the customer churn into segments, cohorts, etc. while others are tracking trial users in their turnover, not appropriately counting seasonal clients.
Your customer turnover rate is a reflection of your company’s overall performance, and you need to know how to improve it. In order to do this, you must not make your churn rate calculation too convoluted. If you go down this rabbit hole, you will end up making the process too complex which will distract you from the original objective – predicting customer churn with reasonable precision.
How do you compete with other SaaS
It is quite obvious that you are not the only SaaS organization that is attempting to reduce its customer churn. Generally, a SaaS customer doesn’t stop requiring the product but goes to your competition. That’s why a high churn rate usually indicates that your customers are leaving your SaaS product for an alternative. Here’s how you can use the SaaS churn rate to compete with other firms.
Monthly Recurring Revenue (MRR)
If your present users depart, so does your monthly regular income. A firm’s monthly recurring revenue (MRR) serves as a gauge of its long-term survival in SaaS. To avoid revenue losses, it is essential for product managers to prevent customer churn.
Net Negative MRR Churn
SaaS growth may be fueled by net negative MRR churn, which is a common occurrence in the SaaS industry. Users that stay with your service for the long term make more money for you than those who cancel or downgrade, so you have a net positive churn rate. Net negative MRR churn is simpler to obtain if you have a low churn rate.
Customer Acquisition Cost (CAC)
If you invest money to get new clients but they leave before you could even recoup your expenses, your business is going to be in trouble. Increased churn also balloons up your customer acquisition cost. You’ll be able to regain your CAC from your users faster if you lower your customer churn rate as much as possible.
Lifetime Value (LTV)
Customers’ lifetime value (LTV) is a measure of a SaaS firm’s success and long-term viability. Due to the drop in money that might have been generated, the LTV of a customer diminishes when your SaaS churn is high.
Usersnap’s Strategy for Preventing Customer Churn
Now that you have an idea of what SaaS churn is and where you stand among the competitors, it’s time to dive deeper into the customer churn strategy that we have successfully implemented. By the end of this chapter, you will have a clear idea of what is needed to say bye-bye to the high churn rate and drop it under 2%. Are you with me? Buckle up!
The Usersnap churn strategy consists of three steps (AAP): ASK, ACT, PREVENT.
The by-product of fewer technical issues is also an increase in customer satisfaction, which can be reflected in reduced customer churn.
In general, you can’t fix a problem you don’t understand, so for us, the first step was to find out the main reasons why customers leave Usersnap. This was the foundation for improving our retention rate.
We did this in two ways:
Asking customers for the churning reason during the churning process
If you have ever tried to cancel your Premium LinkedIn account, disable your Facebook account, or even delete an account in your favourite game, you would have noticed that they have a built-in system that inquires about the reason for leaving that service. This step allows them to collect accurate information at the point of churn.
That’s exactly what we did, and it helped us understand the churning reason.
Scheduling interviews with churned customers to find out the reasons
Sometimes the feedback provided was sufficient, sometimes not. That’s why, to even better understand our churning customers, we created an automated email flow, inviting them to have an interview with us. Think of it as a customer churn survey. We really kept our mouths shut and let them do the talking, and let them share their frustrations, opinions, and suggestions. In some cases, they were shouting from the rooftops (no joke).
This strategy allowed us to learn more about our target audience, their perspective on our product, our business, and what we could do better.
Once we understood the pain points and the driving force behind our customer churn, we knew what we have to do next. The reasons behind the SaaS churn rate allowed us to see the light at the end of the tunnel. Here’s what we did:
Present insights to the team
Open communication is one of the values that is deeply embedded in our company. Therefore, presenting insights to the whole team and making them aware of why our customers are churning was the first step. Each month, our Customer Success Team shares the insights with other departments including Growth, Product, and Development. This is a crucial step in addressing SaaS churn.
A diverse variety of constructive feedback and ideas came out of it, such as the potential features that solve customers’ problems, pricing suggestions, an idea for a 24/7 customer success team, and more.
Offer incentives depending on the customer churn reasons
With the understanding of the churn reasons, we were able to offer carefully selected incentives depending on what the customer said in the churning process. These incentives are not set in stone. In fact, each quarter we analyse the performance of each pop-up and adjust the ones that are performing low. You can see a few examples below.
Improve the product based on customer feedback
You have to bear in mind that no incentives can make up for a product that is not tailored to the customer’s needs. This is the ‘grande finale’. Collecting feedback, especially negative feedback, helps you understand what you should improve in your product. Maybe, your product is too expensive, it doesn’t have the essential functionalities, or your customer support team is not effective and rude. In our case, we did a few things:
- Adjusted the pricing page to better fit our target persona
- Improved the user onboarding
- Created more educational content to make our users successful
- Hired a 24/7 customer support team
With these actions, we were able to drastically reduce the SaaS churn rate, improve retention, and celebrate this achievement at a team-building event in Schladming. (What happens in Schladming, stays in Schladming, sorry 🥂 )
The third step in our customer churn strategy was all about being proactive. Reducing your SaaS churn is no longer about stepping in and trying to “save” a customer once they have already decided to leave. It’s about partnering with them, noticing when the red light turns on, and listening to their issues, and concerns. Nothing happens overnight.
Your customers are constantly giving you signals and it’s just a matter of you identifying the signs and initiating your counter-churn strategy. Enough with the motivation and inspiration, here is what we at Usersnap do to help our users reach their goals by preventing customer churn:
Regular check-ins with customers
Once a quarter we reach out to our customers proactively asking for feedback, understanding where they are, anticipating if we can help, and offering new use cases.
Open to feedback
It’s in our bloodstream. With the clearly visible feedback button on our website and app, we spread the feedback-driven culture and encourage our users to get in touch with us, whenever they want.
Listening to users
Constantly implementing features that users suggested if they are aligned with our vision. This helped us bring back many customers. If the proposed features are something that we know we will not deliver, we are fully transparent with our users.
“Fix bugs, yesterday”, said no one but us
Our product has to be awesome and it has to work as expected. If there is a bug, we are on it immediately. User experience cannot and should not suffer.
The AAP churn strategy is not hard but can be a bit complicated. It requires a shift in the mindset as you and your users need to be on the same journey. The more successful they are, the more successful you are. It’s a win-win. Therefore, embrace their feedback, ask and listen to them, act on their words, and make sure to be proactive in preventing customer churn.
To stay motivated, just keep in mind that 82% of companies claim that retention is cheaper than acquisition and even a small 2% increase in retention can lower costs by as much as 10%.
The bottom line to SaaS churn
Every SaaS company is different and every customer has different needs. However, customer churn always has the same root cause: not achieving the desired outcome.
Focus on churn, churn will always be a problem; focus on ensuring your customers achieve their Desired Outcome, and churn will not be an issue..” Lincoln Murphy, Sixteen Ventures
Reducing your SaaS churn rate doesn’t mean getting better at putting out fires as customers leave. It means getting better at helping your customers achieve their goals by delivering more delightful and effective experiences—from onboarding to offboarding and everything in between.
With this in mind, in order to become the churn hero in your company, make sure to:
- ASK and understand why your customers are churning
- ACT on the feedback received, and involve the whole team
- PREVENT your customers from churning instead of just trying to keep them once they have already decided to leave.
Start by creating a customer churn survey using this template with Usersnap today.
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