A Primer on Fighting Churn for SaaS Founders
Tips for creating an effective customer retention strategy and ensuring efficient customer success management within your team.
SaaS founders understand that conversion rates and the acquisition of new potential customers are important. Generating subscriptions and sales is essential for increasing monthly revenue.
However, retaining current customers and minimizing churn is just as crucial for your business's long-term success and growth. That's especially true for SaaS firms and startups, where a significant portion of the revenue comes from ensuring customer success and maintaining ongoing subscriptions to the product or software.
ChurnKey is here to help you fight churn every step of the way. Read this guide to find out how to discover and effectively overcome churn challenges.
What is Customer Churn Rate?
The term "churn rate" describes the percentage of customers that cancel or don't renew their subscription during any given time (month, quarter, or year).
If your SaaS company's customer or revenue churn becomes too high, you are risking losing money and stalling your company's overall growth. On the other hand, keeping churn rates low will improve your monthly recurring revenue (MRR) and fuel more sustainable business growth rates.
Signs that You Have a Churn Problem
If you are running a subscription-based SaaS business, you are constantly fighting to keep your churn rates at bay.
While what's considered a "high churn rate" can vary from business to business, there are certain red flags that might indicate that you have a problem:
- Your churn rate is above 10%. Among subscription businesses and startups, the average churn rates range between 5% and 7%. Suppose you are noticing your rate getting into double digits. In that case, it is almost always a sure sign that some part of your customer journey process isn't working, and customer success and satisfaction levels are low.
- Your churn is outpacing new customers. If the number of lost customers exceeds the number of recent sales in any given period of time, you are not making money. This is an obvious red flag.
- More downgrades than upgrades. If you offer add-ons or different plans for your service or product, you want to guide more customers to purchase upgrades rather than downgrade. Otherwise, you are not making money and are exposed to the risk of a revenue churn problem.
- LTV (lifetime value) is shrinking. Most of the time, the longer each customer stays with you, the higher their LTV is. If many of your customers are churning, you can expect to see a downward trend in your LTV over the course of several months.
5 Techniques to Reduce SaaS Churn
If you feel like your churn rate presents challenges to your SaaS company, don't get discouraged. You can use specialized software and tools like ChurnKey to identify deals that do and don't convert and develop personalized strategies to guide more users to stay, cut costs, and boost your sales.
Here are a few additional tips for creating an effective customer retention strategy and ensuring efficient customer success management within your team:
#1. Reconsider Your Pricing Model
Price is one of the biggest factors determining churn rates for businesses or startups. Products and services that require more money upfront tend to see a lower churn metric, as consumers are less likely to make a quick and impulsive purchase decision.
On the other hand, subscriptions for longer periods of time (several months to a year) result in lower customer churn and better retention rates as well:
- Offer yearly instead of monthly contracts. Offering up-front commitment and long-term contracts positively impacts churn rates, as customers instantly become more committed to your software and have sufficient time to go through the implementation phase and see its benefits.
- Offer discounts on yearly pricing. To incentivize more customers to purchase a yearly contract, it may be a good idea to offer additional price discounts for the first few months of a yearly subscription. By saving money right away, the users will be more likely to have a positive perception of your software and brand and stay with you long enough to ensure customer success.
#2. Improve Onboarding Experience
An effective customer retention strategy starts with onboarding.
When consumers sign up for your software, don't just leave them wondering how to set everything up on their own. Instead, it is better to proactively guide them to ensure customer success, even several months after the sales process is complete.
An onboarding process aims to prevent people from signing up, trying the tools or services once, and then never logging in back again. Instead, it is essential to make sure that the customer doesn't forget about you.
A good tactic here is to send scheduled emails throughout the entire onboarding period of time to check in with the user, answer their questions, and share articles or lessons with relevant and useful information.
#3. Work on Customer Engagement and Communication
You can improve consumer engagement by maintaining a continuous conversation between the user and your business. Here is how:
- Build relationships with your users. Start building authentic relationships with your customers as early as possible and aim to maintain the connection throughout the entire customer lifecycle. As soon as customers sign up, reach out to them to introduce yourself. After they've used your product or software for a while, interview them about their customer success story and how your SaaS platform has helped them grow their business and make more money. Don't be afraid to get personal.
- Build customer loyalty. Customer or brand loyalty means that the user will refuse to go to your competition and be more likely to try new products offered by your brand. Most importantly, loyal buyers are less likely to churn. You can build customer loyalty and improve retention rates by being honest and transparent, creating a brand culture and a sense of community, and making your customers feel valued.
4. Focus on Quality Services
The most important thing to keep retention rates high and ensure your company's growth is to guide users and provide them with the best service possible. The quality of your service will translate into improved customer success rates and customer satisfaction levels, which, in turn, will lead to lower churn.
- Resolve complaints quickly. To ensure customer success, it is important to be responsive to queries and complaints. It is good to incorporate instant chat software to save time and resolve any issues more efficiently.
- Understand customer needs. Research what people are looking for and why they are leaving. You can conduct a marketing survey with questions related to your software and tools. With ChurnKey, you can also use Session Recordings to analyze who stays and who is at risk of leaving based on variables like subscription tier, lifetime value, and loyalty. You can then use this information to improve their experience with your brand and reduce the overall churn metric.
#5. Get the Most Out of Offboarding (Your SaaS Cancellation Flow)
Offboarding is the process that the users go through when they unsubscribe from your service. Basically, anything that happens after they click the “Cancel” button. Here are a few ways that you can turn offboarding in your favor:
- Wind out why customers are canceling. The first step to reducing churn and associated costs is to find out why your customers are leaving. It is a good idea to complement your cancellation flow with a short survey where you ask users questions about what they liked and disliked about your software during the months that they used it.
- Offer an incentive to stay. When a user tries to cancel the subscription, you can incentivize them to stay by offering a discount on their current package or a free upgrade option. This will guide them to give your brand another try and improve user retention.
ChurnKey software is the tool you need for taking your users' offboarding to the next level. Not only it allows you to track when free trials lapse and find out why users decide to cancel, but it is also instrumental in creating personalized offers to incentivize more people to stay.
Use ChurnKey to Fight SaaS Churn Rates More Effectively
Founders of SaaS companies and startups know that every customer counts for the long-term business success and growth rates. ChurnKey helps you improve customer retention rates and fight churn by offering meaningful insights and creating customized offboarding experiences. Get started today.