What can be the cause of a churn rate increase in business?

What can be the cause of a churn rate increase in business?

When you’re busy building your SaaS business, it can feel impossible to think about anything outside of development and customer acquisition and troubleshooting and marketing and the hundreds of other things on your plate as an operator.

But if you don’t add addressing churn to your to-do list, all the effort you put into everything else is going to cap your growth. Worse, troublesome churn rates could cause all of your top-of-funnel efforts to be wasted time.

Let’s talk about some of the main causes of customer churn, as well as some concrete actions you can take to reduce your churn rate.

Ineffective onboarding means customers aren’t getting what they need from you to stick around

When customers first subscribe to your product, it’s essential that they receive effective and impactful onboarding that allows them to experience the value of your product. Customers don’t need to understand how your product works—they need to go beyond that to get what they need from it. If you aren’t able to provide value as quickly as possible, then eventually they’re going to stop paying for it.

According to UserPilot, improving activation rates by 25% for SaaS could improve MRR by 34% after a year.

So how do you improve your customer activation rates? Start with more effective onboarding. Create the shortest possible path for your customer to experience value.

Along the way, provide targeted training or resources that reinforce that time-to-value in an intuitive way. Trigger how-to’s, walkthroughs, guided tutorials at the right time and place.

For example, craft email sequences for new customers that anticipate common setup problems and point them directly to a solution. Or, better yet, just solve the problem for them so they can settle more comfortably into your product.

A sub-optimal pricing strategy

Fixed your activation rates? Got onboarding in a good place? Churn still happening? Maybe it’s your pricing strategy.

SaaS pricing that scales up when it’s tied to an obvious value metric—say, the ability to publish more videos, export in higher resolutions, generate more AI-created words, or invite more team members—allows your customers to see clearly what they’re paying for and how they receive more value at the higher priced tiers.

Churn tied to pricing reflects that you’ve chosen the wrong value metrics. Revisit the assumptions around your target customers, perform some research, and see what and how they value your product.

Targeting the wrong customers

You may think that you’re targeting the right customers because people are signing up and paying. But it’s surprising how often people will buy without fully understanding the product, only to realize it’s not what they actually want or need and, eventually, cancelling.

In order to make sure you’re pulling in your true target customer base, make sure your advertising and messaging reflects the problem your product solves, not just the features your product has. By asking the right questions up front and effectively helping new customers fully understand your product before they subscribe, you can ensure that you’re targeting the right customers.

Compare the customers who are sticking around with the ones cancelling. What commonalities do they share? Where do they differ?

Your product just isn’t delivering enough value, which isn’t good enough

If your onboarding process is demonstrating value, your pricing is based on a value metric, and you’re targeting the right people, but your customers still aren’t seeing the value in your product, then it might be time to re-examine the product itself.

This is painful. But things may have changed: market conditions, competition has edged into your territory (or is outperforming you), technological capabilities, economic realities all shift and customer tastes change. So start talking to your churned customers to understand how they see you. What’s the general sentiment? Are you seen as a nice-to-have? Overpriced? Difficult to use?

Take some time to get feedback from current and former subscribers about your product through customer surveys and customer support outreach. You can then use the data you collect to fine-tune your marketing, fix any necessary bugs in your product, strip out what’s not working, and focus on what resonates with your audience.

Ineffective or non-existent cancellation flows

If the only thing standing between your customers and cancellation is a big red button, then you’re eventually going to see a churn rate increase. Enter: the cancellation flow. A customer-centric, user-friendly cancel flow can help you find a new equilibrium with every customer.

If you don’t currently have a cancellation flow in place, get a simple one set up that asks for feedback, reminds customers why they originally subscribed, and provides personalized, targeted incentives like pauses, discounts, and alternative plans to remain subscribed.

If you do have one but aren’t seeing optimal results, then it’s time to re-evaluate. Try viewing session recordings to gain valuable insights into where your cancel flow goes wrong and how to fix it.

While reducing churn in the short term is an immediate benefit, the feedback you’ll have in hand is where a cancel flow really shines. By processing and interpreting feedback from an unobtrusive exit survey plus freeform feedback, you can make more informed decisions for product improvements and development.

All that means that in the long term, customer feedback will change the course of your product for the better.

A failed payments problem

Maybe increased churn rates aren’t your fault—it’s a problem that lies with banks and credit card companies.

Involuntary churn, or failed payments, is a huge issue for subscription companies. It can account for anywhere from 20-40% of your churn. And failed payments (when a customer’s card transaction fails to process) are a big part of that problem.

When your company experiences failed payments, that means you’re definitely going to see a churn rate increase and you may be losing customers who don’t even want to leave. That’s why it’s vital to have a strategy in place to reduce payment failures.

Dunning campaigns via email or text message—combined with intelligent card retries behind the scenes and a modern, simple way for customers to update a credit card—will keep your customers subscribed to your product when their card fails.