How To Reduce Customer Churn: Tactics and Strategies for SaaS Leaders
As investors continue to look toward retention metrics to determine company valuations and funding eligibility, SaaS leaders must ask themselves: how can I reduce customer churn?
In a perfect world, customer churn wouldn’t exist. New customers would just sign up for your SaaS, breeze through their onboarding, and champion your product until you reach an IPO or successful exit.
Unfortunately, the customer experience isn’t that simple.
Whether it’s due to budget cuts, a competitor taking over market share, or poor product/market fit, there are endless reasons why a user may decide they no longer need your services. As investors continue to look toward retention metrics to determine company valuations and funding eligibility, SaaS leaders must ask themselves: how can I reduce customer churn?
In this guide, we'll dive into the nitty-gritty of churn reduction and explore a range of approaches, from leveraging customer feedback to rethinking your GTM strategy. Let’s get started.
What is a good customer churn rate?
Before you can set goals around improving customer churn, you need to determine what success looks like.
According to KeyBanc Capital Market’s (KBCM) 2022 Private SaaS Company Survey, the median gross churn rate of private SaaS companies is sitting at 14%. You can also weigh your current churn rate against expansion revenue by monitoring Net Revenue Retention (NRR). By studying customer churn from all angles, you’ll be able to combat it more effectively and see how it’s impacting revenue growth across your business.
Calculating your monthly churn rate
Studying churn on an annual basis provides greater insights into your total YoY growth, however, you should also be keeping tabs on your monthly churn rate. You can use Churnkey’s SaaS churn calculator to calculate your monthly churn rate, see if your business is growing, what your revenue ceiling is, and how much you need to adjust churn to grow lifetime ARR.
Studying churn in your SaaS company
Referencing industry reports is a great way to benchmark churn against your peers. However, you should also reference metrics within your own business to identify the source and cause of customer churn.
If you’re an early-stage company with a historical churn problem, you may have issues with the messaging and positioning of your product or poor product/market fit. If churn persists over time, you may need to take a closer look at your product roadmap. Identify the products and features that solve your customer pains and double down. You can also focus on generating expansion revenue through cross-sells and upsells. By selling to your core customer base, you can offset revenue loss as you continue tackling your churn problem.
Once you’ve established a clear baseline for your churn reduction goals, you can start executing the tactics and strategies listed below.
1. Look beyond traditional customer success metrics
One of the best ways to retain users and increase customer lifetime value (and customer satisfaction) is to identify where users realize the most value from your SaaS during the customer lifecycle.
For example, if a new customer doesn’t make it through the onboarding process, it's a clear indicator that they weren’t finding enough value upfront. Similarly, if current customers are decreasing their product usage over time, it’s likely because your SaaS is no longer serving their needs.
Ross D. G. Fulton, Founder and CEO of Valuize, a customer lifecycle consulting firm for B2B tech, says that this is one of the leading causes of churn in SaaS, regardless of growth stage.
In Ross’s opinion, most customer success teams, especially in early-stage companies, define their role as “get the customer using the product.” He believes this is a narrow definition of customer success that fails to ask the important question: where do customers realize the most value from your SaaS?
So what’s the big takeaway here?
It’s dangerous to assume that product usage automatically equals value for the customer. Instead of measuring vanity metrics, such as ‘number of logins’ or ‘time spent in product’, SaaS leaders need to leverage in-depth reports like a customer cohort analysis to identify at-risk accounts and better understand how users are interacting with their product.
2. Identify common patterns in product usage
Measuring product usage provides valuable insight into how customers are using your product and helps identify any issues or concerns that may be causing them to cancel their subscriptions.
Here are a few ways that measuring usage can help reduce churn:
- Uncover potential product issues: By tracking usage over time, you can identify any potential issues or problems that may be causing customers to cancel. For example, if you see a sudden drop in usage, this could indicate that there may be an issue with a particular feature or service. You can also drill down further by measuring the usage of individual product lines or business segments.
If you observe healthy product usage for enterprise accounts but your free trial users are struggling to realize value, this could indicate that your SaaS isn’t well equipped to meet your users’ needs downmarket. From here, you could make a business case to focus more on monetizing enterprise accounts or, conversely, shift your product roadmap to provide more value to your free trial users.
- Provide personalized customer support: By tracking usage, you can provide personalized customer support to customers based on their specific needs and usage patterns. For example, if your users are struggling to adopt a particular service or feature, you can observe that behavior and offer to schedule a group training session, provide them with a relevant knowledge base article, or offer in-app assistance through a chatbot or help icon. By identifying areas where customers are not realizing value from your SaaS, you can continue to bridge the gap between at-risk accounts and successful customers.
- Improve the product: If you want to identify areas where you can improve the customer experience, measuring product usage is a must. Often, product roadmap decisions are informed by what senior leaders believe will drive the most revenue in a coming year or quarter. However, you should also plan future product releases and updates based on the needs of your current customers to proactively reduce the risk of customer churn.
3. Leverage customer feedback
Improving SaaS metrics like churn doesn't boil down to studying numbers listed in a spreadsheet. You also need qualitative insights to paint an accurate picture of your churn problem (and no, you don’t have to rely on an annual NPS survey to gauge the health of your customer base).
Here are some creative ways to collect customer feedback and reduce churn:
- In-app feedback: If you have developer resources available, add a feedback button or form in product to make it easy for customers to provide feedback in real time. This gives you direct access to your customers and creates a window of opportunity for customers to deliver direct feedback at any point in their customer journey.
- Customer focus groups: The idea of a customer panel or focus group is becoming increasingly popular among SaaS companies. A customer panel is often composed of power users who are a clear representation of your ideal customer base. By holding monthly or quarterly meetings, you can give them a behind-the-scenes look at future product development and identify areas within your business that need improvement. Using these insights, you can plan your future product roadmap and address present issues to prevent churn.
- Customer interviews: Scheduling one-on-one interviews with customers gives you a direct link to the problems users are experiencing with your product. To do this at scale, you can set up custom in-app triggers that notify a customer success rep. For example, if users don’t log in for 30 days, decrease their product usage, or downgrade their subscription, you can send a calendar invitation for users to schedule time with a customer success rep and provide feedback.
Leverage AI to analyze customer feedback at scale
Collecting customer feedback doesn’t have to be a manual effort every single time.
With a platform like Churnkey, you can leverage AI to collect, analyze, and sort every bit of qualitative feedback you get. It's an essential complement to quantitative data, revealing areas where your product is worthy of praise, where it's technically broken, and all the ways people might feel like you're not delivering value.
4. Review your pricing strategy
Flexible pricing is one of the most powerful hidden growth levers in any SaaS business.
According to James Wilton, Managing Partner at the pricing strategy consulting firm Monevate, “Not only does [flexible pricing] give you new ways to monetize your existing customer base, but it can be used for customer acquisition, and to reduce the risk of churn for users who want multiple ways to pay.”
Here are a few ways you can use flexible pricing to retain users and mitigate churn:
- Offer new net payment terms: If a customer is at risk of churn due to a declining cash runway or budget cuts, you can offer better net payment terms to accommodate their needs.
For example, you could allow customers to pay for your SaaS on a monthly or quarterly basis instead of locking themselves into an annual contract. The ability to opt out of a subscription at the end of a payment period can reduce the risk of churn for customers who would’ve stopped using your service otherwise.
- Support complex sales-negotiated contracts: As existing users scale with your company over time, they may realize they don’t need access to every additional feature or add-on your company currently offers. In order to retain these big-ticket customers, you need flexible pricing that caters to their needs. Otherwise, you run the risk of losing them to a competitor that is better equipped to handle their needs upmarket.
- Implement a usage-based model: If a customer can no longer afford your SaaS, they’ll stop paying for it—it’s one of the most predictable (and frustrating) reasons for customer churn.
However, with usage-based pricing, customers can simply scale down their usage instead of canceling their subscription entirely. While this may decrease your overall revenue-per-user during an economic downturn, it helps mitigate churn and gives your customers the option to scale their usage once they’re in a better financial position.
5. Present a series of targeted discounts
Discounts aren’t a novel idea when it comes to retaining customers. However, providing users with targeted discounts that align with their needs gives you a better chance of keeping your existing customers onboard.
For example, using a platform like Churnkey, you can determine which types of discounts are most effective at retaining users or extending customer lifetime value (50% off a specific add-on, one month free of a core product/feature, one month of a higher subscription tier at no extra charge, etc).
Once you’ve identified which types of discounts perform best, you can roll them out across your entire customer base to prevent additional user churn.
6. Offer a more suitable subscription tier
If a discount doesn’t cut it, offering to switch at-risk users to a more suitable subscription tier is another great method for minimizing customer churn.
Here are the two main ways to execute this effectively:
Move users to a higher subscription tier
Moving users to a more expensive subscription tier (at no additional cost) can help them quickly realize more value from your products and services. Even if they only have temporary access, this allows you to easily demonstrate how they can scale their product usage and get a greater ROI from your SaaS.
When to use this approach?
This approach is best used for customers whose product usage has stagnated over time or are no longer engaging in potential upsell or cross-sell opportunities. In this scenario, instead of losing them to a potential competitor, you can incentivize customers to continue using your SaaS and potentially upgrade their subscription.
Move users to a lower subscription tier
Lower subscription tiers are less expensive and will cause customers to pay less for your SaaS—so why would you want to do this? While moving users to a lower subscription tier can temporarily reduce your MRR or ARR, it prevents churn and allows your customers to upgrade their subscriptions later. It also buys you time to effectively “reactivate” them by educating them about the usefulness of your product and how to unlock its value.
7. Pause user subscriptions and extend trial periods
In the unfortunate event that a user hits the dreaded ‘cancel’ button, you have two main lines of defense before they’re gone for good:
- For existing users: offer to temporarily pause their subscription
- For new customers: offer to extend their free trial period
What to do after you’ve paused a user subscription:
Just because a user has paused their subscription doesn’t mean you need to cut contact entirely.
While their subscription is paused, you can send the user content that’s relevant to the pain they’re trying to solve. You can also ask them directly about the use case they’re most interested in. This gives your customer success team both the time and the information they need to potentially retain the at-risk user. If the customer in question insists on canceling, you can offer the alternatives listed above, such as: renegotiated payment terms, including additional add-ons at no cost, offer discounts, or move them to a lower-cost subscription tier.
Extending free trial periods to reduce churn
Extending the free trial periods of new users has multiple benefits when it comes to retaining users. Here are a few you can expect:
- Improves trial conversions by giving customers more time to vet the product.
- Gives key stakeholders more time to educate about the use cases of your SaaS before making a final purchase decision.
- Provides your customer success team to help users find a subscription plan or list of features and add-ons that meet their needs.
Overall, by extending the free trial period, you’re giving yourself more time to upsell or retain new users who may not be realizing the full value of your product or service.
8. Build a personalized cancel flow
Reducing customer churn doesn’t have to be a manual effort. What if you could automate the whole process? By setting up a personalized ‘cancel flow’, you can provide multiple opportunities for customers to renew their subscription before they officially cancel.
What is a cancel flow?
A cancel flow is a series of custom events you present to your users based on their needs in an effort to avoid cancellation. For example, if a customer were to cancel and labeled their reason for canceling to be “Too expensive”, you could present them with a series of targeted discounts or offer to pause their subscription—without any manual effort.
The additional benefit of a personalized cancel flow is that it helps your business strike a new price equilibrium with certain customer cohorts. This could inform a new pricing tier or help you tune up your pricing strategy in general.
How can a cancel flow reduce customer churn?
- Identify the cause of churn: By surveying customers who are canceling their subscriptions, you can better understand the reasons why they are leaving. This can help you to identify and address any issues or problems that could result in future customer churn. You can use these findings to inform your product roadmap and future product improvements.
- Provide options for renewal: A cancellation flow can provide customers with options for continuing their service, such as downgrading to a different subscription tier or taking a break from their subscription. This can help to retain customers who may be canceling due to temporary issues, such as limited budget, seasonality, or a company reorg.
- Get rid of in-house collections: Churnkey users like Davis Baer are able to reduce churn by over 20% by replacing their old in-house collections with personalized cancel flows.
OneUp decided to jettison its in-house feedback collection system and chose to implement Churnkey’s cancellation and customer insights survey. Because the survey happens at the moment of cancellation — and responses can be required — every cancellation becomes its own story, not just a vague data point.
9. Launch a customer winback campaign
Some elements of churn prevention can happen after a customer has canceled their subscription. If your previous attempts at mitigating churn were unsuccessful, you might find success by launching customer winback campaigns.
According to Marc Freund, Co-founder and Managing Director of Five Tool—a marketing agency for B2B SaaS companies—here’s how you can launch an effective customer winback campaign:
- Determine the cause of churn: Using a churn prevention platform like Churnkey, you can identify the reason why customers ultimately canceled their subscriptions. Using these insights, Marc recommends you tailor your winback efforts to address the specific concerns or needs of your churned users in an attempt to generate a renewal.
- Develop and execute a re-engagement plan: Based on the information you’ve gathered, develop a plan for how you will re-engage these customers. According to Marc, here are a few key components you should consider:
- Leverage social proof: Social proof is one of your most valuable assets when it comes to generating renewals. To leverage social proof effectively, show churned users how a customer with a similar pain point or in a similar growth stage found success with your SaaS.
- Customer incentives: How can you incentivize customers to renew after they’ve canceled their subscription? Based on their reason for churning, you can offer a targeted discount or additional add-ons to incentivize their renewal.
- Wait before following up: You should never follow up with customers right after they’ve canceled. Doing so could damage your customer relationship beyond repair and hurt the reputation of your SaaS business. Marc recommends giving churned users a 30, 60, or 90-day grace period before following up.
- Pull churned users off of all email lists: Similar to the above, be sure to pull churned users off of all external communications after they’ve churned. Continuing to follow up with customers after a potentially negative experience with your company hurts your chances of a potential customer renewal.
- Perform personalized outreach: For big-ticket accounts that make up a large portion of your annual revenue, consider reaching out one-on-one through personalized communication. While this isn’t always scalable to multiple users, it can increase your chances of renewal by directly addressing the needs of a target account.
10. Double down on dunning
Not all customers are lost to voluntary churn. If your users aren’t set up with automated billing (or if their payment fails), dunning will ensure that they don’t cancel involuntarily through payment failures.
Setting up an automated dunning process in your SaaS business helps decrease churn by notifying users of missing, late, or failed payments. By sending reminders to customers with outstanding balances, you can identify and resolve any issues that may be preventing them from paying their invoices—this can include billing errors, miscommunication about payment terms, or problems with your product or service.
As your SaaS company continues to grow, so will the risk of churn due to failed or missed payments. With a churn prevention and retention automation platform like Churnkey, you can increase revenue immediately by implementing failed payment recovery.
Say goodbye to churn with Churnkey
Churn is inevitable. Why not be prepared?
By implementing the tactics and strategies listed above, SaaS leaders can ensure retention rates remain high while customer attrition stays low—ultimately leading to increased revenue growth and happier customers over time
With Churnkey, you don’t have to worry about manually following up with each and every at-risk customer. Instead, you can identify and stop churn in its tracks before it occurs.
Sound helpful? Sign up for a free trial and see how firsthand Churnkey is helping SaaS businesses reduce churn and retain more users.
What is customer churn?
Customer churn is the percentage of customers who have stopped using your services during a given period of time.
It’s often used as a metric for SaaS companies to measure their performance, as it can be an indicator of whether your business model is effective or not. It’s also an important metric when measuring customer lifetime value (CLV) and net revenue retention (NRR).
What is customer churn prevention?
Customer churn prevention is the process of identifying and addressing the factors that contribute to customer churn, which is the rate at which customers cancel their subscriptions. The goal of customer churn prevention is to reduce the number of customers who churn and improve customer retention.
What are the benefits of reducing churn?
Reducing customer churn has several benefits for SaaS businesses, including increased revenue, reduced CAC, greater customer lifetime value, increased net revenue retention (NRR), and improved market share over competitors.