Switch Customers to Different Pricing Tiers to Reduce Churn

Switch Customers to Different Pricing Tiers to Reduce Churn

There are many tactics you can use to reduce churn in your SaaS business, like offering targeted discounts and implementing effective cancel flows. But one of the simplest and most constructive ways to reduce user churn is by redirecting customers with different needs to more relevant pricing tiers. Providing your customers with options can go a long way when it comes to minimizing churn.

Let’s talk about the various ways you could switch customers to different pricing tiers in order to reduce churn.

Switch Customers to Different Pricing Tiers to Reduce Churn

Reducing net churn

First, let’s talk about churn. When we discuss churn here, we’re talking about your revenue churn. Net revenue churn takes into account your expansion revenue (like upsells, add-ons, or tier upgrades), along with the churned revenue. Churned revenue includes downgrades, cancellations, payment failures, and other revenue losses.

Equation: Net Revenue Churn = (Total Churned Revenue in a Period - Expansion Revenue in a Period) / (Total Revenue at the Beginning of a Period) x 100

Net revenue churn is directly impacted by both your customer lifetime period and your ability to upsell to your existing customer base. And both of these factors can be influenced by using pricing tiers.

Now, let’s talk about how switching customers to different pricing tiers can reduce churn.

Switching to a higher tier

When you have an at-risk customer on your hands, a powerful technique to reduce churn is to offer to switch them to a higher-priced tier at no additional cost for a temporary amount of time — essentially offering them a “free” trial. By giving at-risk users (particularly ones whose use has stagnated over time) access to your more premium features, you can help them quickly realize more value from your product.

This tactic empowers you to retain customers who were either going to cancel or switch to competitor’s product. It incentivizes them to stay by offering them a better product for the same amount of money, and, ideally, actually convert them to a higher price point than they were previously at once the “free trial” ends. If they’ve already incorporated the tools and features at this higher pricing tier into their daily/weekly routine, they’re more likely to pay that higher subscription tier price.

Switching to a lower tier

While this may not sound as initially appealing as switching a customer to a higher pricing tier, it’s still a valid and useful tactic when it comes to reducing churn. Yes, it’ll reduce your revenue in the short-term. But the school of thought here is that it’s better to keep a user at a lower price point than to lose that customer all-together.

By offering them the option to switch to a lower-priced tier, you not only reduce your churn rates and increase your customer’s lifetime value — you also buy yourself the time to engage with that user and educate them on the value of your product. If you do that effectively, you could get that user to move back to a higher-priced tier in the future, which makes that short time at a lower tier more than worthwhile.

Convert customers to annual pricing

Offering an annual pricing tier is another effective churn-reducing tactic. When you provide an annual subscription with discounted prices, it allows customers to save money over the course of a full year, safeguards your cash flow in the event of monthly churn, and typically reduces your customer acquisition cost while increasing your customer lifetime value.

Plus, when you charge up-front for a subscription, users who choose this option are required to invest more to get started. And when you invest more on the front-end, you’re more likely to quickly familiarize yourself with the product and begin incorporating it into your routine. That’s why switching users to an annual pricing tier can actually reduce churn and create more loyal customers.

Using different pricing tiers to reduce churn

By offering multiple pricing tiers and switching customers to different pricing tiers when necessary, you can significantly reduce your SaaS business’ churn. And if you want to supercharge all aspects of customer retention, Churnkey can help.

Churnkey is the only platform that fixes every type of churn for you. We’re everything your customer-obsessed team needs to improve retention automatically.

If you want to learn how Churnkey outsmarts legacy retention products, find out more with a demo or get started now with a free trial.