Why high customer churn is the biggest threat to SaaS businesses.
You could have amazing customer acquisition channels, state-of-the-art onboarding, and the best sales team around, but if you aren't able to retain your subscribers, none of that matters. If users cancel at a high rate, your company's growth is going to be severely stunted.
We learned this the hard way. Our first SaaS business was growing 30%+ MoM in our first year. We were ecstatic until we realized churn was averaging over 12% consistently, putting a growth ceiling on our business.
As inexperienced founders starting & running our first SaaS company (Wavve), we tried to hide from churn. It was easier (and more fun) to focus on growth. Plus, it felt more necessary given we trying to get the business off the ground. Then growth became addicting and it caused us to neglect churn for six months.
When churn is bad, it's a silent SaaS killer. When churn is good, it acts like the compounding interest of the SaaS world. An absolute gamechanger.
Suppose you have a B2C SaaS business with 10,000 active customers. User churn is 12% and average revenue per user is $12/mo. If the company wants to grow, it's going to need to replace 1200+ users every month. Let's say you get serious about retention and bring user churn down to 9%? That brings you $150,000 more during the first year and this will compound each year after that.
This could get you several new hires, longer business runway, or investment in new growth channels.
It's extremely important to start thinking about churn reduction strategies early and revisit them often. Retention strategies can deliver an outsized impact from a small change.
One strategy that delivered direct results for us reducing churn was improving our offboarding experience. We didn't spend on ads, content, time, or fancy new onboarding designs. Instead, we made small changes to our offboarding process. We surveyed users as they were canceling, delivered customized incentives based on why they were leaving, and encouraged them to keep their subscription.
It worked so well for us, that we built Churnkey so any SaaS business can do the same.
We've made it super simple for anyone to install Churnkey and start saving within 15 minutes. Click here if you want to get started.
If you're not yet offering customers the ability to pause their subscription, this alone could drop user churn by 1-2%. With Churnkey, we've developed a series of other churn reduction strategies you could deploy to drop churn by another 2-3%.