As a SaaS founder, when should you focus on churn? The short answer is that it's never too late. Here is how to get started evaluating and reducing SaaS churn.
As a founder, when should you focus on churn? We'll explore when it's too early and when it might be too late.
Total Churn = Number of customers who churned during a period / Total no. of customers at the start of the period.
The period is up to you to define, whether weekly, monthly, or yearly.
Once you deduce your churn rate, the next step is to understand why your customers are churning. One way to do this is with Churnkey’s intuitive cancellation survey which can be embedded within your SaaS app and reported on via an intuitive dashboard. At a glance, you’ll be able to identify why churn occurs and find ways to counter them.
Other definitions you need to know:
Your goal of customer retention should be to increase a customer’s lifetime value (LTV). LTV is an estimate of the average gross revenue that a customer will generate before they churn. It is inversely proportional to your customer churn. Hence, when your customer churn increases, your LTV decreases, and vice versa.
What are acceptable levels of churn? Here are some industry benchmarks that you can refer to:
This blog post details out the main reason why B2C churn is higher than B2B is because of 3 main reasons. In summary:
Each company has its own thought process and reason for not focusing on churn. At Churnkey, we’ve shortlisted four reasons why SaaS founders might not be focusing on churn and why they should reconsider their priorities:
Although acquiring new customers will help your business grow, it is important to note that growth equals acquisition minus churn. You can grow faster when your churn is in check. Plus, customer retention costs less than new customer acquisition in the long run. Hence, customer churn should not be neglected.
Companies may feel that customer churn should not be their priority. But focusing on churn is a good way to build brand loyalty and increase upsells. Retention should not be pushed off your priority list! Plus, long-term customers tend to spend more than new ones.
This can always be mitigated because there are many automated tools that do the churn calculations on your behalf.
Churnkey can collect insights from customers at the point of cancellation and provide personalized incentives to prevent churn from happening, reducing your customer churn in the long run.
The very unfortunate truth about customer churn is that it scales with your business. Meaning, the more your business grows, the more customers you'll have cancelling every month. Your churn rate then ultimately sets a growth ceiling on your business. In order to keep pace with your expanding churn numbers, you'll either need to find magical exponential growth, reduce your churn, or risk hitting that early growth ceiling.
These anti-churn measures are proven strategies to help start reducing churn before it becomes a serious problem. These can be built in-house by your engineering/product team or you can leverage Churnkey to automate the process.
We believe an effective churn audit includes at least the following:
Cohort analysis is where you group your target users based on their common traits and try to understand their actions. This allows you to obtain feedback on targeted areas and make better product decisions to reduce your churn rates. Once you have identified your problem cohorts, you’ll be able to make data-backed changes to reduce churn.
Calculate the churn rate for each subscription plan. This helps you to identify which plan has the highest churn, and where you should direct your attention and resources to customer retention.
Your current billing practices could be impacting your churn rates. Annual subscriptions provide long-term revenue for your company, at the expense of higher prices. Monthly subscriptions tend to be cheaper but also lead to higher churn (i.e., easier to leave).
These help you identify issues that make users drop off or bugs that lead to involuntary cancellations.
When your churned customers exceed the number of newly acquired customers for the same period, you’ve hit your growth ceiling. At this point, your business will be unable to grow further as each new customer acquired will be used to offset each old customer that is leaving. Hence, it is important to find ways to expand your ceiling and ensure room for growth.
A churn audit might seem overwhelming. Let Churnkey conduct a free churn audit for you.
There are various ways of collecting cancellation insights, but these were the most straightforward and insightful.
These surveys help you understand why customers are canceling their subscriptions and consequently how to improve their overall experience.
Churnkey has a built-in customizable cancellation survey making it easy for you to consolidate qualitative data without having to expand any engineering resources. All of your results are rolled up in a beautiful dashboard that makes your data easy to act on.
These are especially helpful in allowing you to analyze how customers interact with your cancellation flows. By identifying what convinces your customers to stay (discounts, exclusive content, etc.), why they leave and who is most at risk of leaving, you’ll better understand where to focus your efforts on and how to improve customer experience.
Does your business offer users a pleasant offboarding experience? Offboarding is often viewed as negative and associated with customers leaving. However, with a good offboarding process in place, this could be an opportunity to rekindle relationships with lapsed customers.
A proper offboarding process should include a cancellation survey and smart incentives for customers to stay. Churnkey, for example, has a smart cancellation flow proven to reduce churn by providing your churning or at-risk users with personalized and dynamic offers. Example offers include:
Let Churnkey handle your churn issues so you can focus your resources on improving your product/service. Stay ahead of the crowd while others are still ignoring their churn and focused on customer acquisition. Think ahead and beat the competition. Build a bigger SaaS business with us today!