Churn Prevention: Calculate and Lower Your Churn Rate
As a SaaS founder, you already know that customer churn is inevitable to some degree. Research has actually shown that, on average, SaaS businesses lose about 10% of their annual revenue to churn. But too much of it can severely impact the long-term growth and success of your business.
That’s why it’s so important to look at the underlying reasons behind your company’s churn and then put together a plan to confront those issues. Here at Churnkey, we’re here to help you fight churn every step of the way. And that’s why we’ve put together a guide with our top strategies for reducing your overall customer churn rates.
What is your customer churn rate?
If you want to reduce customer churn, you need to know where you’re starting. We use the term “churn rate” to describe the percentage of customers that cancel or fail to renew their subscription during a given time (month, year, etc.).
Calculating your customer churn rate is pretty simple. You need to know two things: the total number of customers you had at the beginning of a given period, and then the number of customers you lost during that same period.
If this percentage gets too high, then you risk affecting your company’s revenue and stalling the growth of your business. That’s why it’s vital to keep this number low. And that’s where churn reduction comes in.
Why does customer churn happen?
Before you can reduce customer churn, it’s important to understand the core issues and underlying reasons behind that churn. The more you know, the better solutions you can provide that can reduce your customer churn rate long-term. Let’s talk about a few of the most common causes behind customer churn.
Customers couldn’t reach their goals
If customers are struggling with your product and are unable to achieve their goals or desired outcomes, then they’ll eventually churn. That’s why it’s so important to onboard well, set realistic expectations, and offer help and service check-ins throughout the customer journey.
Customers are moving to competitors
Whatever your SaaS product is, you’re likely not the only option on the market. Customers probably have a variety of options to choose from, and if they see more value or better pricing from a competitor, then they’ll churn. It’s vital to understand where you fit in your particular market and to determine how you can best compete with the other products around you.
Customer’s payment method fails
Did you know that up to 40% of your churn could be caused by something as simple as payment failure? That means your customers may still want to use your product or service, but their payment method is declined for a variety of reasons. That’s why dunning management is so essential for every SaaS business.
How can I reduce customer churn?
Once you’ve taken some time to figure out the major causes of customer churn in your business, then you can start figuring out how to reduce it. Let’s go through a few strategies you cna use to reduce customer churn.
Ask for feedback
If a customer is actually in the act of attempting to cancel their subscription to your service, then they clearly have a reason. And one of the most impactful things you can do for your customer churn rates is to simply ask them what that reason is. Even if you do end up losing that particular customer, you can still gain something in the process.
Using exit surveys in your cancellation flow to request feedback is one of the best ways to positively leverage churn and use it to improve your product. And it doesn’t have to be a complicated process — in fact, the easier you make it for your users, the better.
Here’s a great example of a simple exit survey from Click Funnels, which also offers a personal video appeal from the founder 👇
Price your product around clear value metrics
If you don’t currently offer tiered pricing, then take this as your opportunity to re-evaluate your pricing model. Because one of the simple and most constructive ways to reduce customer churn is to redirect customers who are cancelling to a more relevant pricing tier.
If it’s necessary, you could even offer to switch them to a lower pricing tier than they’re currently on. But one of the best ways to effectively retain customers without affecting your bottom line is to provide an annual pricing option.
For one, customers who subscribe to annual plans tend to have a longer customer lifespan than ones on monthly plans. An annual pricing tier can also allow customers to save money over the course of a full year, safeguard your cash flow in the event of monthly churn, and reduce your customer acquisition cost while increasing your customer lifetime value.
Use customer winback campaigns
Churn reduction doesn’t have to stop after a customer has successfully canceled their subscription. By sending personalized, well-timed customer winback campaigns, you can potentially re-engage previous customers and turn them back into users. In fact, research has shown that 45% of customers who receive a win-back email will open subsequent emails from your company.
Target the right customers
When you’re seeing high churn rates, it could be an indicator that you’re targeting the wrongs types of customers. Try reviewing product statistics, data from customer surveys, and even social media engagement to determine which buyers are getting the most out of your product. You can then use that market research to refine your ideal customer persona.
Analyze your customer timelines for patterns
It’s important to take note of when your customers are churning. If they’re churning withing the first 30-90 days, then you may need to review your onboarding process and figure out how to optimize it. On the other hand, if long-term customers are churning, then it’s time to look at recent updates or areas where you perhaps should be expanding/improving your product.
Are you ready to reduce customer churn?
You know that every customer counts. Churnkey can help you improve customer retention rates and reduce customer churn by up to 42%.
Find out more with a demo or get started today with a free trial.
