Ever seen Jaws? Know how the shark just appears out of nowhere, teeth bared at Broday, with barely an indication that it's lurking beneath the surface?
That's how churn can be for SaaS businesses. The threat is big, but you often don’t even realize it’s there (or how dangerous it actually is) until it’s already right on top of you. Because it often creeps up so gradually, it can be easy to ignore churn in favor of seemingly bigger issues. Focusing on churn before it becomes a major problem and prevent it is an invaluable strategy for SaaS companies.
Let’s talk about customer churn prevention, why it’s important, the most common reasons why customers churn, and some tried-and-true churn prevention strategies.
What is customer churn?
Customer churn is the percentage of customers who stop doing business with you over a given period. In order to calculate your customer churn rate, you’ll need to note two things: your total number of customers at the start of a given period and the number of customers you've lost during that period.
What is customer churn prevention?
Churn prevention is the strategy that SaaS companies use to stop churn in its tracks before it becomes an overwhelming issue. With churn prevention, you have the opportunity to retain customers before they ever leave and maintain a healthier bottom line by reducing revenue lost to churn. The key to customer churn prevention is to discover why customers leave, identify at-risk customers, and design processes that prevent churn and decrease your overall churn rates.
Why is customer churn prevention important?
First, you already know that SaaS companies rely on their recurring revenue in order to thrive and grow over time. And every time a customer leaves your monthly recurring revenue (MRR) takes a hit. That makes it much more difficult to maintain a healthy LTV:CAC ratio.
Second, it’s much more expensive to acquire a new customer than it is to keep an existing one. Five times more expensive, to be precise. And if you keep churning customers at a steady rate, then you’re going to have to rely more on customer acquisition, eating even more into your bottom line. That’s why it’s so vital to get proactive about your customer churn prevention.
Why do customers churn?
In order to prevent customer churn, you first have to understand the reasons why customers churn in the first place. While every business is different, there are some typical causes of churn that you often see in SaaS businesses. Let’s talk about a few of the most common reasons for customer churn.
1. You’re attracting the wrong customers
First, it’s important to confirm that you’re attracting your target customer. Because if you’re drawing in a lot of customers that don’t truly fit into your target demographic, then they’re eventually going to churn. In order to make sure you’re attracting your actual target customer base, take a look at your advertising and sales. The messaging you use should reflect the problem your product solves, not just the features your product has.
2. Your customer service or experience is lacking
If your customer doesn’t feel like they’re receiving adequate customer service or assistance with troubleshooting, or if they’re not having a good experience within your product, then they may begin to feel they’re not receiving adequate value for their money. This can lead to customer churn.
3. Your customers are having trouble reaching 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 vital to onboard well, set realistic expectations, and offer help and service check-ins throughout the customer journey.
4. You’re experiencing seasonal churn
For many SaaS businesses, subscriptions might drop off more substantially during certain seasons of the year. This can be due to seasonal churn: customers cancel their subscriptions during the times of the year when their business is slower and they’re trying to cut costs, or they no longer need certain services.
5. Your customers are moving to competitors
No matter what SaaS product you’re offering, it’s very likely that you’re not the only option on the market. Your customers probably have a variety of options to choose from, and if they see more value or better pricing from a competitor, then that’ll inevitably lead to customer churn. It’s important to understand where you fit in your particular market and to determine how you can best compete with the other products around you.
6. Your 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, but their payment method has failed for a variety of reasons. That’s why dunning management is so essential for every SaaS business.
How can you prevent customer churn?
Once you’ve gotten a better handle on why customers are leaving your product, it’s time to start crafting a churn prevention strategy. Let’s talk about some tactics you can use to prevent customer churn.
1. Identify at-risk customers
If you can identify customers that are at risk of churning, it gives you the opportunity to act early and (ideally) keep them as customers. There are multiple methods you can use to identify at-risk customers before they cancel. For instance, you can use cohort analysis to identify the patterns of at-risk customers, measure your net promotor score, isolate inactive customers, etc.
2. Ask for feedback
When a customer cancels their subscription, one of the most impactful things you can do to prevent customer churn (both in the present and future) is to simply ask them what that reason is. Even if you do end up losing that particular customer, you can still gain invaluable information. Use it to improve your product.
Using exit surveys in your cancellation flow to ask for customer 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.
3. Offer personalized incentives
If a customer is considering cancelling their subscription, one of the best ways you can entice them to stay is by offering a personalized, targeted discount. Not only does this incentivize the customer to stay — it also gives you a prolonged opportunity to demonstrate your product’s value. When used correctly, an effective targeted offer can help you retain more users and extend customer lifetime value.
4. Provide tiered pricing options
If you don’t currently offer tiered pricing, then take this as your chance to re-evaluate your pricing model. Because one of the simplest ways to prevent customer churn is to redirect customers who are cancelling to a more appropriate pricing tier. If it’s necessary, you could even offer to switch them to a lower pricing tier than they’re currently on. After all, better to have a customer paying less money than losing them altogether. 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.
5. Review customer timelines
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.
6. Deploy customer winback or reactivation campaigns
The fact is, no matter how well you strategize your churn prevention methods, you’re still going to lose some customers. But that doesn’t mean you’ve lost them forever. And that’s where customer winback campaigns come in. By sending personalized, well-timed 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 winback email will open subsequent emails from your company.
Start preventing customer churn with Churnkey
Churn is complicated. But we can help make it less complicated.
Churnkey's cancellation surveys make it easy for customers to give feedback and for businesses to understand what's causing churn. Then you can use this data to create intelligent cancellation flows that offer your customers customized and compelling offers and discounts based on their selections.
Churnkey can also help you collect powerful metrics, automatically recover failed payments, analyze customer timelines, and much more.
Ready to cut your churn rates by up to 42%? Begin your free trial with Churnkey today.