The key to a successful SaaS is knowing exactly your customer attrition rate is, why it’s happening, and how to lower it.
Let’s do a deep dive into all things customer attrition, including the exact calculation you need to determine your customer attrition rate, understanding the impact of customer attrition, and strategies for lowering your customer attrition.
What is customer attrition?
Customer attrition is defined simply as the loss of customers in a business. That means that business’ customer attrition rate is the percentage of customers who stop doing business with you over a given period of time. In the SaaS industry, customer attrition is also often referred to as customer churn.
Whatever you call it, it’s a major indicator of your company’s overall health. Attrition/churn rate is often used as a metric for SaaS companies to measure their performance and guage whether your business model is effective or not. It’s also an important metric when measuring customer lifetime value (CLV) and net revenue retention (NRR).
What causes customer attrition?
Before we can talk about lowering customer attrition, we need to first understand why customer attrition happens in the first place. If you understand the core issues and reasons behind attrition, then you have a better chance of implementing solutions and strategies that can actually help you impact your customer attrition rates long-term. Although every SaaS company is different, there are some common reasons for customer attrition. Let’s talk about a few of them, and then later on we’ll discuss specific strategies to combat each of these causes (and more).
Customers struggle with reaching their goals
If customers have technical issues with your SaaS product or have a hard time achieving their goals or desired outcomes, then chances are they’ll eventually stop subscribing. That’s why it’s so important to stay in touch with your customers and be aware of any problems that they’re experiencing with your product.
Customers are switching to a competitor
No matter what kind of SaaS product you’re offering, we can pretty much guarantee you’re not the only option on the market. If customers have a variety of products to choose from and competitors are offering better prices or a more intuitive product, then you’ll likely lose at least some customers to those competitors.
Did you know that up to 40% of your customer attrition could be caused by something as simple and easily preventable as payment failures? This is one of the most upsetting causes of customer attrition because it’s the only situation where you have a customer who still wants to use your product (and pay for it!) but their payment method is declined for a variety of reasons.
Targeting the wrong customers
In order to lower customer attrition, it’s important to make sure that you’re actually targeting the right customers. If you’re attracting the wrong type of customer, theyll always end up leaving you sooner rather than later simply because they’re not your ideal customer and your product doesn’t actually offer them any real value.
How do you calculate customer attrition?
You can’t lower what you can’t measure. The first step in lowering customer attrition is to arm yourself with knowledge by calculating exactly how much customer attrition your company is currently experiencing. The calculation for customer attrition is simple. As we said earlier, customer attrition is also referred to as customer churn, so if you know the calculation for your customer churn rate, then you’re already set.
To calculate customer attrition, all you have to do is take the number of customers that you’ve lost during a certain period of time and divide that by the total number of customers you had at the start of that time period.
If you want more help determining and analyzing your customer churn rate, try our free SaaS churn calculator. You can use this tool to see if your business is growing, what your revenue ceiling is, and how much you need to adjust churn to grow lifetime ARR.
What is a good customer attrition rate?
Put simply, there is no solid, black-and-white answer to this question. Every SaaS business is unique, and a “good” customer attrition rate will vary from company to company. That being said, there are some general numbers and benchmarks that you can look at to get a feel for whether you’re close to where you need to be.
When it comes to overall attrition for SaaS companies, a good monthly attrition rate benchmark industry-wide is typically between 3-5%, especially if you’re a brand-new startup. Anything under 2% net attrition would be considered great. For more established SaaS companies, a good net attrition benchmark would be less than 1%.
How do you lower customer attrition?
Remember those causes of customer attrition that we went over earlier? Well, it’s time to revisit them. Now that we know all of the basics about customer attrition, we can start to pull together some strategies you can use to lower it. We’re going to discuss some strategies that will help directly fight the causes that we covered earlier in the guide, as well as some bonus ideas.
Look at your target personas
One of the major causes of customer attrition is attracting the wrong customers. And that’s where looking at your target personas comes in. When you’re seeing high customer attrition and you decide that it may be (at least in part) the result of targeting, then it’s time to examine data from customer surveys, product statistics, and social media engagement in order to identify which customers are getting the most out of your product. This information can help you refine your ideal customer persona.
Ask for feedback
Customer feedback is invaluable data when it comes to lowering your customer attrition. If customers are struggling to reach their goals with your product, there are pretty much only two ways that you’ll find out: they’ll tell you or they’ll cancel.
And if you want customers to tell you when they have a problem with your product, then you need to make it easy for them to do so. In-app surveys and strong customer service outreach are the best ways to make sure that you’re providing current customers with plenty of opportunity to give you feedback about your product.
Build personalize cancellation flows
If a customer hits the cancel button, that doesn’t have to be the end of the customer journey — not if you have automated, personalized cancellation flows in place. Setting up a cancel flow can give you multiple opportunities to retain a customer before fully cancel their subscription and lower your customer attrition rate.
A cancellation flow is a series of custom events you present to your users based on their needs in an effort to avoid cancellation. The options presented to each customer are unique based on the answers they select about why they’re cancelling. For instance, if a customer indicated that they were cancelling because the product was too expensive, you could build your cancellation flow to then present them with a series of targeted discounts or even the option to pause their subscription.
Keep an eye on your competitors
We know that one of the common causes of customer attrition is losing customers to competing products. That’s why it’s important to keep an eye on your competitors and use that information to develop and improve your own product.
Whether it's a unique feature or unparalleled customer service, defining a competitive edge helps customers remember why they're with you and stick with your product over moving to a competitor’s. A smart way to stay on top of your high service standards is by benchmarking your overall performance and customer satisfaction against competitors.
Set up automated dunning management (payment recovery)
We mentioned earlier that up to 40% of your customer attrition could actually be involuntary, thanks to payment failures. That’s where dunning management comes in. Setting up an automated dunning process in your SaaS business helps lower customer attrition by notifying users of missing, late, or failed payments.
By automating dunning-related tasks (like identifying overdue accounts, sending payment reminders, issuing late payment penalties, etc.), you can minimize unnecessary friction with customers, reduce collections errors, ensure consistency and scalability, and free up your team to focus on more important tasks
Start lowering customer attrition with Churnkey
Customer attrition is inevitable. But that doesn’t mean you can’t fight back.
We know that every customer counts. That’s why Churnkey helps you improve your customer retention rates and lower customer attrition by up to 42%.