Churning customers isn’t something that many people at a SaaS company will enjoy discussing. After all, growth is sexy, and everyone gets excited about how many new customers you can onboard to your platform on a monthly or annual basis.
While this may be true, the reality of the situation is that even though customer churn isn’t necessarily good, it’s a problem that every SaaS business faces. Acquiring new customers is definitely something to aim for, but bigger issues need addressing if your churn rate is too high.
If customer churn is something you’re hoping to tackle, we’ve compiled a few tips to help you reduce it. But before we do that, let’s review what customer churn is exactly.
What is Customer Churn?
Otherwise known as customer attrition to the SaaS industry experts, customer churn refers to the number of customers who stopped using your product or service during a specific time period.
A churn rate, commonly used to describe these customers that ended their relationship with your SaaS business, is a percentage value attributed to these lost customers. Churn rates are measured over a specific period, usually monthly, quarterly, and annually, depending on your business stage.
For most SaaS companies, especially startups with a shorter runway or only testing out a hypothesis, a monthly churn rate can provide useful data to help make decisions. Here’s how it can be calculated:
What Causes Customer Churn?
So, now that we’ve reviewed customer churn and churn rate, what are some of the causes of it?
First of all, customer churn means that your customers - or the people you thought were your customers - are unhappy with some part of your business. So, rather than continue to pay you money for a service they no longer want, they choose to end their relationship with you. The causes for customer churn can be unique for each customer, but they typically fall under a few specific categories:
Poor Product/Market Fit
That group you thought were your customers? They aren’t really who your SaaS business was meant to serve. This is arguably the number one cause of customer churn as you can’t sell a product to someone who doesn’t need it. You will need to pivot to a new audience entirely or niche down to find the specific group your product was built for in some cases.
Maybe your customers found a cheaper alternative elsewhere? SaaS users can be very budget-conscious, so it’s essential to provide enough value to meet customer demands if you want to stay ahead of the competition and avoid your customers, leaving you for someone else.
Bad Customer Experience
Today we live in a very digitally oriented world. Consequently, the customer experience for your SaaS business doesn’t only reside on your platform. While your house needs to be in order, including all interactions you have with customers during their customer journey, understand that further interactions on social media, through marketing and more, can impact what they think about your business.
Terrible User Experience
Finally, one often overlooked aspect is the user experience. When using your product, are your customers able to solve their problems? Do they have issues with things such as a glitchy interface or slow loading pages? These technical issues can impact the user experience, so it’s important to ensure your internal development team or outsourced development partner meets your business’ requirements.
Why Does Customer Churn Matter?
If your churn rate is higher than your customer acquisition rate, then your business will run into problems. Too much churn results in lost revenue and profits, and eventually, if your churn rate is too high, it becomes impossible to maintain your business, and you will have to shut down.
However, it turns out that 67% of customer churn could be avoided if customer issues are resolved from their first interaction. So, what are some ways you can do that?
Tips for Reducing Customer Churn
1. Analyze Why Churn Is Happening
The first step in reducing customer churn is to know why it’s happening in the first place. Start by going through the customer journey for your product, from beginning to end, as if you were a brand new customer.
When you do this, it provides an opportunity for you to look at your business in a different light and see why your customers are choosing to leave you. Doing this yourself can provide some early insights into why churn may be happening, and you can tackle that low hanging fruit appropriately before moving onto your customers.
2. Ask For Feedback
Simply talking to your customers and asking them why they left provides a great way to discover new alternatives. Have you ever unsubscribed from a newsletter and been asked to click something to give some answers as to why you wanted to opt-out? Or when you cancel your Netflix subscription, and they reach out to discover what they can do to improve your experience?
These are all ways of asking for feedback, and when coupled with the initial assessment you performed on your own, you can identify critical areas where you can begin changing to reduce churn. Exit surveys, a courtesy call, or a personalized email are options available to ask for this valuable customer feedback.
3. Engage Your Current Customers
Asking your customers why they left is excellent, but you should also talk to your best customers about why they continue to stay or even promote your SaaS business.
Rather than paying all of your attention to the customers who left you, try focusing on the ones who are currently enjoying your service to help you put a positive spin on things and determine what’s going right. Sometimes things you were doing well don’t resonate with individual customers, and they choose to leave due to some factor such as product/market fit or pricing.
Instead of changing these aspects to appeal to that smaller group of customers, it could be in your best interest to leave them as they were. Plus, for customers on the brink of leaving, an uptick in customer engagement could be exactly what was needed to keep them on board.
4. Communicate With Customers Regularly
Engaging with customers specifically to find answers to churn is useful, but that shouldn’t be the only time they hear from you. Ensure that your current marketing and customer feedback processes are set up so that your customers will hear from you consistently.
Proactive communication to educate your customers on how to use your product, provide updates to upcoming changes, and just generally checking-in to see if they’re enjoying the product can go a long way to cutting down on the number of customers who leave for so-called greener pastures.
5. Analyze the Onboarding Process
Remember that stat about two-thirds of customer churn being stopped during the first interactions? Well, that first interaction is your customer onboarding process. If the onboarding process is challenging, full of bugs, or creates some other issues for your customers, they won’t stay on.
Considering that most SaaS products provide a free trial to get users accustomed before committing, and then many users don’t commit, the onboarding process offers an ideal starting part for making sure that customers want to keep going with your product.
6. Offer Incentives
If you can’t get your customers to stay simply because they like the experience you’ve provided for them, the next best alternative is to incentive them to sweeten the pot.
Customer incentives such as extended discounts on higher tiers, an extension of the trial period provided they agree to a few months of the service, or entry into VIP-programs are just a few popular incentive types.
The exact incentive you choose to offer your customers will depend on where they are in the customer journey and how long they’ve been with your business.
7. Scout (And Beat) The Competition
Many customers churn because you weren’t the right fit for their needs, or you provided them with a bad experience that left a sour taste in their mouth. However, in many cases, your competition probably had a part to play in sudden customer churn as well.
If you aren’t already continually monitoring your competition for ideas, you should be at least monitoring them to see how they’re doing certain activities. Do they now offer a service that you can’t or don’t? Is there something they’ve done to alter their price? Is there a new kid on the block that does everything better than you can?
All of these are things you should be on the lookout for when it comes to finding ways to beat the current competition and remaining competitive by adjusting your SaaS business to meet changing customer requirements or market conditions.
8. Create a Community
Everyone likes to feel like they’re part of a community, including your customers. Today, many SaaS customers want to feel like they’re part of the brand and not just a source of money. By providing customers with access to things like guest blogging initiatives, messaging groups, and more, you can build communities around your business and help others feel involved in the company’s growth.
This community aspect can also enable you to find referrals and ambassadors to help your business continue its upward trend.
Don’t Forget The Product Experience
Reducing customer churn begins by having a great product your customers love in the first place. Discover how Mintbit can help you get your product off the ground and accelerate your business’s growth.
Also, read this blog post to better understand how to launch an MVP for your idea: Build Your First Product: A Guide for Startup Teams.