If you’re one of those people who smile and say, ”It’s fine!” whenever you’re asked about your churn rates, then you need to re-examine your approach to this matter.
Churn is inevitable in SaaS, and no matter how hard you try, you will not get rid of it entirely. The best way to reduce it is to learn how to manage it.
First, you need to learn what churn management is and why you should be proactive about it.
The good news is that most of the churn management strategies we cover in this article are not that hard to implement and will bring you tremendous results.
Churn Management Definition and Objectives
Churn management is the process of reactivating customers who canceled their subscription plans or are considering terminating them, judging from their recent user behavior.
Over the years, it has become more and more vital for SaaS companies to control their churn.
The average churn rates for SaaS are under 10%, but 30% of companies report that their churn rates are increasing.
There are two main objectives to managing churn: to identify high-risk customers and to recover former users.
Customer success programs can manage that and focus on maintaining customer relationships. After all, the core reason behind most churn is a strained relationship with a customer.
There are two main types of churn you should know about:
- Voluntary churn—when customers actively terminate their contracts due to inadequate pricing, low perceived quality, or lack of customer support.
- Involuntary churn—happens in situations related to fraud, failed payments, and non-payments.
You should manage churn simultaneously with acquisitions and increasing customer loyalty to have a holistic approach to enhancing your user experience. The end goal is to reduce costs of customer retention programs and re-engage high-value customers.
Churn management has a crucial role in keeping churn rates low and regularly checking on your customer base.
Signs You Have a Churn Problem
While a little bit of churn is expected, there are some red flags you should keep an eye on that will tell you if it’s getting out of hand.
- More customers are leaving than staying. Regularly losing customers without new revenue is a significant problem for keeping a sustainable business.
- Low lifetime value. If customers don’t stay with you long enough, your revenue will not be sustainable.
- Increase in downgrades. When you notice more downgrades of your subscription plans than usual, that means your customers are no longer recognizing the value of your product and are likely to move on.
- Low usage and activity. If your users don’t use some of your main features or log in as frequently, it’s a sign they might be looking for another solution.
These are just a few of the leading causes of churn, but it’s essential to know the basics when trying to improve your business.
Why Should You Be Proactive With Managing Customer Churn?
Being proactive means fixing churn problems before they occur.
Churn can teach you one essential truth about SaaS: it costs more to acquire new customers than to retain them.
In 2020, for each new customer, companies had spent $1.63 compared to spending $0.62 on upselling to existing customers.
Additionally, people who are already doing business with you know your value and potential, so it’s much easier to convince them to spend more and upsell your product.
Other ways you can benefit from low churn rates include increased lifetime value (LTV) and lower customer acquisition costs (CAC).
Logically, your LTV will be higher if you manage to keep your customers for a long time. Those numbers can be critical to show the stability of your business to potential investors.
Along with that, if you focus on nurturing your current customers, you don’t have to spend so much on acquisition.
Alternatively, use your CAC funds for better-fit customers, which will help further increase your LTV and revenue.
Successful SaaS companies know their bottom line depends on user retention. So to have your finances healthy and growing, keep your existing customers happy.
Churn Management Tips to Increase Your MRR
As we mentioned, you can’t eliminate churn, but you can do things to keep it as low as possible.
Some strategies range from simple customer feedback collection and improving minor details in your customer experience, while others require in-depth data analysis and tracking of customer behavior.
Let’s check them out!
Find Out Why Customers Cancel And Churn
The first step in managing churn is knowing where the problems are. You should do your best to pinpoint the reasons why customers leave and work on overcoming those problems.
For example, a SaaS company, Groove, had churn problems too.
Once they realized ‘’why’’ their customers were leaving, they reduced churn by 71%. They uncovered that churned users either spent more time on tasks or didn’t complete the signup process.
To find out why their customers churn and solve this problem, they used this process.
First, they researched the user behavior and focused on two metrics:
- length of the first session
- frequency of logins
They found out that users who stuck after the first month had longer first sessions (over three minutes), and those who churned had an average first session length of 35 seconds.
So what did they do?
They sent emails to users who had first sessions of under 2 minutes. Their emails looked like this:
Almost 40% of customers who responded to these emails and completed their signup process stuck around after the first month.
You should follow Groove’s example and investigate your customers’ behavior.
Also, ask your customers directly about their struggles. Use surveys, emails, chat, whatever that can give you the best insight into why they’re leaving.
Additionally, open communication can help you uncover some of the leading problems and risks of churn, such as:
- Unclear value. If customers don’t reach their goals with your product, they will not feel obligated to continue using it.
- Delayed value recognition. Unless your customers get to their Aha! Moment fast and recognize the value of your product, they will soon abandon you.
- Poor customer support. When their support tickets go unanswered or the response rate is too long, users will not be happy.
- Internal financial pressures. Company budgets can affect your chances of upselling, and it’s not something you can control.
- Low customer engagement. If you don’t provide a meaningful experience with continuous support, personalized user onboarding, and celebrating milestones, your customers will become disengaged and will more likely cancel their subscriptions.
If you show your customers you care about their goals, you are on the path to success. 65% of customers claim that a continually positive experience makes them want to continue doing business with a company.
Identify at-Risk Customers Who Want to Leave
Be on the lookout for high-risk customers to prevent them from leaving.
Who is considered high-risk?
Every customer considering not renewing their subscription plan.
Along with the most common reasons for churning, there are several key areas you can look into and monitor for any suspicious behavior. Start with net promoter score (NPS) surveys and examine the results.
Glassdoor frequently uses NPS to receive product feedback. Zoe Soto (Product Manager at Glassdoor) says they realized that the only way to keep their customers happy is to improve their product, and NPS gave them more diverse product feedback.
You can follow Glassdoor’s example and use NPS to understand why your customer experience is disappointing. Based on the responses, you can take action to change it.
If you have an online community, search for customers struggling with an aspect of your product. This also applies to angry commenters on your social media platforms. Track them down to offer a personal approach to solving their issues.
Then, check your customer support tickets. If some customers frequently ask about basic product features, that means they haven’t fully adopted your product and pose a risk for churn.
Customers can show you directly or indirectly whether they are unhappy with your product, and it’s up to you to recognize those signals and act on them.
Segment Customers to Better Analyze Churn
Segmenting your customers means grouping them based on a common trait, and it enables you to analyze churn effectively.
When you group all your customers who churned, you can notice patterns.
For example, you can identify which tier in your subscription plan is not providing the most value. You can also see which customers are more likely to churn (e.g., SMBs or enterprises).
Possibilities are endless if you know how to take advantage of customer segmentation.
When you know this data, you can improve some key aspects of your offering to bring users back or direct your efforts towards more profitable customers.
With Trevor.io’s query builder, you can segment your customers by revenue or other criteria to analyze them better.
Segmentation lets you revise your ideal customer profile for future marketing and sales strategies. If a large number of enterprise customers churn, you will be able to focus more on SMBs or startups.
Then, you can personalize your marketing campaigns for specific customer types who churn. Personalization should be a part of your communication strategy because 72% of customers only engage with personalized messaging.
Overall, there are numerous ways to segment your customers, but your end goal of user segmentation is to use relevant data to manage your churn better.
Make Your Onboarding Process Seamless
The customer onboarding process tends to be the most significant source of churn. Its crucial function is to introduce your product to the customer and instruct new signups on using it.
If you offer a seamless process, your product adoption rates will be much higher.
Onboarding starts with the sign-up process. This is your first point of contact with the customer, and you have to make sure it’s easy to complete.
Ask for minimal information and have a sign-up form with only a few fields to fill in. Even better, integrate sign-ups through a third-party provider, like Facebook or Google, like we did.
Next, use their basic information to send users personalized welcome emails in which you’ll have compelling CTAs and information on how to start with your product.
Have them get back to your product with only one click. When users get to the product, you have to guide them to make sure they recognize its value.
The best way to do that is to provide tutorials or product walkthroughs to familiarise users with basic features. Provide enough information so they “get” your product as quickly as possible and continue using it daily.
Ogun, a Spanish construction management app, saw their churn rates decrease by 35%, and app adoption rates increase by 27% once they enriched their onboarding experience.
Ogun leveraged an in-app messaging system to provide a product walkthrough and enhance their onboarding. Once they were able to improve their onboarding flow, they retained a lot more users.
Following Ogun’s example, you should eliminate your main friction points. After that, it’s easier to tweak other aspects of a customer’s onboarding journey.
Focus on Your Most Valuable Customers
If you identify your most valuable customers, you will combat the negative consequences of churn.
Sometimes, having many lower-tier customers who stick with you for several years is more valuable than having a few larger customers who will churn in six months.
If you’re B2B SaaS, then you can research your customer’s position in their market. Who you do business with also reflects on your reputation.
Also, look into their network for possible referrals. Are they connected with companies that can also benefit from your product? Do they enable you to tap into new markets?
A customer’s value isn’t just about how much money they bring you. It’s also about their goals and plans that influence their decision to do business with you.
Another thing you have to find out is how expensive they are to maintain.
This includes the level of consistent and personal contact with your customer success agents they require and their demands for costly features that won’t serve your larger customer base.
Decide how the hidden costs affect such customers’ overall value for your business.
In any case, when you know who your most valuable customers are, it will be easier to win them back with content tailored to their specific needs.
Reward Your Loyal Customers
You can double your churn management efforts with rewards for loyal customers.
The most common rewards for SaaS users include providing extra storage, extending contracts with reduced pricing, offering coupons for add-ons, and many other SaaS-related perks.
Whatever you choose, it should encourage people to stay doing business with you for longer.
There are three things you should keep in mind when you’re offering any kind of reward:
- Make it meaningful. Rewards only work if customers benefit from acquiring them.
- Make it simple. Don’t include too many terms and conditions for them to meet before claiming their reward.
- Consider implementing tiers. When you have a ladder with more attractive rewards, your customers will be more encouraged to purchase or refer more friends.
Another way is to set up a referral program.
If you reward your loyal customers with discounts for every referral they make, that’s a win-win scenario. Recent surveys report that referred customers spend 13.2% more and have a 16% higher LTV.
This method is the most efficient with your most loyal customers, and you can find them by analyzing NPS surveys.
The main benefits to reward programs are customer retention and new business expansion. With minimal effort, you’re doubling your rewards.
Offer Longer Contracts
Longer contracts bind your customers to stick with their purchasing decisions.
If you’re contemplating whether to choose monthly or annual contracts, it’s better if you opt for annual ones.
Companies with annual contracts have 80% lower churn rates, according to ProfitWell’s analysis.
The first benefit of relying on longer contracts is that you reduce the number of opportunities for your customers to think about renewing their contracts.
With monthly plans, you’re reminding them of their spending habits at least twelve times a year and making them re-examine how much value they’re getting from your product.
Even if you’re sure about your product’s value and its impact on your customers’ daily lives, you don’t have to remind them to re-evaluate their decisions continually.
Longer contracts can also help you convince your customers to use your product more.
Since they’ve already committed to the price and the duration, they might as well get more use of it. This also gives you more time to show your product value.
Another great benefit to longer contracts is that they eliminate customers who can’t afford to do business with you without losing potential revenue.
Optimizing your contract length can reduce your churn rates, and you’ll get to keep active users who will stay with you for longer.
Related posts: Understanding ACV for SaaS Business
Listen to Customer Complaints and Act on Feedback
Gathering feedback can help you in two major ways.
First of all, you’ll understand the main problems customers have with your product, which means you’ll be able to improve it.
Next, you’ll be able to build a closer relationship with your customers.
As your customer base grows, it becomes difficult to give everyone the attention they need. Luckily, people love to share their opinions, so allowing them to do so is one of the easiest ways to stay close to your customers.
When you want to gather feedback, you also need a nuanced approach.
To better understand and analyze the data you get, it’s best to use the customer segmentation we already talked about. The unique perspectives of each cohort you create will give you insight into what their specific needs and issues are.
For managing churn, the most helpful strategy is to send surveys to customers who are disengaged or who have recently stopped using your software.
With surveys, you will understand better what doesn’t work since, at that stage, users will be the most inclined to criticize your product.
Their critique will likely fall within the categories we’ve discussed before—low usage, inadequate prices, etc. However, you may also find some unique insights that you haven’t considered before, perhaps related to your UI or mobile optimization.
Asking for feedback and acting on user complaints is the first step towards creating a better product that will meet your customers’ needs.
Doing so will also form tighter relationships with your customers.
Set Up Cancellation Offers
Even when your customers cancel their subscriptions, there is a small window of opportunity to win them back.
So here’s what you can do.
Before they click that “cancel my subscription” button, remind them of the great things they’ve achieved while using your product. Also, point out other great benefits that await them if they stick around.
You must do that while they’re in the app because once they remove themselves from your product, it will be easier for them to say no.
Another solution is implementing a win-back email campaign. Here’s an example from Chime:
Chime is cleverly using testimonials to emphasize other customer’s great experiences while simultaneously mentioning the main benefits.
We can learn from Chime that you should give offers users can’t refuse and which are closely tied to your product’s value.
These can range from downgrading their original plan, providing more training and consultation, to offering similar products and services. You can also suggest keeping their account inactive for a certain amount of time in case they change their mind.
Cancellation offers typically work for customers with the following problems:
- Poor user experience
- Missing key features
- Insufficient customer support
- Bugs and downtime due to maintenance
- Inadequate app and data integration
These issues are relatively easy to fix, so you can approach your customers with confidence as you ask them to give you another chance.
Make sure your offers are amazing so you can win back customers with ease.
Track Customer Behavior
Tracking customer behavior will give you a better understanding of your churn trends.
SaaS businesses monitor their user’s behavior to understand how they can improve their UI and customer experience. This has led to a proliferation of tracking tools that analyze user activity to support revenue goals.
This data gets recorded, and customer success teams use it in many different ways.
They can segment and look at specific customer journeys and user flows. Raw data can further be used for specific behavioral analytics.
The analytics can provide you with details and metrics about different aspects of your product.
Here are some types of information to look at:
- Changes in usage frequency
- Frequently searched terms
- Performance latency
- Completion rates
- Most used features and activities
- Number of support tickets
When you have this data, you can predict your customer’s demands and modify your product to suit their needs.
You want to be a step ahead so you can leverage your marketing and upsell strategies to combat churn.
Using Business Intelligence to Reduce Customer Churn
As mentioned before, you can track customers’ behavior to predict major churn points. When you use accurate, real-time data, your churn strategies will be more effective.
A good tool will help you gather the data you need and organize it sensibly so you can scrutinize it and get some valuable insights about your customers.
Trevor.io empowers companies to better understand their customer data through simple yet intuitive no-coding data querying. It enables your team to learn from your company database data.
Your team can build reports, perform lookups, and get ad hoc answers using a simple yet intuitive query builder (or SQL). With answers from your database and live data streams exported to spreadsheets, you can explore data and unravel deep customer insights.
Also, with user-friendly data visualization, you can segment your users and see specific trends in your customer base or particular cohorts.
Overall, insights from tools like Trevor.io can help you optimize your product and answer the most pressing questions like: “What do my customers want?”
A proactive approach to managing churn is the only way to keep those numbers low and retain your most valuable customers. Knowing who your customers are and what are their main reasons for churn is the starting point.
After that, using analytics and business intelligence will help you understand customer’s usage patterns to prevent them from canceling.
Remember that, while user acquisition matters, for SaaS businesses, user retention is what keeps the ball rolling.
Your ultimate goal is to establish a mutually beneficial, long-term relationship with your customers, and our tips from this article will help you achieve just that for your business.