Five Tips to Reduce SaaS Churn
Well–run Software as a Service (SaaS) companies have the potential to achieve exponential growth. Smart SaaS providers can pave the way for a steady stream of recurring revenue through the combination of a clearly valuable software service, persuasive company messaging and marketing, and a large paying customer base. Unfortunately, the reality of SaaS operations is that customers don’t always stay and revenues are hardly a guarantee. To keep recurring revenue moving in the right direction—that is, up, companies must focus on efforts to reduce SaaS churn.
SaaS churn occurs when a subscriber, user, or other paying client ends the relationship with the company by not renewing his or her paid subscription for the service. The simplest way to calculate churn is to take the number of clients or subscribers lost in any given time frame and divide it by the total number of clients at the beginning of the same time frame. For example, a company with 100 paying customers at the beginning of March loses five of those subscribers throughout the month for a variety of reasons. The company’s churn rate is 5%, or 5 clients divided by the starting 100.
Why churn matters
Any smart business understands that the loss of one customer means more than lost revenue on a single sale. A subscriber failing to renew their paid subscription has multiple ramifications including:
- A direct reduction in monthly recurring revenue
- For high life-time value clients, a substantial reduction in total life-time revenue for the business
- Outlay of potentially high customer acquisition costs to recoup a single paid subscription
- Stalled company growth
When subscribers churn, the impact on the company is immediate. And if your SaaS company has a relatively high churn rate (above 20%), your potential for growth is stifled. To help reduce the chances of subscribers leaving on a whim, here are five tips to reduce SaaS churn effectively.
1. Understand why customers churn
In a SaaS business model, churn is unavoidable. However, not every subscriber leaves for the same reason. Often, it’s not your product causing the churn—the customer simply moves on without renewing due to financial or value concerns. It’s possible that they can no longer afford your service, or they no longer believe in the value of your service. That’s not necessarily something your SaaS company can control with any sort of consistency.
But when the reason for churn is—at the core—your service offering, churn becomes controllable. If customers don’t receive the benefit your service promised at offered at the time a subscription started, they’re going to break up with you eventually. SaaS companies must be willing and able to provide the desired experience and outcome their users expect in a consistent, meaningful way. When your company is unable to deliver, churn is inevitable. To reduce it, take the time to understand what your paying customers expect from your service, and do your best to make good on that expectation.
2. Fix your foundation
Just because a SaaS company exists, doesn’t mean it’s producing a software that is relevant and solving the needs of it’s customers. Your company could have the most advanced technology, the best and brightest marketing team, and an easy onboarding process for clients—but if the product itself doesn’t offer value, you’re not going to create a sustainable business. If your churn rate is high, despite your greatest efforts, evaluate the foundation of your service offerings to ensure you’re actually providing something of value to your paying customers.
3. Improve client onboarding
Let’s assume your SaaS product is sound, with proven demand among your target audience. Is your onboarding process solid, too? Your SaaS company could be offering the best thing since Whatsapp, but if you can’t onboard subscribers with ease and transparency, it’s inevitable that your business will experience a high churn rate.
Onboarding issues arise when customers don’t fully understand how to use your service or don’t quickly grasp its value. Additionally, potential subscribers may stumble in the onboarding process if your messaging does not accurately depict what your service truly provides in terms of overall functionality. To ensure prospective clients don’t walk away without signing up for your service, create an onboarding process that is painless to your customer and doesn’t inflate what your service can accomplish for them.
4. Be proactive in addressing red flags
Data is the key to SaaS success, especially as it relates to churn. You can predict when customers are getting ready to jump ship by analyzing user analytics, including:
- Amount of time spent on your landing page, without signing up for a paid subscription
- Reduction in the time spent logged in or using the service
- Amount of time spent on a single feature of the service
- Reduction in the number of tasks completed through the service
Customers who are gradually (or quickly) reducing the amount of time spent using your SaaS product or lingering on a single function may be losing their faith in its overall value. Each of these metrics pose a threat to your business, but you can reduce the inevitability of churn by being proactive in addressing red flags.
Follow up with users who spent time on your landing page but didn’t convert to paying customer. A quick e-mail offering assistance in onboarding or a deeper explanation of your product’s value may be exactly what that customer needs to become a subscriber. If it seems as though a user is stuck in a single feature of the service, they may need assistance moving to the next step. Reach out proactively to walk them through additional features or functionality to ensure they are receiving the greatest level of value from your SaaS product.
5. Adapt to your customers (and your competition)
New SaaS products are coming to the market every day, and your current and prospective subscribers are inundated with marketing for the latest and greatest. To reduce the propensity of churn, you need to know what your customers want and need from your SaaS product. It may not be fancy new features or brand new functionality – it may be as simple as ongoing communication or a loyalty rewards program. You can bet with a high degree of certainty that your competition is working to understand your subscribers, too. Know what other SaaS companies are providing, how that relates to customer satisfaction and retention, and tweak your offerings to stay on track with current client trends.
Churn may seem like a nasty five-letter word in the SaaS universe, but it doesn’t have to be a downfall of your business model. Focus on offering an awesome SaaS product, with simple onboarding and clear messaging, and address the potential for fleeing subscribers before they decide to cancel. Keep the lines of communication open with your subscriber base, and adjust as often as needed to keep your SaaS product value memorable for your customers.