Do you know what corporate mega-giants like Microsoft, Adobe, and Google have in common?
Besides, being worth billions of dollars, they all operate on the same ‘software as a service’ (SaaS) model.
However, surprisingly enough, not every SaaS company has been able to hit the jackpot.
The reason? Customer churn beyond control.
SaaS businesses out there are looking for that magic bullet to crush churn and make all their customers stay for a lifetime. However, with the global churn rate at an all-time high, the path ahead looks full of challenges.
But, guess what? We might have found the magic bullet for you. Read this blog to discover the leading causes of SaaS churn, how you can improve customer service with SaaS help desk software, and tips to reduce the SaaS churn rate for delighted customers.
Let’s together decode the recipe for SuccSaaS!
What is SaaS Customer Churn?
Are you losing hundreds of paying customers every month? Is customer retention a big challenge for your SaaS company?
In that case, you have been a victim of SaaS customer churn.
SaaS customer churn happens when customers of SaaS companies decide to stop engaging with the business and unsubscribe from their software service. Not the best feeling!
How to Calculate SaaS Customer Churn Rate
Reducing your churn can be an ongoing struggle, and will continue to be for as long as your company exists. But that doesn’t mean that you give up the fight. Calculating the SaaS churn rate is the first step in the right direction.
Let’s assume your SaaS business has 500 active users at the beginning of a month. Now, towards the end of the month, the number of users is reduced to 450 (50 users lost). However, you still added 10 new users. Applying the above formula, the churn rate is:
50/510 x 100 = 9%
Now, let’s quickly explore some other questions you might have.
What is the Average SaaS Churn Rate?
For SaaS companies, the average churn rate is around 5%. However, this rate varies across businesses, and finding the universal average churn rate can be quite daunting. This is simply due to the lack of a standard reporting method for churn. While some businesses report revenue churn, others rely on user churn data.
Is There Such a Thing as a “Good” Churn Rate?
In the SaaS industry, a good churn rate is considered 3% or below. Again, your churn rate depends on the type of industry you cater to and can differ for different products.
Why Churn Is Critical in SaaS
SaaS businesses across the globe are always adding more customers and losing some at the same time. As your business grows, you will see customers who exit your business as churn is inevitable. However, any significant imbalance in newly acquired customers compared to leaving customers can create havoc for your business.
When left unchecked,
- Customer churn can waste your acquisition efforts
- A high churn rate reduces revenue and narrows your profit margins
- Churn can gradually result in business failure
Now that we know how dangerous churn can be for any SaaS business, let’s take a look at what really causes churn.
What Are the Leading Causes of SaaS Customer Churn?
There is no better way to understand churn than looking at the leading causes of it. Here are the top 4 reasons why most SaaS customers churn.
- Bad Onboarding Experience
Customers start using the product before getting familiar with the various features
Customers pay for a SaaS product as it helps them solve a problem, whether it’s about managing their ongoing projects or simply tracking customer support tickets. If they are unable to solve their problems due to a bad onboarding experience, you are going to see churn.
Every customer that uses your product must be well-versed with all the features, how the product can solve his/her problem, and whom to contact in case of an issue.
- Lack of In-Demand Features
Customer demands a feature that your product doesn’t offer
The competition in the SaaS market is stiff more than ever and as a result, every company is on a spree to launch product updates. If your competitors are offering more features at the same price or at a slightly higher price, you will see customers switch.
If you notice that a large number of subscribers have repeatedly asked for the same feature, you may want to rework your product feature list and ask your developers to include the in-demand features.
- Unreliable Support
Customers face difficulties in finding the right solutions to their problems
Modern customers want reliable support. When something goes wrong with your SaaS product, and it isn’t sorted to the customer’s satisfaction, they are more likely to leave your business.
According to a Microsoft report, 56% of people around the world have stopped doing business with a company because of poor customer support experiences.
This can have a double negative impact on your business as those leaving due to a bad support experience will tell others, creating a negative brand perception. Therefore, It becomes important for your business to offer 24×7 reliable support on channels that customers prefer the most.
- High Pricing
Customers feel they are being overcharged by your business
Pricing is one of the most common adjustments that SaaS companies make when they are consistently losing customers. There are hundreds of software review platforms on the internet today. This means that the ‘right price’ for a product is just a click away. So, don’t be surprised if your customers have a better understanding of the pricing of your competitors’ products than you.
Arriving at a competitive price will require thorough competitor analysis, a better understanding of your margins and cash flow, and the perceived value of your SaaS product in the market.
10 Clever Strategies to Stop Churn Right Now!
Has customer churn always presented itself as a big challenge for your growing business? Well, it should not anymore. We have curated a comprehensive list of 10 clever strategies to prevent churn at the earliest.
#1. Nail the First Impression With Great Onboarding
The good news is that customers already like your SaaS product, and that’s why they chose to buy from your brand. Now, it’s your job to “not” make them regret this decision.
A positive onboarding experience makes your customers realize that they made the right choice and helps your business in retaining them for longer periods.
Here are some tips for a kick-ass onboarding process:
- Effectively demonstrate your product’s core features and highlight how they can solve your customer’s problems.
- Keep your onboarding tours as simple as possible. Offering extra or unnecessary details to customers even before they are ready can leave them scratching their heads.
- In addition to in-app tutorials and guides, continue using email throughout the onboarding process. Emails act as reminders and can be used to educate customers from time to time.
- If your customers get stuck with something or have doubts, resolve them at the earliest. You can even dedicate a phone number or a specific email address to assist your new customers.
#2. Engage & Inspire Your Customers
As a SaaS business, you probably have annual or monthly subscribers and if you want them to continue using your product, you need to keep them engaged. Period.
To engage and re-engage with your users, you must use every opportunity to personalize.
Every customer might be solving a unique problem using your product. Simply share relevant and personalized content over email or on social media and tag them. Besides this, ensure your customers actively participate in sharing their feedback.
Don’t be afraid to get creative with your customer engagement strategies on social media. For example, by employing user-generated content strategies to promote your brand or even by partnering with prominent influencers in your niche. Your customers will appreciate your innovation and the extra effort you put into finding new ways to connect with them.
Here is an example of how MailChimp is always engaging and inspiring users on social media. MailChimp started the ‘Small Business Saturday’ campaign to empower the thousands of small businesses that use its product. MailChimp created personalized, custom GIFs for their employees, which they used during the campaign to respond on social media.
#3. Be Willing to Offer More
To retain your paying customers for a long period, consider offering more value. Now, when most SaaS companies think of a giveaway, they think, “we are already offering a 30-day free trial and our customers love it.”
15-day or 30-day trials are not enough anymore and have become mainstream in the SaaS industry. You need to make an offer that is connected to your service and creates a win-win situation for everyone.
Be willing to share the fruits of your labor with your beloved customers.
For instance, to promote its business, PayPal awards $10 for each successful referral. Who does not like a bit of extra cash just for sharing a link? As a result, PayPal has witnessed huge growth and has successfully onboarded millions of merchants through its business referral program.
#4. Measure the Right SaaS Metrics
There are several metrics that can help you measure the overall health of your business at regular intervals. However, with a metric for almost everything, it becomes difficult to choose the right ones.
Here are certain metrics other than churn rate, that will help you re-examine your business strategies and improve performance.
- Cost of Customer Acquisition
You need to keep an account of how much it costs your business to acquire a new customer. As a growing SaaS business, you must focus on keeping the cost to a minimal value, so that the saved capital can be invested in product development and marketing.
Having the right image is essential for customer acquisition. If people don’t see your brand the right way, you’ll never get them interested enough to actually become eligible for acquisition. SaaS branding is often overlooked because of the kind of work SaaS companies do. They feel it’s not important or necessary, but that couldn’t be further from the truth. Any company, no matter how it’s run or what services it offers, has a brand that has to be good enough for potential customers. Remember your brand when planning your SaaS customer acquisition strategy.
- Average Revenue Per Customer
Every business should be well aware of the return they gained from their investments. Now, average revenue is a metric that will keep your sales and marketing teams on their toes. They can come up with better plans or build strategies to up-sell products and increase revenue.
- Customer Lifetime Value
Customer lifetime value refers to the total worth of a customer expanding over their complete relationship with your brand. By calculating the customer lifetime value, you can understand the potential worth of every customer and get to predict your future revenues.
#5. Support & Educate Users With Relevant Content
Content isn’t just a marketing tool anymore. With the right content, you can educate your users to reap the maximum benefits of your SaaS products.
Quality content can be a great differentiator in a crowded marketplace.
You can offer free training sessions, self-help articles, video tutorials, or product guides to allow customers to have a seamless onboarding and implementation experience. You must commit to consistent and, most of all, quality publishing.
For instance, ProProfs Help Desk has hit that sweet spot when it comes to supporting its users with relevant content. Besides its 24×7 awesome human support, the SaaS company equips every user with self-help articles, FAQs, videos, blogs, and a lot more. Creating and sharing the best-in-class content has made ProProfs come across as a reliable business that is eager to support its customers at every stage of interaction.
#6. Offer a ‘Freemium’ Plan
Customers love free stuff, and offering your product for free can be a great way to get user attention and woo customers.
When all the great things in life are free, why should your product cost a fortune?
However, offering your product for free does not mean you never charge your customers. You can introduce a forever free plan that offers basic features and a much-needed sneak peek into what your product holds. Once, customers have used your free product and like it, they are much more likely to convert to paying customers.
For instance, Evernote was experiencing a lot of challenges during the early stages of its business. However, by introducing its product for free, it was able to make potential users understand the value of its product and grow its user base.
#7. Focus on At-Risk Customers
If you take a close look at your current customer base, there are some customers who are more likely to leave your business compared to others. This fraction is called at-risk customers and deserves your undivided attention.
You need to identify your top customers at risk and reach out to them to figure out the reasons leading to their abrupt behavior. Some telltale signs can be customers who are not regular with their subscriptions or customers who have looked to opt for a lower-priced plan.
Sharing regular NPS (Net Promoter Score) surveys is a great way to identify such customers. You can understand how likely they are to remain loyal to your business.
It is important to note that no product is a great fit for all customers or industries. Encourage your marketing team to avoid pitching to those who aren’t a good fit for your SaaS product. This is a great strategy to reduce SaaS churn in the future.
#8. Understand Why Customers Churn
SaaS churn reasons can be plenty, however, you need to find out why your customers decide to leave. You must patiently attempt to understand what made them put an end to a relationship that started on a high note.
Directly communicating with your customers can be the key here.
When your customers hit the unsubscribe button, you can directly call them, and allow them to tell you what exactly went wrong. This is a great way to show your business genuinely cares and values their association with your brand.
Now, different customers can churn for different reasons. While some might find your competitor’s offer more lucrative, others might fail to see the scalability in your SaaS tool.
With the help of exit surveys, shared over email, text message, or social media, you can understand the leading causes of SaaS churn for your product and how you can prevent them in the future.
#9. Don’t Take Customer Service Lightly
Customer service is no longer just perceived as a department to assist customers. In reality, customer service reps are known to deliver some of the best experiences that a customer has with a brand.
But what happens when customer service goes wrong?
Globally, businesses lose vasts amounts of money due to poor customer service and SaaS businesses are no exception. According to Forbes, businesses across the globe lose $75 Billion due to poor customer service.
Irrespective of the channel a customer chooses to contact you, you must tackle their concerns as and when they come. You can leverage help desk software to keep a firm track of every issue and respond to customers in real-time.
Read More: 15 Help Desk Best Practices & Principles
#10. Offer Incentives on Long-Term Subscriptions
SaaS companies usually offer a range of subscription plans that can be bought by customers on a monthly, quarterly, or annual basis.
To encourage customers to stick with your brand for a long period of time, you must offer incentives to those who opt for long-term subscriptions.
For instance, you can offer special discounts or offers to those customers who buy a plan for 6 months or more. Ensure the benefits are offered to the customer at the earliest, otherwise, it can make them change their decision. If you are offering a 15% discount, make sure the discount is offered when the customer prepares for checkout.
Providing incentives to your loyal customers is a great way to enhance the customer lifetime value (CLV), generate higher revenues, and most importantly reduce saas churn rate.
Negative SaaS Churn
Negative churn can be achieved when the additional revenue from existing customers is more than the lost revenue from existing customers. In simpler terms, when your revenue grows without the addition of new customers, your business is achieving positive net revenue and negative churn.
The important SaaS metric does not include revenue from newly acquired customers but only takes existing customers into account. Therefore, negative churn might have the word ‘negative’ in it, but it is good for your business.
When should your business target negative churn?
Although negative churn is important, it should not be the priority for early-stage businesses. During the initial years, every SaaS business should focus on customer acquisition and capturing feedback from those customers. This will help you learn from your mistakes and make strategic decisions for the long-term.
Reduce SaaS Churn & Embrace Success
‘How to reduce churn in SaaS?’ is a question on most SaaS founders’ lips. We understand SaaS customer churn can be a tough pill to swallow.
While churn is inevitable, your business can still make small changes that can have a huge impact on the overall health of your business. Besides ensuring a smooth onboarding experience and engaging your users, you must look to offer 24×7 reliable customer support.
You can leverage a tool like ProProfs Help Desk to stay on top of every customer communication. Features like shared inbox, canned responses, ticket tracking, smart reports, etc. can help your business retain more customers through delightful support.
Now that we’ve understood different types of customer complaints and how to handle them like a pro, let’s take a look at some of the frequently asked questions below
Q. How to track SaaS churn?
To track SaaS churn, you need to calculate the churn rate of your business during regular intervals. Capturing, and tracking churn rate from time to time will help you understand how many customers are leaving and the possible reasons for churn.
Q. At What Stage Should SaaS Companies Be Alarmed By Their Churn Rate?
As soon as your churn rate crosses over the average churn rate (5% for most industries), you must be alarmed. This is the time to to adopt the right strategies to prevent further churn.
Q. Is There a Different Benchmark for B2B SaaS Churn Rates and B2C SaaS Churn Rates?
B2B SaaS products have a higher churn rate compared to B2C SaaS products. On average, B2C products have a churn rate of 7.05% while B2B experiences only 5.00%.
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