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 understand the leading causes of SaaS churn and how you can prevent them to create an army of 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.
Leading Causes of SaaS Customer 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 in 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 on 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 24x7 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.
5 Strategies to Stop Churn Right Now!
#1. 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.
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 of their employees, which they used during the campaign to respond on social media.
#2. 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.
#3. 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.
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.
#4 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 24x7 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.
#5. 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.
Reduce Churn & Embrace Success
'How do I reduce churn?' 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 24x7 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.
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