What Is Customer Churn and How Can SaaS Companies Reduce It
From big to small companies, from startups to huge firms, everyone has been building their businesses under strong economic conditions. So, what happens to the industries in times when the global economy isn't standing firmly on the ground?
Depending on various situations, companies are often faced with losing clients, customers and have to consider these challenges beforehand if they want to keep up with everything that's going on in the business world.
SaaS companies can get a pretty bad hit when it comes to situations when the economy is collapsing. These are times when customers are more likely to lower their expenses on certain services or cancel them completely. This brings us to customer churn. Stay with me in the next couple of words and find out more about it.
Customer Churn: What Is It?
Customer churn is the number of customers who decide to stop using a service offered by one company usually because of the price or another better option on the market.
Customer churn is often happening to SaaS companies, the key to success is to keep this number as low as possible. Truth be told, there are always going to be customers who will just not be happy with what you’re offering, no matter what you do, but for all the others there should be a solution.
Churn can simply be described as lost resources in a given period. Typically it’s referring to users or revenue lost and is usually factored with a percentage value.
For example, if you had a 3% monthly user churn rate, that means each month 3% of your customer base is canceling on your software as a service.
The basic formula for calculating the churn rate is:
Users at the beginning of the period - Users at the end of the period / Users at the beginning of the period.
To simplify this, let's say that you started the quarter with 2630 users, but by the end of it 40 people canceled their service, which leaves you with 2590 users. Let's do the math, shall we?
2630-2590/2630 = 40/2630= 0.0152
If we multiply the result by 100, we get the percentage value, which for this case would be a 1.52% churn rate.
It's good to mention that you shouldn't include any new customers added during that given time frame. These customers will be put into consideration on your next monthly, or quarterly churn rate calculations.
Approaches That Can Protect Your SaaS Company
You have to have the right approach when it comes to protecting your business from the increased churn. It's good to always look for the root causes of your problems and focus on fixing them, rather than putting duct tape over a hole of a spilling bucket.
Here are some strategies that can help you protect your business in the long run.
Know Your Churns
When we think about churn, we're mostly thinking about lost customers, sometimes without considering the revenue churn.
The revenue churn becomes more important if there are varieties of software, services, and subscription plans offered. This is a vital metric that makes a great effect on businesses.
If you look at just the customer churn, you’re ignoring how much revenue you’re losing with those churned customers. For example, a churned customer on a $30 a month plan isn’t nearly as bad as a churned user on a $550 a month plan. Revenue churn efficiently weights your customer churn to be a more realistic depiction of how your SaaS business is doing.
To make sense of it all, you can look at your customer churns by customer segments. This way you can easily group customers, this could be done by segmenting them by their subscription plan, whether they signed up using a coupon or with the full price. This way you can have a clear view of the customer and revenue churn.
Have an Inviting Onboarding Process
When customers sign up for your software, do you guide them through, or just leave them to set everything up on their own?
You need to dodge having customers sign up, try your software once or twice, then never log back in again because they aren’t sure of their next steps and just can't seem to figure out how everything works.
You have to create a good onboarding process so that your customers can get the most from their subscription.
Find out Why Customers Are Churning
Your cancellation flow should always be accompanied by a short questionnaire where you ask customers why they’re canceling. This can give you a perception of what customers lack when it comes to using your services. See the example from Netflix below.
Celebrate and Reward Your Customers for Their Loyalty
Who wants to be left forgotten?
Not the best feeling in the world, you might agree. So, why do that with your valued customers?
If there is a certain number of people that have been with your product from the beginning, that doesn't mean that you shouldn't pay attention to them and neglect them. On the contrary, you should celebrate these people and offer them an even better experience.
You can start out by sending them surveys, asking for their opinions, sending thank you emails, offering them discounts and sharing their success stories.
Practice Social Listening
Social listening is the process of following online discussions concerning keywords, topics, or phrases to gather key insights from your target audience. In other words, this is the process of finding out what people are talking about when it comes to your product.
Looking at a bunch of complaints on some forums isn't the worst thing that can happen. The people that are complaining aren't the ones you should always be worried about, instead, you should focus on listening to what they have to say and use their comments and insights to improve your business and retain them as your customers.
The benefits of social listening include identification of opportunities, looking to spot potential risks, and understanding what your business's next step should be.
There are no SaaS companies with a zero percentage of churn rate. From the software user who cancels their subscription to the ‘gym-goer’ who wasn't all that into getting in better shape in the first place, so he canceled his membership. These customers are just a grain in a desert full of sand.
Though the value of rewarding loyal customers cannot be stressed enough, this is not to say that gaining new customers isn't important. However, you must create your intelligent strategy where the 'right' customers are selected and nurtured because they have the typical 'symptoms' to become your high-valued consumers that will stay subscribed for a longer period.
This kind of system will ensure that the 'right' customers won’t break up with you, even when times are harder than expected.