This article will focus on Customer Churn in general. I will talk in detail about:
What exactly SaaS Customer Churn is,
Why SaaS customers churn in general,
Why having a high customer churn rate could be more damaging than it seems,
How to calculate the annually and monthly churn rate of customers,
And the best 10 methods to improve your churn analysis and prevention.
So, without further ado, let's begin with the definition:
What Is Customer Churn?
Customer Churn, or Customer Attrition, is when customers stop purchasing from you, or terminate their memberships. The percentage of customers that churn tells you about how good your product engagement is and how it reflects on users. You can calculate the Customer Churn rate by dividing the number of total customers in a period of time by the number of customers churned.
A good customer churn rate for SaaS is between 5-7%, and anything above that indicates that you should focus more on customer retention.
And that is the very reason why you should always keep an eye on your customer churn rates, as well as track their churn reasons.
But what are those reasons?
How do you learn them?
How do you get rid of them?
I found some very interesting statistics about SaaS customer churn reasons. Just keep reading:
Why do SaaS customers churn?
The biggest majority of SaaS customers churn because they find the provided service unreliable, according to this statistic report. This means that those customers either face stability issues, find too many bugs, don't understand how to use the product from the get-go, or simply receive poor customer service. In fact, 46% of customers in this research reported that customer service was among their biggest reasons for churn.
So now, I would like to list what people have reported as the result of their voluntary churn, and what the product-related problems behind them are.
In order to convince people that your service fits their needs, you have to catch their attention from the get-go, and engage them throughout the whole customer journey.
Substantial Price Increase - Failure In Primary Pricing Model:
Pricing plays a great role in determining whether you will grow or run out of money after a few months. If you price too high, you won't get customers. If you price too low and don't get enough customers, you won't be able to pay for dinner.
P.S. I'm not saying that you should refrain from changing prices at all, of course you will. But there is a correct time and way of doing it.
A Security Issue With The Vendor - Licensing Problems:
Getting security accreditation is a long and effort-taking process - but you can't just skip it. In my company, we had tens of closed-lost deals due to a certain security certification. We started the process too late, and it took us a while to get it.
Does it load in a blink of an eye? Did you double-check each page?
People's time is precious, and the very reason they use your service instead of solving it in-house is that they want or need to solve that problem quickly. If your product can't keep up with the speed of their needs, they will switch to another product.
A Lack Of Technical Expertise From The Vendor - Poor Product Positioning:
There is not much to say about this reason, it's pretty self-explanatory.
If your team can't keep up with the customers' needs, you simply won't be able to keep customers for long.
This technical expertise in question isn't necessarily about your niche as well. If you can't help people integrate your product, if you can't solve their bugs, or if you don't know the answer to their questions about your IT process; they won't stay.
One Or More Poor Customer Support Experiences - Customer Support Team:
Forrester found that the most important thing a company can do to provide a quality customer service experience (according to 66% of people asked) is to value customer time.
When people have problems, that don't ask for help; they churn. The minority that doesn't increase your average churn rate, those people will seek support. And if you can't even provide support, there will be nothing left for the customer to keep paying you.
Too Many Sales/Marketing Calls/Emails - Poor Strategization:
Who likes spam mails? Do you like spam calls?
No one does. I don't even like the emails that fall into my promotions folder - which I never look at. I still don't like them. And spamming people with mails-calls isn't going to work for you either.
Don't email them more than once a week (unless it is absolutely important). Don't follow up on your calls-mails before than 7 days.
Here is another example: I once received a collab mail from a colleague to which I forgot to reply. They followed up the day after, and o that instant, I knew I couldn't work with them.
Moderate Price Increases - Failure In Primary Pricing Model:
As you see, moderate price increases drive 20% of the people away. If your price increase compensates for this customer churn, there is nothing wrong. Because as I said, renewing your prices when necessary is as normal as breathing air.
Peer Recommendation For A New Provider - Poor Engagement:
Social proof is what keeps the businesses going. People trust social proof more than they do anything else. And if your customer has a problem, they won't share it with you, they will share it with their peers.
In order to prevent losing customers, you just have to engage them so well that they won't listen to recommendations.
This happened to me with ClickUp. It's a collaborative work and time management tool, just like Asana, Notion, or Trello. Even though I was asked to try those alternatives as well, I couldn't give up ClickUp, because the colors were just perfect and it was so easy to use...
I hope your customers say the same thing about you as well.
Why Customer Churn is Bad
Yes, churn causes you to lose money. Yes, churn also causes you to lose your valuable customers, and results in unhappy customers talking about their bad experiences, thus, decreasing your social proof.
There is a lot more than churn signs to. For instance:
Churn can tell you which types of customers you can't get along with
I hope you already have your customer personas ready, because if you do, you will know the customer type you don't get along with.
You can group customers with similar needs or similar patterns, and ease the detection of risky customers.
All the indicators I mentioned above had one thing in common: If you can't engage the user from the very start, you will be highly likely to lose them.
That's why an engaging onboarding sequence could save you lots of customers.
Prepare a written manual, but I don't recommend this one since it's outdated.
Create a video, which could end up being very expensive unless you record it yourself.
Create a step-by-step interactive onboarding, but it can be very time-taking unless you use a third-party digital adoption platform.
Here is what a good onboarding looks like:
2- Provide A Roadmap That Guarantees End-User Success
Let's say that you go to a concert of a group that you don't know. You don't know how long it is going to take, you like but don't love the first song, and it takes ages for them to start a new song once the first ends.
How long would you stay in the concert area?
I would probably leave very early. But what if the later stages are better?
If you want your users to have patience with your product, you have to tell them every single detail about how their customer journey is going to be.
You should tell them how long it will going to take to see results, you should have them complete certain things for them to get the best out of your product...
And there is an easy way to do this: Checklists.
Let me show you rather than tell you:
3- Segmentate Your Customers And Create User Personas
As I mentioned above, segmenting your customers and creating user personas will make it easier to trach recurring patterns and work on them.
You could segmentate your customers according to:
Certain features last used,
Duration of the sales process,
The last time reached out
And so on.
For example, if people who don't log in for a month churn a lot, you can start reaching out to people after inactive days of 20 and keep them within your loop.
4- Collect Valuable Feedback And Learn Your Key Drivers
It is as important to know why people retain as to know why they churn. Ask your customers:
What features do they like most?
What is the main reason they preferred you?
What would be a dealbreaker for them?
These questions, along with your satisfaction score, will help you improve your strengths as well as your weaknesses.
5- Keep An Eye On The Positive And Negative Customer Attributes
This step is actually a combination of step 3 and step 4.
Looking at your strengths and weaknesses simultaneously could reveal some patterns as well. For instance, is there something that keeps some customers loyal, but at the same time makes some run away?
If there is, then you should reevaluate your product market fit, and talk to more customers about their thoughts.
6- Analyze Churn Along With Retention
As you may guess by far, analyzing churn alone won't get you far.
Instead, see retention reasons, retention rates, and retention-related tactics as well to figure out how you can reduce churn.
7- Provide Excellent Customer Service Rather Than Bugging Mails And Calls
Even grocery stores don't have employees anymore. Because humans find human interaction and feeling watched annoying.
The same goes for SaaS products. Let the customers explore the product on their own. Drive them to the product, guide them with automated bots, and let them be - unless they ask for support.
8- Provide RewardsTo Your Loyal Customer Base
Loyalty programs aren't a must, but they definitely help in building a loyal customer base.