SaaS companies have the potential to experience exponential growth with the ability to access a theoretically unlimited number of customers. Your customers can be anywhere in the world and can sign up to your software on a low-touch model so you don’t even have to engage in a sales process.
One factor that inhibits this ideal outcome is SaaS customer churn. When you’re spending all your efforts in acquiring lots of customers to use your software, and existing customers are rapidly canceling their subscription, you’ll find that your efforts can go to waste.
There are several mistakes to avoid when minimizing customer churn and keeping control of your customer base.
What is SaaS Churn and Why is it Important?
SaaS churn is the percentage rate of existing customers that cancel their recurring revenue subscription within a given time frame. It’s the number of customers who decide that they don’t want to pay for your product anymore, for various reasons.
Understanding churn is critical because it represents a loss of revenue for your company, not to mention the loss of the acquisition cost that you spent to attract that customer in the first place.
Monitoring churn is a must for any subscription-based business because you’re always having to balance out the natural churn with the acquisition of new customers. When your customers cancel you’ve lost the opportunity to earn even more revenue from potential upsells and cross-sells.
Even worse, churned customers may spread negative reviews about your business, either online or with friends and family. When customers leave, they may feel that you’ve failed them in some way and might never consider returning to your business.
Top SaaS Churn Mistakes to Avoid
Not tracking churn
Tracking your churn rate effectively is the first step towards managing it. If you track your churn rate over time you’ll be able to see when it rises and falls, and be alerted to when you need to take corrective action. A natural churn rate for a SaaS business should be between 5-7%, and anything higher than that is a cause for concern.
You can measure churn by tracking SaaS customer churn. The formula for this measurement is Churned customers/total customers X 100. Here’s a hypothetical scenario:
- You might have 100 customers at the beginning of the month.
- Ten of them cancel by the end of the month.
- Your churn rate is 10/100=0.10, or 10% customer churn.
Failing to offer support
In order to maintain the ongoing relationship with your subscription customers, you need to provide top-level customer support that helps them solve their problems. Ideally you need to provide a round-the-clock support team who can answer questions from frustrated customers to prevent them from churning while they wait.
If your business can’t help customers with their issues then they’re much more likely to cancel their subscription because they’ll feel like your business isn’t holding up your end of the deal. Whether it’s through email, phone or live chat, your customers need to have a direct line to your support team to stop them from churning.
Being unclear about pricing
When customers sign up to your product, they need to know exactly what they’re paying for – whether that’s a usage policy or number of seats. Making vague claims about pricing that lead your customers up the garden path is one of the fastest ways to earn a high churn rate.
Equally, regularly increasing the fees that customers are required to pay can lead to more churn. Excessively expensive pricing can turn customers off, as equally does low pricing which can make your product seem like it isn’t worth much. It’s crucial to strike a balance with pricing to make sure it’s something customers are happy with and can afford to pay.
Not finding out the reason for churn
If customers churn from your product, you need to conduct a short exit survey to find out why they are leaving. If you don’t identify their reason for churn, then you won’t be able to stop other customers churning for the same reason. It’s a missed opportunity if you just let customers leave without saying anything.
Of course, if a customer has made up their mind to leave then there’s very little you can do to persuade them to stay, but it’s essential to find out what didn’t live up to their expectations. Perhaps they experienced bugs in the product or it lacked features that would help them solve a business problem.
Being too reactive rather than proactive
Customer support is a reactive process, because your agents wait around to receive tickets from your customer base. Customer success, on the other hand, is the function of your business that is proactively concerned with reducing churn. If you don’t develop your customer success team, then your business is being too reactive when it comes to your customers.
In order to combat churn you need to take proactive steps to find out why customers might be thinking of canceling, before they hit cancel and it’s too late. Customer success managers (CSMs) are empowered to intervene with customers using appropriate software like Churn360.
Making it difficult to cancel
When a customer has made up their mind to churn, they don’t appreciate being led through a maze of options before they can cancel their account. Not only will this put them in a bad mood, but it will make them less likely to consider your product again in the future. You should make it as easy as possible to end their subscription without being penalized.
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Customers canceling their subscription should be allowed to exit as gracefully as possible, since it looks like your company is a little desperate if you try to stop them. Ideally, customers should be able to cancel without having to reach out to your support team – it should be as easy as it was to sign up.
Not following up with churned customers
After customers have hit the cancellation button, that doesn’t mean you can never speak to them again. You’ll need to follow up with them to find out why they made that decision, and if there’s anything you can do to win them back. If you find out the reason for churn, maybe you can get to the root of the issue and prevent more customers from leaving.
Often customers will churn from your business but still be open to hearing messages about your company and its products. Perhaps you may release new software features that will bring customers to the decision that the product is now right for them.
Rising customer churn is a nightmare for SaaS businesses. Customers leaving your business in droves has a negative impact on recurring revenue and puts the business’s long-term survival at risk. Paying attention to the early warning signs of churn before it’s too late is one of the best ways to keep churn under control.
Some level of churn is inevitable as customer needs will always change and evolve. Nevertheless, the more customers you can retain as time goes on, the better for your business.