If you are running a SaaS business, then you know that retaining customers is key to your success. Losing customers can be costly, now in the future, so you must do everything you can to keep them around. One way to do this is by implementing churn management practices.
Churn management is the process of reducing the number of customers who stop doing business with your company. This article will discuss churn management and, more importantly, how to reduce your churn.
Churn management is implementing deliberate practices to reduce (you can never eliminate) customer churn or voluntary defections from a product.
To reduce customer churn, managers must first identify the root causes of why customers are leaving. Common reasons for Churn include:
Bad overall CX
Poor customer service
Confusing or high pricing
Lack of features
Sub-optimal feature usage
Once the root causes have been identified, managers can implement specific churn management tactics to address them.
For example, if customers leave due to poor onboarding, product managers can look at better systems for onboarding customers such as videos, wizards, automated explainers, templates, or feature playbooks. And then encourage and reward the optimal behaviors over the sub-optimal ones.
Churn is the rate at which customers stop doing business with a company. In other words, it's the percentage of customers who cancel their subscription or service within a given period.
There’s even a formula for calculating it:
(Lost Customers ÷ Total Customers at the Start of Time Period) x 100.
For example, if your business had 1000 customers at the beginning of the month and lost 30 customers by the end, you would divide 30 by 100. The answer is 3%
Customer churn affects immediate revenue from a hard-won customer and future lifetime value, lost referrals, and lost revenue expansion opportunities. Churn is essential for businesses to track because it can help them identify problems early on and take steps to prevent customers from leaving. It can also be a useful metric for comparing different companies or services. For example, a company with a lower churn rate may be doing something right that its competitors are not.
While churn is never ideal, it's important to remember that some churn is inevitable. Even the best companies will have some customers who cancel their service for one reason or another. The important thing is to keep Churn as low as possible so your business can continue growing.
Churn is the process of customers leaving a service or company. There are different types of Churn, each with its unique cause and effect.
The first type of Churn is active, which occurs when customers cancel their subscription or service. Active Churn can damage a company because it represents a direct loss of revenue. Additionally, active Churn can also hurt customer satisfaction and retention rates.
The second type of Churn is involuntary Churn, which occurs when customers are removed from service due to non-payment. Involuntary Churn is often seen as less damaging than active Churn because customers can reactivate later. However, involuntary Churn can still lead to customer dissatisfaction and an overall decline in service quality.
Lastly, there is hidden Churn, which refers to customers who do not use a service or product as intended. Hidden Churn can be difficult to detect, but it can significantly impact company performance. Regular customer interviews on product usage and/or software to help track which features correlate with conversions can help reduce hidden churn.
By understanding the different types of Churn, companies can develop strategies to reduce their occurrence.
Here in late 2022, many economists think we are headed for recession. In a recession, acquiring new customers is harder, so SaaS companies need to look at retaining existing customers and getting referrals and expansion revenue from them by practicing deliberate churn management tactics.
High churn rates are definitely associated with lower revenue and by extension, lower customer lifetime value (LTV). In the extreme, Imagine signing one million customers and then losing one million. Companies cannot gain growth if people leave their products more quickly than they replace them.
These issues can be particularly challenging for companies with SaaS business models, which tend to favor subscriptions over upfront revenue models. When revenue is spread out over time, churn management strategies must be implemented to keep customers renewing for as long as possible.
Company efforts to reduce churn should be as important as those aimed at growth. Here are some ways SaaS companies can reduce churn.
The first and easiest approach to keep customers close to you. Bad customer experience is the major culprit of customer churn. Every employee needs to understand they are part of CX. Everyone needs to be customer focused and have a 'see something tell someone' approach to fixing problems across the organization. From hiring to customer onboarding to support and product upgrades, the entire company is the CX.
Good CX can help keep customers happy and engaged with your product and lead to more referrals and positive online reviews. Furthermore, CX can help you to identify potential problems before they result in customers canceling their subscriptions.
In today's highly competitive market, word-of-mouth is more important than ever, especially with the advent of review sites like G2 and TrustPilot.
Consumer companies such as Starbucks and Walgreens use these programs to great effect daily. SaaS companies should use loyalty programs to reward positive brand behavoir and product usage that encourages retention.
These programs offer incentives for customers to continue doing business with the company, such as points that can be redeemed for upgrades or free features and services. Loyalty programs can also help SaaS companies target specific customers who may be at risk of leaving and offer them customized incentives to stay. This helps keep customers engaged, extending lifetime value and increasing opportunities for expansion revenue.
Whatever your retention tactics are, they may be wasted if you target an incorrect group of clients. Conversions are another way of looking at churn. If you offer a ‘freemium’ version of your offer, those that stay and upgrade are your conversions. By targeting the right users for your product upfront, you’ll onboard a healthier group of clients before they convert.
Know who is at risk
Customer KPIs can be set up, and accounts monitored and flagged for certain behaviors that correlate with churn.
The most obvious place to start are customers who are no longer using the product. If usage has declined significantly, it may be a sign that the customer is no longer getting value from the service.
Another indicator of risk is changes in billing contact. If the primary point of contact for billing has changed, it may be a sign that the company is going through a re-organization or that they are unhappy with the service.
Finally, increases in support requests can also be a sign that customers are struggling to use the product. If support requests are up, it may indicate that the customer is having difficulty using the product or that they are experiencing technical issues.
It may also be that customers are motivated by the goals your product achieves, but don't how to use the feature set properly to achieve that goal. UX panels, surveys, and software that analyzes profitable feature combinations should be deployed so you can deploy customer 'playbooks' that correlate with the right feature usage.
By monitoring these indicators, SaaS businesses can proactively manage churn and reduce the number of customers who cancel their service.
You definitely don’t want to lose valuable customers. You should have a system in place to identify and reward them.
First, look at how long they have been using your product. For example, if they have been a customer for a year or more, they are more likely to continue using your product.
Second, look at how much they use your product and how they use it. Customers who use your product daily are less likely to churn than those who only use it occasionally. And the features they use are important, too. Look for consistent feature usage from your long-term customers and apply that insight to onboarding other customers.
Finally, look at how engaged they are with your brand. Customers who frequently interact with your brand, give positive feedback and reviews, and refere other customers, should be segmented and rewarded.
Once you've identified your most loyal customers, there are several ways to reward them. First, you can offer them free upgrades to new features or tiers, or early access to new features. You can also give them VIP treatment, such as priority customer support or dedicated account management, a seat on the product advisory, or free passes to company or industry events.
Reducing customer churn should be every business's top priority. After all, it costs five times more to acquire a new customer than to keep an existing one. Thankfully, you can implement a few simple churn management tips to reduce Churn and increase your monthly recurring revenue (MRR).
Churn is a big problem for any business that relies on recurring revenue. If customers stop using your product or service, it can quickly eat into your MRR and jeopardize your long-term growth. That's why it's so important to have a churn management strategy in place.
Here are some effective tips to help you get started:
Churn is different for every business, so it's important to define what it means for your company. Do you have high monthly subscriptions that will adversely impacted by churn. Are you planning a consistent roll-out of new product features that will drive expansion revenue? Do review sites make or break your product category. It will help you track Churn more accurately and effectively target your efforts if you look at the overall impact of churn on MRR now and into the future.
Customer lifetime value (CLV) is the total revenue a customer will generate throughout their relationship with your business. Measuring CLV can help you identify which customers are most valuable to your business and focus your churn prevention efforts accordingly.
The easiest way to reduce this is to focus on acquiring new customers who are less likely to churn. It can be done by reducing customer acquisition costs or increasing the quality of your leads.
Engaged customers are less likely to churn, so focusing on engagement from the start is important. Several ways to increase customer engagement include providing excellent customer service, offering discounts and incentives, and sending personalized communications.
Another way to reduce this is to encourage customers to adopt segment customers based on their risk of churning.
Once you've defined what Churn means for your business, you can start segmenting your customers based on their risk of churning. It will help you focus your churn prevention efforts on the customers most likely to leave.
One of the best ways to identify at-risk customers is to monitor their usage of your product or service. If you see a decline in usage, it's a good indication that the customer is at risk of churning.
Another way to identify at-risk customers is to collect feedback regularly. It can be done through surveys, interviews, or focus groups. If you hear negative feedback, it's a good indication that the customer is unhappy and may be considering leaving.
Once you've identified at-risk customers, you must communicate with them. It can help you identify the root cause of their dissatisfaction and take steps to prevent them from churning.
Once a customer churns, its doesn't mean they won't come back. It's important to have an outreach campaign to reactivate churned customers. If you're able to identify some problems for why they left, you may be able to win them back.
The best way to reduce Churn is to take action to prevent it before it happens. It can be done by segmenting your customers, monitoring their usage, collecting feedback, and communicating with at-risk customers. By taking these steps, you'll be able to reduce Churn and improve your business.
One of the best ways to reduce Churn is to use data from past churners to improve your predictions. By analyzing why customers have left in the past, you'll be able to identify trends and take action to prevent future Churn.
Finally, staying in touch with customers after they cancel is important. It can help you reactivate them if they decide to come back.
Another way to reduce Churn is to offer incentives for customers who remain active. This can help encourage customers to stick with your product or service.
If you have customers at risk of churning, you can offer them discounts or free trials. This can help encourage them to stay with your product or service.
Another way to reduce Churn is to monitor customer satisfaction levels. If you see a decline in satisfaction, it's a good indication that customers are unhappy and may be considering leaving.
A study by Lincoln Murphy indicated an annual turnover rate from under 6% is deemed "acceptable." Knowing your turnover rate helps you identify your brand strengths. Furthermore, this knowledge helps you predict how many clients or subscribers might be declining month after month. It will help you understand the reason for the reason they are considering leaving.
When it comes to reducing customer churn, it's important to measure the success of your strategy to make necessary changes and improvements. There are a few key metrics you should track:
First, track customer attrition rates. This will give you an idea of how well you bring in new customers to offset those leaving.
Second, track customer retention rates. This will show you how effective your churn reduction strategy is and whether or not it's working.
Finally, track customer lifetime value. This metric measures the total value a customer brings to your business throughout their relationship with you.
By tracking these metrics, you'll be able to see how your churn reduction strategy is performing and make necessary adjustments to improve results.
The churn rate is a metric that measures the percentage of customers or subscribers who stop doing business with a company within a given period. It's a key indicator of a company's health, and it can have a major impact on its bottom line. There are two types of customer attrition rates: customer churn and revenue churn rate.
It measures the percentage of customers who leave within a given period. For example, if a company has 100 customers at the beginning of the month and ten customers cancel their subscriptions by the end of the month, the customer churn rate would be 10%.
It measures the percentage of revenue that is lost within a given period. For example, if a company has $100,000 in monthly recurring revenue and loses $1000 worth of business due to cancellations, the revenue churn rate would be 10%.
Customer churn and revenue churn rate are important metrics to track, but they provide different insights into a company's health. The customer churn rate is more focused on growth, while the revenue churn rate is more focused on profitability.
Churn management is critical to any business, but it can be especially challenging for startups and small businesses with subscription models. By understanding what Churn is and how to measure it, you can develop strategies to reduce the number of customers who leave your company. We hope this article has given you some ideas about how to get started with churn management for your business.
Customer loyalty programs are a great way to manage and reduce churn. Talk to us today about implementing a custom customer loyalty program for your offering.