Reducing Churn – The Silent SaaS Killer

by Carmen Apostu
Blog Post

There’s a SaaS killer on the loose and often, it operates silently…

Churn – when customers hit “cancel” and decide to leave your app is to be expected to some degree, as long as you’re able to keep it relatively low. If you can’t, you develop a “leakage” problem meaning that all your efforts to market and sign on new customers may go to waste.

Sometimes there’s no indication that churn is coming and the customer cancels without ever raising any issues with you, hence the “silent” part. However, there are usually signs, even before that silent customer cancels.

How can you reduce churn? Let’s take a closer look:

What is “acceptable” churn?

This is a question that gets dissected often by various SaaS experts. Lincoln Murphy talks about “acceptable churn rate” on his Sixteen Ventures blog. Here’s a quick extract:

Bessemer Venture Partners says an acceptable churn rate is in the 5 – 7% range ANNUALLY, depending upon whether you measure customers or revenue.

And BVP’s assertion is backed up by Pacific Crest in their Private SaaS Company Survey Results that show roughly 70% of SaaS companies in their survey had annual churn in the < 10% range, with 75% of those at 5% or under.

The way I read the results of Pacific Crest’s survey is that 30% of SaaS providers surveyed have an unacceptable level of churn.”

Less than 10% annually seems to be a commonly agreed measure, with most aiming for less than 5%. A common mistake that SaaS often make is in calculating monthly churn and thinking they’re doing well if they’ve got 2% churn for the month. If this number were to consistently play out across the year, you’re looking at something like 20% annual rate which is huge, so make sure you’re looking at the right numbers.

Why do customers leave?

There could be any number of reasons why a customer decides to hit that “cancel” button, but here are a few of the most common:

  • They’ve had a poor customer service experience. In the world of a SaaS, that doesn’t necessarily mean they talked to someone directly, it might mean they tried to find help for something and couldn’t find what they needed.
  • They have a poor onboarding experience and don’t achieve what they’d like to with your app. “Customer success” is one way of looking at this, where the customer needs to achieve their desired outcome within a certain period of time.
  • They tried your software but it just wasn’t for them (you can expect some of these – not everyone who signs up will be your ideal customer).
  • They have personal reasons such as going out of business or not needing your software anymore.

Those first three reasons you may be able to do something about if you can recognize a few signs that churn might be coming.

Signs churn might be coming

  • Payment issues. These can include missing payments or the fact that the credit card on file is due to expire shortly and hasn’t been updated.
  • The customer doesn’t seem to be engaged with your product. Signs might include things like a reduction in logins or, where they are logging in, perhaps they’re not making full use of the product.
  • The customer complains or puts in a lot of help tickets. These are “not so silent” signs that the customer is unhappy with something.
  • The customer isn’t getting feature requests they ask for. This is not to say that you should be making every new feature requested, but you’ll usually find that there will be some common requests from customers. It pays to strike a balance, listen to customers and prioritize based on need.

Ways to reduce churn

We know life at a SaaS can be busy and that you’re often trying to juggle many different tasks on the path to growth, but incorporating strategies to reduce churn among the customers you’ve worked so hard to signup just makes sense. Keep your churn rate low and your real rate of growth has a chance to improve.

Here are a few strategies to reduce churn:

Engage with your customers

In the end, your customers — and solving a particular problem they have — are the basis of the entire SaaS product. When customers don’t feel appreciated or that they have a connection with your company, it makes it much easier for them to cancel without a second thought.

Keep up regular communication with customers and engage them from the very beginning. For example, Groove found that by segmenting their customers and sending out communications that were relevant to the different groups, they boosted engagement and reduced churn. They were able to capture the attention of a group of new users who previously, would usually churn early.

Below is an example of the email they sent out to users who didn’t complete the onboarding process:

Source: Kissmetrics

Optimize (and keep improving) the whole experience

There’s a lot of focus on the onboarding experience for SaaS, which is fair enough because it’s important to get new customers up and running and seeing results from using your software. What about customers who have already been through onboarding though?

Among those customers, there will still be those who end up canceling and it’s important to ensure that their experience is optimized too.

This can be as simple as ensuring that bugs are fixed quickly and that regular updates are made to keep the app running smoothly. You should also ensure that part of your engagement with those customers involves asking them for feedback, then showing that you listen to that feedback.

For example, you might try having a section on your website or in a forum which outlines features that you are working on and gives users the option to vote for what they want or offer suggestions.

Use pre-dunning software

Remember how issues with payment is a common reason for customer churn? The useful thing about a recurring payment model is that you have data right in front of you to suggest when this issue might be coming up.

Dunning is where a payment has already declined and you’re trying to get the customer to update their credit card details. There is software available which will automatically deal with this, as well as pre-dunning (sending out an email to the customer reminding them that their credit card is about to expire and that they’ll need to update their information). Investing in these types of software to handle payment issues automatically can have a huge impact on the bottom line of your SaaS.

Prioritize customer support

We tend to be an impatient lot. When a SaaS user has an issue, they want to be able to find how to take care of it and access help as quickly as possible. For SaaS, this means that implementing superior customer support should be a priority.

Make sure your help and support options are noticeable and easily accessible. Survey your customers to find out what their preferences are and make sure you’re delivering their preferred support methods. Remember, there will be some people for whom going through automated responses is just a pain – all they want to do is talk to a representative (even via a chat app), so make sure you have human operators available!

Final thoughts

Churn can be an absolute killer for SaaS – there are many who have succumbed and ended up closing their app in the last few years.

Assuming that you have a great product, putting some strategies in place to keep churn in check will serve you well. It’s amazing how sometimes a simple act like using dunning software can add a significant chunk to your bottom line.

Start by baselining your own churn rate then watch what happens when you actively work to prevent churn. Measure results, optimize your strategies and hopefully, see your churn rate reduce.

Koombea helps SaaS to create beautiful, engaging apps. Talk to us about how we can help you today.

 

by Carmen Apostu
Blog Post