Gone are the days when customers didn’t have many options. Today, with hundreds of choices available to them in every niche, saying goodbye to a business is as easy as clicking on the “Cancel subscription” button.
This is especially true for SaaS businesses and models that revolve around recurring revenue pricing.
So, how should you deal with this customer churn problem?
Should you start looking for new customers right when someone leaves your platform, or should you put all your forces into analyzing what is causing this churn and how you can prevent it in the future?
If you’re betting on the latter option, we’re with you. As a SaaS SEO agency, we work with many SaaS companies and are constantly looking for strategies that help these companies reduce churn.
That’s what we bring to the table with this guide.
What We'll Cover:
What is Customer Churn?
Customer churn happens when customers previously associated with your business unsubscribe to your service or stop using your products.
You calculate this churn rate for a fixed time period. For example, if you had 20 customers at the beginning of the month and lost five customers, your churn rate comes to be 25% at the end of the month.
The higher the customer churn rate, the more customers you lose every month or year. While some churn is inevitable, businesses must work to minimize it as much as possible.
There could be many reasons for customer churn. For example, users’ requirements may have changed, or they could not afford the price. If you can understand the reasons behind the churn, this could be a valuable metric to help you improve your product or service and reduce future churn.
Why does Churn Matter?
Many businesses assume that customer churn rate only affects your revenue. For example, if ten customers leave and they pay $20 a month, your revenue is impacted by $200.
But there’s a hidden cost here that most companies miss out on.
It’s those additional bucks that you need to spend to acquire ten more customers to stabilize your revenue.
Your ultimate cost will be more than just the $200 you lose.
Research by Forrester proves the same. It costs five times more to acquire a new customer than to retain an existing one.
In fact, when you increase customer retention rates by 5%, it could lead to a 25-95% increase in profits.
That’s not all! Suppose you constantly bring in new products or new upselling initiatives. In that case, research says that the probability of selling to an existing customer is 60-70%, whereas it is only 5-20% when selling to a new prospect.
All these points suggest that paying attention to churn and making strategies to reduce it is crucial.
What causes Customer Churn?
There could be many reasons a customer opts out of your product or service. Here are four major ones:
1. Price
Price is a common reason many customer success managers and salespeople often hear when they ask a customer about their decision to leave.
This could happen because of three reasons:
- A customer may have found a cost-effective solution or a solution that provides much more features or functionality at the same price.
- They may have a budget crunch and thus may have to pause their subscription.
- They are not finding much value against their investment in your business.
One way to solve these issues is by providing a good onboarding process and establishing value earlier, so the customer feels the purchase is worth the investment.
2. Product/Market Fit
Poor product/market fit can lead to customers not realizing if the product is indeed valuable for them. This also happens because there may be a need for close customer service and sales alignment.
For example, you provide a monthly quota that your sales team must meet. To fulfill this quota, they sell to customers that aren’t a good fit. These customers then end up realizing that they won’t be able to achieve their goals with your solution. The result is customer churn a few months down the line.
3. User Experience
If the user experience with your product or software isn’t up to the mark, they will abandon it. The reason could be bugs, glitches, or poor UX and UI.
This happened with HP in 2011 when it released the Touchpad with a huge event and expensive advertising. Many customers realized HP had rushed its release because the product had a poor operating system and many bugs. Stores soon had excess inventory and found it difficult to sell the product. Prices were slashed, and soon the company had to discontinue the product, facing a loss of hundreds of millions of dollars.
4. Customer Experience
According to a survey by PwC, 1 in 3 customers leave a brand they love after just one bad experience, while 92% completely abandon a company after two to three negative interactions.
Customer experience is one of the most important aspects that can make or break a deal. This could mean the kind of service your support team provides, the speed of your query resolution, the content your marketing team provides, and so on.
The more positive experiences you create for your customers along the journey, the lower your customer churn rate.
Now that we know the causes of churn, let’s find out the different types of customer churn that you should be tracking.
Types of Customer Churn
Below are seven types of customer churn that are seen across industries:
1. Revenue Churn
You need to keep an eye on your revenue along with the number of customers you’re losing. Revenue churn shows exactly that.
It’s the amount of revenue that your business loses in a particular period. There are two ways it can happen:
- You lose customers and thus the revenue they were bringing to your business
- You see many customers downgrading to cheaper plans or utilizing cheaper versions of your product and thus losing out on revenue. While these customers are still associated with your business, they are spending lesser money than before.
It is calculated using this formula:
2. Competitor Intervention
With every niche becoming more competitive, this kind of churn is inevitable. Competitor intervention includes customers leaving your company for competitor brands.
You should also include your indirect competition while looking for this data. For example, someone may be managing their project data in Google Sheets, but with the emergence of project management tools like Asana, they may shift.
While you can’t stop this kind of churn, it’s important to find out the reasons for their leaving. Is it because your business is lacking in some areas? Or does the competitor offer more features?
By doing this, you can focus your efforts on those customers that you’ll be able to serve well instead of those who will leave anyway.
3. Unsuccessful Onboarding
For many businesses, a major part of customer churn happens in the initial period. This is because customers are faced with a poor onboarding process, and they don’t know how to use the product properly.
So, they go on to unsubscribe.
While many companies won’t need an onboarding process or directions (like a packet of chips) but if customers invest hundreds of dollars in a software product, they’ll expect to see their investment paying off.
In fact, 86% of customers say that they’d remain loyal if onboarding and continuous education were provided.
If you can’t afford a dedicated onboarding team, you can have detailed in-app guides and walkthroughs to make the learning curve easier for customers.
4. Desired Feature and Functionality
Most customers today want personalized experiences, even in the products and SaaS tools they utilize.
This kind of churn can happen in two ways:
- A customer may want a new feature or functionality in your tool. They may ask you for it, but you might feel it’s not required. In this case, a customer may go looking for that feature somewhere.
- You may have rolled out a new feature or product that seems irrelevant to your existing customer. They may think that your brand is going in a different direction and may choose to leave.
While this kind of churn isn’t bad per se if you’re sure about the direction your product is going, you may need to monitor it regularly so the customer churn rate doesn’t go too high.
5. Company Closure
If you’re dealing with B2B businesses, your client company can shut down operations or merge with another company.
These scenarios are unavoidable, and you can’t do anything about it. This is where your customer acquisition strategy comes into play. You have no choice but to replace these customers and try to find new ones that would benefit from your product or service.
6. Unappreciated Brand Values
Similar to product/market fit, some customers may not fit with your brand values.
For example, if you’re a green brand that focuses on environmentally sustainable packaging or other solutions, your price may go a little high because of that.
You may come across people who don’t value this and are only concerned about the price. In such a scenario, even if you onboard these people, they will leave as soon as they find a cheaper alternative.
It becomes important to be clear about your vision and get in touch with your loyal customers to see if the vision aligns with the brand values.
7. Plateaued Growth
As your company grows, you may reach a stage where your customer base increases; you increase your employee base and offer more products or services that cater to a wide audience.
This growth is great, but you may make certain changes at this stage which can lead to customer churn.
For example, you may increase the price of your basic plan by adding more features. Some customers love this addition and would be willing to pay a higher price. But there will be customers who want to stick to the original price.
These customers would start looking for options and shift when they find a lower-priced alternative.
While this would lead to customer churn, you also replace these customers with new ones willing to pay a higher price.
15 Strategies to Reduce Customer Churn
Now that you know about the types and causes of customer churn, it’s time to leave your worries behind, for we bring 15 effective and doable strategies to help reduce customer churn in your business.
#1 Evaluate why Churn occurred
Would your doctor give you medicines before understanding your disease or illness? No, right?
Without understanding the reason behind the churn, you won’t be able to deal with it effectively.
There are three ways you can evaluate why churn occurs:
- Send the customer an exit-intent survey
- Call the customer
- Send a personalized email
While the other two strategies are effective, calling your customer or conducting exit interviews is the best course of action.
It shows your customers that you care. A study points out that 68% of customers leave a business if they think the company doesn’t care for them.
Moreover, you can dig deep, ask relevant questions about what went wrong, and figure out how to make amends.
If you do not have the bandwidth or resources to conduct these interviews, here’s a case study on how Groove grew its customer exit survey responses by 785%.
#2 Ask for Customer Feedback
Did you know that only 1 in 26 unhappy customers complain? The rest just churn.
That’s a shocking statistic. But it makes us realize an important thing. If you prioritize proactive customer service and find out the things that make them happy/unhappy, you can impact your customer churn rate a lot.
You can either email your customer feedback surveys or place a review section or pop-up on your app or website so that whenever a customer feels something is not working, they can get to you quickly.
Here’s how Skype shares a customer feedback form right after the call.
The best part about this form is that they have just three questions, and the user can easily select options instead of typing everything out. They also have a text box in case the customer wants to talk in detail about something.
These kinds of forms show the customer that you value their opinion and you’re constantly working to improve your product/service.
#3 Engage with Customers
People love to stay connected with brands that make them feel special or provide consistent engagement in terms of content updates, relevant how-to tutorials about the product, offers and deals, or other promotional messages.
How should you craft an engagement plan?
One way is by creating engagement emails or content for each stage of the sales funnel. For example, if a customer subscribed to the free trial, you can start sending them emails about how they can use the product.
This customer journey will give you the insights you need to target the right content at the right place and time.
It’s important to note that customer engagement shouldn’t be limited to emails and blogs. You can even include your social media to stay connected with your customers and provide valuable experiences where they are most active.
For example, here’s how Canva creates excitement around its new feature updates on social media.
#4 Identify your Weaknesses
When you think your business is perfect, you miss many opportunities to improve. To identify your weaknesses, you need to listen to the complaints your customers are making or those negative reviews about your business on different sites or social media.
For example, there’s an interesting story about Instagram’s journey. In 2009, Kevin Systrom launched Burbn. The app allowed users to check in at particular locations, plan for future check-ins, get points for hanging out with friends, and post pictures of meet-ups.
The app wasn’t successful. Users found it too complicated. So, another programmer, Mike Krieger, was brought into the picture, and together they realized that people didn’t like the check-in features. But they were sharing photos like crazy.
So, they scrapped everything else and focused on what users loved. In just a few months, Burbn was re-branded as Instagram. It became a simple photo-sharing app with four functionalities: photos, comments, likes, and filters.
By identifying what users didn’t love, Instagram today has become one of the most popular social media platforms, with 1.2 billion monthly active users.
#5 Segment your Customers
70% of customers say their loyalty is impacted by how well a company understands their individual needs.
By segmenting your customers into different categories, you can target each segment effectively by providing content that is tailored to them. This also helps you discover those segments that are churning too frequently, and you can then strategize for the same.
You can create segments based on any of these:
For example, look at how ULTATEL has segmented articles on its blog according to the different needs of its segments.
#6 Offer Incentives
You can offer your customers incentives to stick around through discounts, promo offers, or access to loyalty programs and their subsequent privileges.
This can show your existing customers that you value them, and you can convert those customers about to switch to competitors.
You should also calculate if offering an incentive is beneficial for your business. For example, if a customer is not going to bring substantial revenue in the future, it wouldn’t make sense to offer them discounts and retain them.
Another thing that you should consider while offering incentives is their needs. For example, Baremetrics observed that some customers were ready to cancel due to a lack of features.
They implemented a strategy to deal with these customers. They would offer a discount on their next month of service while the team developed the features they were looking for.
This helped them save 15% of the accounts that were about to cancel.
#7 Give Better Service
Poor customer service is the third leading cause of customer churn in most companies.
Not only will these customers churn, but while on their way out the metaphorical door, they might share their bad experiences with many others who would avoid doing business with you.
And what’s more? These experiences do not have to be too bad. Sometimes, an even average experience could have the same result.
The only way out is to provide top-notch customer service to your clients.
Here are three examples of great customer service:
- Your service reps should have all the required knowledge to solve your user’s problem.
- Offer chat support to your customers so they don’t have to wait for an email or a meeting with your support team.
- Have a self-service knowledge base so users can find the information they want instantaneously without having to contact your support team.
Below are some things you can have your customer service team adopt to serve clients better and improve customer lifetime value.
#8 Know who is at risk
The best way to avoid churn is by proactively finding out the customers that are about to leave and then preventing it from happening.
By identifying these customers, you can reach out to them in time and make them stay.
But how to identify at-risk customers?
It’s not that complicated. For example, you might notice that a few customers have stopped using your tool, or their usage has significantly decreased. Or they contacted your support team a few weeks ago, but there has been no communication or follow-up since then.
Noticing these behaviors is crucial as you can find patterns likely to cause churn. You can then make your team aware of the same and become proactive in reducing churn.
One more way businesses use is to send out NPS surveys to their customers periodically. By analyzing the scores, you can find out those customers that are dissatisfied with your service and may leave soon.
#9 Define your most valuable customers
No business wants to lose out on an enterprise-level customer that brings in thousands of dollars of revenue every month.
This is why segmenting your most valuable customers is so important.
Not only does it help you maintain profitability but going the extra mile for these customers makes them stay connected with you in the long run.
Here are three ways to reduce churn for your most valuable customers:
- Go above and beyond your normal service. For example, send customers personalized content they can implement with your tool and achieve success.
- Maintain a regular communication schedule. Stay in touch with these customers to see how they are doing with your product and if they need assistance.
- Consider adopting a loyalty or reward program for your most valuable and loyal customers. Here’s how you can create one.
#10 Simplify the onboarding process
A 15% improvement in user retention in the first-week compounds into almost twice the number of retained users after ten weeks.
Add to that the statistic that 40-60% of free trial users use the app only once and never return, and you realize that the customer onboarding process is a crucial step to retaining your users and improving customer satisfaction.
A great onboarding process also helps the customers reach that “Aha!” moment (your product’s core benefit/value) as quickly as possible.
Here are some great user onboarding best practices that you can adopt today:
- Use tooltips within your app so users can learn as they go. Here’s how Slack does it.
- Break things down. Instead of overwhelming your customers, keep things simple. Here’s how Dropbox does that.
Instead of asking the users to upload all their files, the prompt starts by asking to add just one file.
- Personalize the onboarding journey for your customers. You can do that by asking simple questions about the customer’s goals for subscribing to your product. Here’s how Wistia does the same.
#11 Actively market your product
Should your marketing team heave a sigh of relief once they onboard a customer?
Great companies do the opposite. They actively market their product and business to existing customers to retain them.
You could do that by providing them with relevant content, reminding them of the new features or functionalities you’re adding to the tool, the product upgrades that are in process, the different upselling options they have, and why they are beneficial to the customer, and so on.
By keeping them in the loop and constantly engaging with them, you can build a rapport and get them involved with your brand, thus reducing your customer churn rate.
Here’s how a personal note from the CEO in Flow’s product plan update makes the email more impactful and personalized.
#12 Promote long-term contracts
Your monthly subscriptions may make the most of your SaaS company accounts, but nothing beats annual subscriptions when it comes to retention.
Data from Profitwell proves the same. It shows that companies that have a higher percentage of annual contracts show significantly low customer churn rates.
This low customer churn rate could be because a customer has to make comparatively lesser purchasing decisions (1 in 12 months) than a monthly subscriber. The longer time frame also increases the probability of your product becoming a part of the customer’s everyday life.
You can offer discounts on annual subscriptions to encourage existing customers to opt for those plans over monthly ones. Ahrefs does the same by providing two months free with their yearly subscription.
If you’re upselling annual plans, make sure that the customer already has some experience with your product and has gained some value. Otherwise, it wouldn’t land well with your customers.
#13 Stay competitive
We are living in a world that is constantly changing and bringing in new trends, developments, and technologies.
To stay abreast of the competition, you should constantly stay updated and keep improving your product/service.
Here are four things you can do to stay competitive:
- Observe your competitors on social media. Do they reply to comments? What kind of posts are getting them the most attention?
- Do they have a live chat enabled on their website?
- What kind of content are they creating?
- Which kind of product features are they coming up with? Do you have plans to create any similar functionalities?
Seeing what your competitors are changing and coming up with can help you get inspired and better serve customers to retain them.
#14 Re-engage inactive customers
Your inactive customers will likely churn sooner than later. To bring them back, you can use re-engagement emails that remind them of the value of your product/service and reduce the chances of customer churn.
Here’s how Asana uses them.
Why is this a great example?
- It talks about a new feature that Asana has created for its users
- It highlights the improvements on the project management platform since the customer last used it.
Both these reasons give inactive users the incentive to return, and they are assured that the platform will keep improving at the same pace in the foreseeable future.
You can also offer an incentive like a discount to encourage action.
#15 Create a community around your customers
People like to stay loyal to brands that make them feel like they are part of a community. For example, with the hashtag #ShotoniPhone, Apple has created a community of iPhone users that like showcasing their photography skills.
Similarly, you can create Facebook groups or any online communities that help customers engage with each other and derive value from this network.
By creating this community, you always keep the brand in front of their minds and reduce the probability of customers leaving if something goes wrong.
One SaaS company that has made this possible is Adobe Photoshop which promotes its hashtag #MadeWithPhotoshop on its social profiles and also goes on to share the best creations on its page.
Final Thoughts
Churn takes a heavy toll on your business, whether it’s lost revenue or increased costs of finding new customers.
One surefire way to reduce your customer churn rate is by improving customer service and treating your customers well so that they may even become advocates for your brand and bring in referrals and more revenue.
With these 15 strategies, you’re all set to bounce back and keep your customers happily glued to your product/business.
If you need help creating content that helps you increase customer loyalty and reduce churn, get in touch with our experts at MADX.
