If you’re running a SaaS business, there's a good chance churn is keeping you awake at night. Customers may stop using your product for reasons beyond your control, but you still need a plan in place to reduce churn.
First, a quick overview of churn.
Churn happens when a customer no longer subscribes to your product or service. It’s typically measured as a churn rate (simply divide the total number of customers lost by your total number of customers). It’s the best representation of how your business is doing with keeping customers by your side.
Churn comes in many different flavors:
Voluntary Churn – a customer actively chose to cancel their subscription.Involuntary Churn – this happens indirectly, a result of a passive action by a customer.
Happy Churn – a customer finished using your product for the purpose they intended, and the original challenge they were experiencing is resolved
The more intel you have on your customers and what makes them tick (and churn), the more likely your business will grow. Unlike traditional ecommerce KPIs, subscription metrics are centered around recurring revenue.
So in the case of a customer that left due to happy churn, you will need to spend the same level of energy and resources winning them back as you might if they churned voluntarily or involuntarily. Right? Not necessarily.
In fact, customers that leave due to this reason can provide huge advantages to your SaaS company:
It’s best to keep these relationships alive and to look for engagement opportunities so these former customers stay current on the direction of your product. They could become one of your strongest brand advocates.
Although losing a customer here or there may seem insignificant, this loss can impact your business significantly, from revenue and reduced profitability to greater acquisition costs.
So how can you protect your investment? There is behavior you can watch for to detect customers at risk of canceling.
Is their contract coming up for renewal? Customers are more likely to churn when faced with a renewal decision.
Are they paying their bills on time? This is an indicator of the customer’s financial health.
Are they engaged with your product by making it part of their daily workflow? Are they referring other customers? These are two strong signs that churning away is unlikely.
It’s easy to identify customers based on their likelihood to leave and then offer incentives to retain them. But this thinking is flawed.
Just because a customer is likely to churn doesn’t mean it’s worth your time and investment to prevent it as not all customers are equally important to your company. Companies often fail to take into account whether a customer creates any substantial revenue, as well as their likelihood of responding to an offer to stay.
According to Gartner, 80 percent of a company’s future revenue comes from just 20 percent of its existing customers. These are your most valuable customers and must be cared for.
Once you’ve identified your most valuable customers, keep them satisfied using the following tactics:
When all is said and done, churn is churn and your customers are no longer paying you. But there are tactics you can use to identify your most valuable customers and ensure they are getting the benefits that drove them to sign up in the first place.
Learn more about our Subscription Management Tools that make it even easier to fight churn and increase renewal rates.