Table Of Contents
- What is a good churn rate?
- How to calculate churn rate
- How to reduce churn
- Improve your customer success efforts
Retaining customers is one of the biggest challenges for SaaS companies. Churn in SaaS customers can seriously stunt your growth. If you’re not watching your customer churn rate closely and aggressively figuring out how to reduce churn in SaaS, you’re asking for trouble.
What Is a Good Churn Rate for SaaS?
Online, you’ll find all sorts of SaaS churn metrics and SaaS churn rate benchmarks, but the consensus is that the average monthly SaaS churn rate is between 3% and 8%. That can produce an annual churn rate of 50% or more yearly.
For a company with 10,000 subscribers, even a modest 5% monthly churn results in a loss of 500 customers. That requires you to add 500 new customers every month just to replace the number of customers that left. Realistically, however, replacing those 500 customers is a net loss because of new customer acquisition costs without any additional monthly recurring revenue.
How to Calculate Churn Rate
To calculate how much churn will cost you monthly, you'll need to know how many customers you have at the start of the month.
For instance, let's say you have 200 customers. If your churn rate is 5%, you'll lose 10 customers in a month (200 * 0.05 = 10).
If each customer is worth $1,000 on average, the cost of churn in a month would be:
Number of churned customers * Average customer value = Churn cost
So, 10 churned customers * $1,000 = $10,000
Therefore, with a 5% churn rate and an average product cost of $1,000, you would lose $10,000 monthly due to churn.
So, keeping the average churn rate as low as possible with a strategic retention marketing plan is crucial to building sustainable growth.
How to Reduce Churn in SaaS
Reducing the B2B SaaS churn requires a specific strategy. The first is the most important: product value.
Demonstrate Product Value
You may get a customer to try your product, but if they don’t see the recurring value, you’ll see your churn grow. So, your product has to be solid and needs to contribute value to the customer immediately.
At the same time, you need to continue reinforcing your value proposition for existing customers. Many companies focus so heavily on acquiring new customers that they take their current customer base for granted. By nurturing and educating your customers about product benefits and uses, you can help them maximize usage. It’s common for customers to use just a fraction of the features built into the software, but it's your job to educate them, highlighting deeper features - resulting in greater value.
This is especially true when you launch new features. You need to make sure existing customers know about product enhancement and how it can benefit their business.
Enable a Robust Onboarding Process
One of the first places you can reinforce value and customer satisfaction is during the initial onboarding. Your customer success and customer service teams play a big role in making customers feel they have made a wise investment and helping them get maximum value out of your platform.
The more comfortable customers feel with your product and use it regularly, the less likely they are to leave. To reduce churn, pay particular attention to the onboarding process. You need to start strong to get customers up to speed and embed your product into their workflow.
Ask for Customer Feedback
Customer feedback will be an important tool to ensure customers are happy. SaaS businesses should regularly measure customer satisfaction to uncover any problems before they lead to churn.
No matter how great your product or price point is, some of your customers will churn. It’s just as important to get feedback from customers that do not renew to find out why. Upon cancellation or non-renewal, you should automatically trigger exit surveys to find out why customers aren’t renewing. This can uncover problems you didn’t know about and provide an opportunity to get them to change their mind.
Actively Seek Warning Signs for Churn
You should also be on the lookout for the warning flags that indicate churn, such as:
- Infrequent platform use = not using your SaaS platform
- Short visit times = not optimizing platform use
- Lack of integration with other systems = not using your platform as part of their workflow
- Long times to complete simple tasks = having difficulty using the software
This is especially important in the crucial 60 days after customers first start using your platform. Even when customers sign up for annual subscriptions, low usage during the early days should get your attention.
Offer Annual Contracts
Moving customers from month-to-month to annual contracts can also help your churn metrics. While customers may still leave at the end of a contract cycle, you also have the opportunity to nurture customers throughout the year and focus on retention strategies as the contract end period looms.
Offering discounts for upfront payment gets you paid faster. It also encourages customers to get a return on their investment quicker. In turn, that makes them more invested in using your SaaS product/platform, which helps demonstrate the value faster.
Deploy Renewal Automation
Renewal automation is about more than just reminders about subscriptions that are expiring. The right renewal automation solution can work throughout the customer lifecycle to reinforce the value and engage customers. Consistent communication encourages continued product use. When you encourage users to engage with you regularly, they are more likely to make your product part of their regular workflow.
Renewal automation provides significant benefits, including scaling growth without adding additional headcount or sales costs. Making renewals easy and offering incentives for early renewal can reduce the time-to-cash while also supporting cross-sell and upsell opportunities.
For example, Cleverbridge provides end-to-end renewal automation and subscription management, including engagement at key touchpoints during the customer journey, automated renewal notices, and retention marketing programs, including discounts and bundles. The best renewal automation solutions will enable personalization to deliver custom offers based on customer usage or behavior. Studies show that companies deploying personalized offers drive 40% more revenue growth.
Another key area to focus on is converting free trials to paid subscriptions. During this trial period, renewal automation can play a big role in converting — and retaining — customers. By sending consistent marketing messages to help customers activate and use free products, you can encourage them to sign up for a paid account.
Add Self-Service Tools and Reduce Friction and Improve Customer Experience
Adding self-service tools to allow customers to handle renewals themselves can significantly reduce the time spent on manual tasks and simplify the renewal process.
Any friction customers encounter when doing business with you, signing up for your software, or trying to renew their subscription can stop sales in their tracks. Making sure your platform supports local language, currency, and payment methods your customers expect.
Reduce Involuntary Churn
Customers often churn involuntarily. In fact, passive churn can make up as much as 50% of the average SaaS churn rate. Turning on auto-renewals is one way to keep the cash flowing, but that alone doesn’t solve the problem. For example, a customer’s credit card expires and they haven’t updated their payment information. Smart payment tools can flag expired cards, retry renewals, and update payment information without requiring customer service teams to contact customers.
You can also choose to put some accounts on auto-renewals while allowing your sales teams to focus on high-value accounts that require a more personal touch.
Leverage Cross Sell and Upsell Opportunities
Another effective way to retain customers is to adopt a formal cross sell strategy. When you can identify other products that may benefit your customer, you not only increase your customer value (and revenue), but you get them more immersed in your brand and products.
As SaaS companies grow, so does churn. It can be easy to plateau or even enter the dreaded negative cash flow stage if you’re not bringing new customers on board quickly enough at a reasonable customer acquisition cost. By cross-selling and upselling existing customers, you can not only increase your customer retention rates but increase your customer revenue.
You also reduce churn. Recommending specific products to the right customers at the right time can reduce churn for SaaS companies by an average of 12%.
Choose the Cleverbridge Customer Success Platform
Cleverbridge is an eCommerce, customer success and data platform built for SaaS organizations, helping SaaS companies orchestrate and automate payments, subscriptions, and renewals to maximize revenue and retention.
Schedule a demo today, and let us show you how we can help reduce churn and grow customer lifetime value.