There are a lot of factors that come into play when running a SaaS business, but keeping your churn rate in check is perhaps the most important.
When customers are not happy, they end up leaving. This is called churn. And of course, when they leave, you can’t grow.
That’s why it is so important to reduce churn, especially for SaaS companies.
Churn has a profound effect on your growth and profits. Still, most businesses do not have a specific way to address it. This is a mistake you need to avoid.
Therefore, in this article, we will discuss various best practices for maintaining a low client churn rate.
These will help you create a solid plan you can use going forward. That way, your SaaS company can continue to grow instead of worrying about losing essential clients.
Let’s jump in.
When customers are not happy, they end up leaving. This is called churn. And of course, when they leave, you can’t grow.
That’s why it is so important to reduce churn, especially for SaaS companies.
Churn has a profound effect on your growth and profits. Still, most businesses do not have a specific way to address it. This is a mistake you need to avoid.
Therefore, in this article, we will discuss various best practices for maintaining a low client churn rate.
These will help you create a solid plan you can use going forward. That way, your SaaS company can continue to grow instead of worrying about losing essential clients.
Let’s jump in.
What is Churn Rate?
Every month—or in any given period—a certain number of customers will sign up and a certain number will cancel their subscription to your survey.
The net amount of customers that you lose in a given period is your churn rate. In other words, your churn rate is your ability to maintain clients.
The net amount of customers that you lose in a given period is your churn rate. In other words, your churn rate is your ability to maintain clients.
Why is a Low Churn Rate so Important?
There are numerous reasons why you want to have a low churn rate, but the first is that it is simply more cost-effective to keep customers than to lose them.
It might be obvious from a pure revenue perspective. However, it goes deeper than that.
First of all, when you lose a customer, you lose not just the revenue but also the marketing costs you spent to acquire them.
This increases your CPA costs and makes your business less profitable.
Another aspect to keep in mind is your exit strategy with your company.
At some point in the future, you may wish to take it public through an IPO or to sell it to private buyers. In either case, the valuation of your company will depend on the number of customers you have and your revenue.
You want as much revenue as possible to make your exit more lucrative.
Finally, churn rate is a very accurate gauge of how well you are serving your customers. If they are churning out at a high rate, it means something is not right.
They might not be happy, which means you need to improve customer service—or perhaps your product simply isn't what they need.
In that case, either your marketing - whether it's SEO for your SaaS, lead generation for lawyers, social media for your skincare company or advertising for your local business - or your product needs an overhaul.
It might be obvious from a pure revenue perspective. However, it goes deeper than that.
First of all, when you lose a customer, you lose not just the revenue but also the marketing costs you spent to acquire them.
This increases your CPA costs and makes your business less profitable.
Another aspect to keep in mind is your exit strategy with your company.
At some point in the future, you may wish to take it public through an IPO or to sell it to private buyers. In either case, the valuation of your company will depend on the number of customers you have and your revenue.
You want as much revenue as possible to make your exit more lucrative.
Finally, churn rate is a very accurate gauge of how well you are serving your customers. If they are churning out at a high rate, it means something is not right.
They might not be happy, which means you need to improve customer service—or perhaps your product simply isn't what they need.
In that case, either your marketing - whether it's SEO for your SaaS, lead generation for lawyers, social media for your skincare company or advertising for your local business - or your product needs an overhaul.
How to Optimize Your Churn Rate?
Now that we understand why churn rates is so important, let’s look at 8 ways to optimize it.
1. Analyze the cause of the churn
You can’t attack a problem if you aren’t aware of the initial cause. This is why the first step is analyzing what the cause of the churn is.
This may sound obvious, but finding out the reason cannot be left up to guesswork. You need to hear it directly from customers.
There are a few ways to do this.
First of all, you can hop on a phone call with them. This is the most effective method.
It may take some time, but you will be able to interview them and get the exact reasons why they decided to leave.
Other methods include emailing out surveys, which are acceptable but not quite as effective. It's important to know that to make a business relationship successful and fruitful, communication, trust and respect go both ways. In other words, it's a 2-way street where not only you need to provide outstanding services, the client needs to be respectful as well. There are many characteristics of an ideal client you should be looking into when landing new customers.
2. Increase engagement with your customers
Many customers will leave simply because you did not engage them enough.
Engagement is one of the most important factors in growth, and you can’t take it for granted. You can directly engage them with the product itself.
This includes popups or offers for help via live chat.
Another way to build engagement is through your marketing. Create educational content that shows the benefits of your product.
You might assume that your users already know this, but keep in mind that they are not immersed in your product all day like you, so teach your customer base about the best aspects of your software.
3. Make your marketing tailored to needs
Imagine someone seeing an ad for your product and clicking on the link to eventually sign up. You must remember that the promises made in that marketing campaign will be the reasons that the user bought your service.
If your actual software does not deliver on these promises, you’re in trouble.
A big reason that companies can’t keep churn rates low is that customers sign up for one thing and get another.
Your marketing needs to be customized so that it speaks to the customers’ needs.
In addition, it should accurately reflect exactly what you’re offering.
Don’t cast a wide net if you are looking for a very specific type of user. Otherwise, you will end up spending a lot to acquire people who will just leave.
This increases marketing costs and decreases profits.
4. Consistently refine your features
You should constantly be asking yourself what you can improve upon in your company. There are bound to be certain features that you can add over time.
This is not to say that you have to launch your product with every feature available.
Every few months or so, try to launch a new feature that will help your customers have greater success.
When you make them more productive, save them time, or improve their situation with new features they will see more value in the product you’re offering.
You are not competing in a vacuum. There are almost always other companies offering similar products—and rest assured that they are constantly innovating.
To stay ahead of the curve, come out with new values consistently, and you will see your churn rate go lower.
5. Simplify when possible
While we’ve mentioned the importance of adding in new features, you have to make sure you’re striking a balance.
Sure, more features are usually better, but you need to ask yourself if the features are actually going to be used. Not every customer will want all of the features.
If you make your product too overwhelming to use, it could take too long to find the core features that the user wants. There are a few ways you can handle this.
First, you can make simplified menus. Only allow the most used features to be prominently displayed. The additional features can be hidden behind other menus.
Another option is to simply see which features are used most and eliminate the rest.
Finally, you can allow customization. This means the customer can make their own dashboard and design the features exactly how they want.
6. Keep track of at-risk customers
In order to reduce client churn rate, you need to get good at identifying who is at risk for churn in the first place.
At any point, there will be certain users who are just about to leave, resulting in a crucial loss of revenue. So how do you identify them?
You can start tracking all of your customer and behavior data in your app.
Make sure you look back at users who have churned and identify common metrics.
For instance, you may notice that engagement or logins go down significantly just before someone is about to churn.
This gives you a chance to reach out to them in time to figure out what their issues were.
7. Onboarding
One of the most powerful ways to reduce churn is by putting forth an excellent onboarding process.
The initial few weeks and months are the most important in making a great impression.
Onboarding helps you do just that.
A great onboarding process that reduces churn should look at key metrics.
You want to see how many sessions the user is generating, for instance, and you want to know the events they are generating (such as the buttons they click on).
These all give you clues on how to improve your onboarding.
8. Use win-backs and incentives
When you have pointed out certain customers that are likely to churn, you should implement a winback campaign. The same goes for those who have already left.
You can send them emails even if they are no longer a customer. In order to do this effectively, you should make it worth their while.
For instance, you can offer to lower their price for the next three months, or you might offer a free upgrade to your higher-tier offering.
This could help them see more value in your offering. While this might cut into your profits, it is certainly better than losing that customer altogether.
Also try to schedule a call or live chat with an agent.
Perhaps you can ask them why they want to leave, and get to the bottom of their concerns.
You won’t know until you try—and the customers that you do win back will be worth every penny.
Reduce Your Company's Churn Rate to Propel Your Business
Every company wants to find ways to continue growing as much as possible. However, this is easier in theory than done in practice.In order to truly achieve growth, you need to have a solid plan that is backed by proven techniques. Luckily, the 8 best practices above are just that.
Each one of the tips will help you address a certain part of the churn equation.
However, there is no need to complicate it. Choose one or two to start and implement into your business today.
If all else fails, just remember that churn is all about keeping customers happy and solving their needs.
If you can do that, you can keep more of your customers—and your monthly revenue and profits will soar.
With a digital advertising agency like Growth Hackers, we help businesses from all over the world get more traffic, generate leads and increase their revenue. We come up with a growth plan, make sure it's effective and then implement it for you! If you want to double or triple your website traffic while driving more leads and sales, contact Growth Hackers today so your business can start growing from tomorrow.
Michelle Laurey
I work as a VA for small businesses. I love talking business and productivity, and I love to share my experience with others. Outside my keyboard, I spend time with my Kindle library or binge-watching Billions. My superpower? Vinyasa flow!
