SaaS churn is the worst thing that can happen to any subscription company.
When a company is not expanding its customer base, it needs to compensate by decreasing the number of customers that leave. Click To Tweet
If there are more people leaving than coming in, then this could be an issue. The important question that needs to be addressed at this point, therefore, is: “what is a safe churn rate for SaaS?”
Why do SaaS customers churn?
Customers will inevitably leave your company for a variety of reasons. Some common examples are when:
- Customers stop using the service because their needs have changed;
- Your customer is simply out of budget and can’t afford the subscription fee;
- Your customer can’t see/get the value of your product anymore;
- Your product or service doesn’t meet clients’ expectations or they are looking for more qualities/features;
- Your product is good but customer service is not;
- Your customer has chosen to change your product to a competitor’s product;
- Your B2B customer is bankrupt and the company doesn’t exist anymore;
- Your B2B customer has been acquired and the buyer uses a different service.
There are a lot of things that can happen outside your control, but the good news is that most reasons SaaS customers churn are often under your control.
How to reduce SaaS churn?
To prevent and reduce SaaS churn, you must deeply understand when your customers engage and are satisfied the most. You can do this by measuring NPS (Net Promoter Score) to find out how satisfied they are with their experience as well as understanding what is causing them to leave.
The best way to get your customers hooked on your product is by making it indispensable.
- It should make part of their daily workflow and provide them with a frequent value that they can’t live without.
- A good way to do this is using email, SMS, or any kind of notifications so you are constantly reminding them that you exist.
Tips for Reducing SaaS Churn
Even if you can’t completely eliminate SaaS churn, there are a few things that companies should do to make it less likely. If customers are ending their relationships with your company at an alarming rate, then maybe it’s time for them to rethink their customer retention strategy.
SaaS churn rate is one of the most important metrics to consider. Businesses should make sure that they keep SaaS churn under 5% and find ways to retain customers for as long as possible.
Understand Your Weaknesses and Keep an Eye on the Competition
Businesses have their own weaknesses, and the key is to recognize them. Feedback from customers can be a great way of understanding where your problems lie. It’s often valuable just to ask why they are leaving- whether it has something to do with functionality or customer service issues.
Keep in Touch with Customers and Improve Customer Services
Customers are most likely to leave when they have a bad experience with customer service.
A high SaaS churn rate can be avoided by investing in good employees and keeping them happy. Click To Tweet
It is crucial for businesses to maintain a good relationship with their customers, especially when they are renewing. Regular phone calls and emails help you identify any issues that might arise before the renewal process starts so it can be fixed in future updates.
Sending personalized emails should be a part of the customer service strategy. Automated messages are convenient and it does not make sense to disregard automated messages entirely. However, personalization is important so businesses need to avoid using generic email addresses with no name or from an address that has a fake name.
Segmentation and Identification of At-risk Customers
Businesses should not think of customers as a homogenous group. Click To Tweet
Instead, it is helpful to categorize them according to different criteria in order for the business to provide better service and be more personal with their marketing.
There are many signs that can help businesses identify at-risk customers who may cancel their subscriptions. For example, less frequent site visits and usage could be a sign of impending cancellation. This is why it’s important to use re-engagement emails wisely by sending carefully crafted messages that address the reasons behind the drop in usage.
Offer Something Extra and Incentives
A great way to minimize SaaS churn rate is by offering your customers something extra. For example, free training or tutorials are a good idea because they will make sure that the customer stays interested in what you’re selling them. Usage-based incentives such as upgrades and discounts can also be helpful.
With the new communication and CRM systems, you can set up automated emails to be sent at certain intervals. This is a great way of keeping your SaaS churn rate low by reaching out to people who have never returned or long-term customers that haven’t been active in a while.
Trigger-based emails can also be a good idea when you want to introduce new features. This is because it not only allows for an opportunity to talk about the feature but highlights and summarizes important aspects of the update.
Focus on Onboarding
There are many reasons why people might not continue using a product after their free trial expires. One of the main ones is that they feel like it’s difficult to see how this solution benefits them, which often happens because companies don’t properly explain onboarding processes.
Use Existing Content to Educate and Market to Current Customers
If you already have a blog and content such as infographics, why not turn it into eBooks to provide your customers with something of value. Not only will this help educate them about the product or service that they are purchasing from you but also marketing your products to existing customers is very important because acquiring new customers can be expensive.
Don’t Forget to Say “Thanks”
To show your customers that you care, it’s important to let them know how much they are appreciated. Click To Tweet
It is easy for people to feel left out or insignificant when their feedback isn’t acknowledged. To do this, find opportunities in the workplace where your customer can be highlighted on social media pages and blogs.
Customer SaaS Churn vs. Revenue SaaS Churn
It is important to note that Customer SaaS Churn and Revenue SaaS Churn are different. Customer churn refers to the number of customers who have stopped their subscription over a given period, while revenue churn reflects how much those lost subscribers represent in total revenue.
If your product has a $10mo and a $100 pricing plan, then losing 5 customers paying for the cheaper price would be worse than if you lost one customer who pays more. That’s why Revenue SaaS Churn (usually referred to as MRR Churn) is important because it tells us how many people are unsubscribing from our service.
How to calculate SaaS Churn?
Customer SaaS Churn
In SaaS churn calculation, it is important to understand how much of your customer base leaves. Click To Tweet
If 1 out of every 20 customers cancels their subscription, the SaaS churn rate for a given period would be 5%. This number must also take into account the time frame and usually looks at 12 months or one month.
SaaS churn is calculated by summing the number of customers that have discontinued their subscription. If you are doing monthly SaaS churn, then it means taking all the subscribers who canceled in a given month and adding them together.
SaaS churn rate is the total number of customers who have left.
You can also calculate the SaaS churn rate, which is represented by how many customers are left divided by the total number of customers.
The SaaS churn rate is the number of customers that left last month divided by the total number of customers from a month ago.
Revenue SaaS Churn
If you have 3 customers that cancel their subscriptions, the first customer was paying $10mo., the second customer paid $50mo. and the third one who pays an average of $100 per month.
The revenue SaaS churn is the amount of money that will be lost to you next month. In this case, it would be $160.
The MRR SaaS churn is the amount of money lost from customers who canceled their subscriptions divided by the total number of subscribers.
The percentage of MRR that is churned can also be represented as a fraction, meaning how much it represents out of your total revenue.
A company’s monthly recurring revenue SaaS churn percentage is the amount of MRR that was lost over a given month, divided by total MRR at the end of last month.
Negative SaaS Churn
Negative SaaS churn is the holy grail of every SaaSsubscription entrepreneur. It happens when you make more money than you lose because people unsubscribe or stop paying for your product.
To get to a negative churn rate, you have three options:
- Expansions: by having a pricing model that increases the pricing according to usage growth;
- Up-sell: customers moving to a more highly featured version of your product;
- Cross-sell: customers to purchase additional products or services.
In the first 12-24 months of your business, it is not wise to focus on negative SaaS churn. You should try and get as many customers in the door as possible by using pricing that leaves something for them (maybe a discount). This will help you build up customer numbers which can lead to better long-term decisions like focusing on reducing churn.
What’s an acceptable SaaS Churn Rate?
The best answer to this question is “as low as possible”, but we know that it’s not always so simple.
An acceptable rate of churn depends on things like the user base you’re targeting, price of your product, your company’s size, and the cost of acquiring customers. No matter what, taking steps to reduce SaaS churn often causes them to lower, as long as you continue to focus on customer success..
Very Small Business
If you are selling to VSBs, even the most valuable services will SaaS churn at a significant rate? Unlike large companies that have many opportunities for upselling and cross-selling, very small businesses often fail or change direction.
Small and Medium Business
If you are selling to SMBs, the most acceptable SaaS churn rate is around 3-5% monthly. You should really be aiming for zero or negative churn though if possible.
If you are targeting big companies with a monthly ticket of more than $5,000 and your software churn rate is over 1%, then it’s time to take action. You can only have success in enterprise SaaS if you’re adding more net revenue from large-ish customers each year than the previous.
In addition to providing quality products, it is important for businesses to communicate actively with customers and provide them with a deep understanding of their values. When this happens, the business will be able to offer compelling products and great customer service.