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Ultimate Guide to Reducing Churn
Discover easy to implement strategies to reduce your churn rate
The Definition Of Churn
Churn can most basically be defined as resources lost in a given period of time. Typically it’s referring to users or revenue lost and is usually represented with either a percentage or dollar amount.
For example, if you had a 5% monthly user churn rate, that means each month 5% of your customer base is cancelling.
Or if you said you had $2,000 in monthly revenue churn, that means you lost $2,000 in monthly recurring revenue from either customer cancellations or downgrades.
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Users And Revenue
- User churn is the number of customers you’re losing in a given timeframe (typically per month or year).
- Revenue churn, which is arguably even more important, is the amount of revenue you’re losing in a given time frame due to downgrades or cancellations.
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Reducing Churn By Effective Onboarding
While signing new customers is obviously key to business growth, retaining those customers is just as important.
What reduces customer churn? One big factor stands out: effective onboarding.
Nailing the onboarding process, especially for a product that may be constantly evolving with technology and customer needs, can sound daunting. But it can’t be ignored. Onboarding that isn’t optimized to increase retention costs you both the customers who churn, as well as the potential customers, warned away through reviews and word-of-mouth.
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Getting The Right Customers
Before onboarding even begins, your business must attract customers who need what you offer. No onboarding process can rescue a customer hoping to burn CDs with a Spotify account.
Be sure that marketing and sales understand what your product does, and doesn’t, offer. Use customer cohorts to identify good and bad fits. Letting bad-fit customers through the door simply to raise acquisition will cost more than they spend. High churn rates and bad reviews quickly erode revenue gained in these situations.
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Reinforce Customer Choice By Highlighting Your Best Features
People experience a range of emotions as they first hear about, research, and decide to invest in a product. Throughout this journey, it’s important to reinforce their interest, especially in those moments after the purchase.
Many digital companies accomplish this through a virtual “tour” of their features once an account is activated. These tours highlight the most exciting product offerings and help the user set up their account.
Show your customers your best side, reminding them why they signed up, and they’ll be more likely to experience early success and remain loyal to your product.
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Customer Churn: The Questions To Ask
When startups talk about percentage churn(say 5 percent) they ignore too many variables:
Does this include users who signed up during this month, or only lost customers from the previous month?
What is the revenue churn vs user churn? 5% is okay if it’s all free users you’re losing, but what if that 5% happened to be all your premium customers or 50% of your revenue?
What is your activity churn? How many users became inactive this month? This is your leading indicator of future churn, and usually the most actionable insight.
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Activity Churn Is What Matters
Activity churn is the best indicator of future problems. Typical churn stats use something like account cancellations as a measurement but cancellation is only ever a trailing indicator, it’s literally the last thing that happens.
When you identify previously active customers who are slipping, a well-timed personal email can help to re-engage them. The best case is that you recover a customer; the worst case is you learn why your users leave. Either of these leaves you in a better position than doing nothing.
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Strategies For Re-Engaging Customers: Target The Right Ones
There is a difference between someone who didn’t convert after a 30-day trial and a year-long user who has started to slip away. The difference results in two different jobs, conversion and recovery. Don’t let them both fall into a naive “we miss you” bucket. Treat them differently.
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Churn: The Reality Of Any SaaS Company
Defined as the percentage of customers that cancel their subscriptions in any given time period, churn rate is an essential metric that can make, or break, the success of your SaaS business.
That's why it's so critical to master churn analysis. No SaaS company can hang on to all its customers forever. But by understanding the nuances of why your customers churn, you can find more effective ways to reduce it.
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The Importance Of Churn Analysis
- A good churn analysis provides a set of detailed insights on the factors affecting your churn rate.
- Churn analysis should deliver a full picture of your customers’ needs and evaluate whether your company is meeting them.
- The cost of getting new customers can be five times higher than the cost of keeping existing ones. Excess churn is terrible for your bottom line.
- Reducing churn means playing the long game. Lots of little improvements add up to better overall performance. With churn, the laws of compounding are on your side.
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How To Calculate Churn
The basic formula to calculate churn rate is very simple:
Number of customers cancelling their subscription per time interval / Number of customers at the beginning of that interval x 100
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The Criticality Of Customer Feedback
- Gathering feedback is one of the most powerful, yet often underutilized tools to reduce your customer churn.
- The best way to gauge customer satisfaction is to gather feedback directly from your user base.
- If you don’t regularly seek customer feedback, you won’t understand what you’re doing well, and what you need to improve.
- Ultimately, reducing churn stems from how well you can understand and solve your customers' problems.
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Why Customer Feedback Is Crucial: Discover Causes of Churn
If you connect with customers at the point of cancellation, using a short survey and open-ended questions, you can hone in on why they churned.
If you run these surveys for every churning customer, you’ll start to see patterns emerge. You’ll begin uncovering insights for the following key questions.
- What are the main reasons for churn?
- Do churn reasons correlate with any customer persona? If so, how?
- What can be improved to reduce churn (product, support, messaging, etc)?
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Why Customer Feedback Is Crucial: Proactively Address Future Churn
In any business, there are always shortcomings and areas for improvement. If SaaS leaders choose to ignore this and don’t listen to the voice of the customer they serve, they’re likely ignoring the problems that their customers are experiencing. These issues can continue to manifest and increase your churn until it’s been identified and rectified.
You can run a variety of data analyses to identify where you are losing customers, but that will not tell you why they are leaving. You can only get that by checking in with customers regularly, particularly after they churn.
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Reducing SaaS Churn: Customer Education
- A study by Bain and Co. found that a mere 5% reduction in churn can lead to a profit increase of 25-125%. That’s a massive gain for a little amount of work.
- One of the biggest reasons that customers churn is that they don’t know how to use your product. They end up getting no real value from it. It’s a waste of their time and money.
- That’s why it’s so important for SaaS companies to invest in customer education. The better you educate your customers, the more likely they are to stick around.
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Customer Education Idea #1 — Onboard New Users
When it comes to improving your product’s onboarding, there are two main things you need to do:
1: Define your product’s Aha! Moment: It’s where your customer realizes the amazing value your product provides.
2: Reduce time-to-value: You need to direct your customers towards your product’s Aha! Moment as soon as possible.
The sooner your customers see the value, the more likely they’ll stay around.
To reduce your time-to-value, you need to create an onboarding flow that takes your new users and guides them step-by-step.
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Customer Education Idea #2 — Send Automated Email Sequences
One of the most effective ways of reaching customers, particularly if they aren’t logging into your product enough, is via email.
While most SaaS companies already realize the value of marketing automation with email sequences, few have done the same with customer education.
The two things you need to consider when creating an automated email sequence are:
- Who are you sending the emails to(personalization)?
- What are you sending(useful content)?
The greater the level of personalization, the more effective the emails will be.
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Retaining customers: The purpose behind the process
To effectively improve retention, companies need to have a defined process in place to manage renewals.
Your team will be more efficient in their day-to-day and ensure that nothing slips through the cracks when renewal time comes along. Additionally, it will also allow them to deliver a more consistent and positive customer experience for your customers.
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Determine what at-risk means and how to monitor for it
The first step of establishing a renewal process is defining the leading indicators of risk within your customer base. They could include:
- Change of an executive sponsor
- The number of support tickets opened
- A drop in usage of your product or key features
- Negative survey responses or low NPS/CSAT
- Missed onboarding, adoption, or lifecycle milestones
- Lack of perceived value by your customer.
- Lack of visibility or missing indicators that can escalate the possible churn of a customer.
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Drive the right actions to close every renewal
You need to define a standardized plan of action or a playbook that enables your team to mitigate risks before a renewal cycle. Playbooks help your team be more proactive in managing renewals and provide step-by-step guidance on the actions your team should take to close the renewal.
Playbooks for at-risk and healthy customers help your team build consistency into their workflows, collaborate more effectively with other teams working on the renewal, and ensure that no missed critical steps during the process.
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