Most SaaS companies rely on monthly recurring revenue, which is why customer churn is especially detrimental to subscription-based businesses.
If your customers cancel their subscriptions, you don’t just lose your customers – you also lose monthly revenue, which can severely hinder your business growth.
For this reason, reducing churn rate is one of the biggest challenges that many SaaS companies face every month.
If you, too, are looking for proven ways to reduce your SaaS churn rate, look no further.
Read along to learn all about reducing churn rate for SaaS companies, including:
- What Is Customer Churn and Churn Rate?
- Reducing SaaS Churn – Why It Matters
- 10 Ways to Reduce Churn for SaaS Companies
- 3 Signs You Have a Churn Problem
- What Is An Acceptable Churn for SaaS Companies?
- Churn Rate Examples from SaaS Companies
What Is Customer Churn and Churn Rate?
Customer churn, also known as logo churn and customer attrition, simply refers to losing customers.
In SaaS businesses, customer churn typically happens when customers cancel or don’t renew their subscription plans. This can happen either voluntarily, when your customers decide to cancel their subscriptions, or involuntarily in the case of failed payments.
Churn rate, on the other hand, is a SaaS metric that calculates the rate at which you’re losing customers. For example, a 3% monthly churn rate means that each month, 3% of your customers stop using your product.
Typically, companies that use the recurring subscription revenue model calculate their churn rate on a monthly basis so that they can easily track any changes in customer churn.
Reducing SaaS Churn – Why It Matters
Now that you know what customer churn is, let’s see why it’s important to reduce SaaS churn for your company.
While there are many reasons why you should reduce SaaS churn, the main ones are as follows:
- Revenue loss. Although customer churn isn’t the same as revenue churn, these metrics are closely related. As you lose customers, you also lose revenue. This can take a major hit on your monthly recurring revenue (MRR), unless you increase your expansion MRR.
- Increased expenses. As a general rule, acquiring new customers typically costs more than retaining existing ones. As such, rapid customer churn can drain your funds, making it difficult to grow your business.
In short, you want to reduce SaaS churn to preserve your financial health and enable business growth.
10 Ways to Reduce Churn for SaaS Companies
There are many approaches you can take to reduce SaaS churn. In fact, so many that you might not even know where to start.
So, here are the 10 most effective ways to reduce SaaS churn you should consider:
#1. Optimize Your Onboarding Process
It goes without saying that onboarding is critical to reducing churn for SaaS companies.
If your customers don’t fully understand how to use your product or aren’t fully aware of all the benefits it can bring them, they’re more likely to stop using it.
So the goal here is to create an engaging and easy-to-follow onboarding process for your customers that teaches them all the ins and outs of using your product.
Make sure to guide your new users and show them not only how to use your product, but also how to make the most of it. If your customers see value in your product, they’re far more likely to stick with you.
Not to mention, more than 60% of customers take the onboarding process into consideration before subscribing to a service. This means that, besides helping you reduce SaaS churn, a solid onboarding strategy can also attract more customers and boost your sales.
#2. Spot and Target At-Risk Customers
More often than not, customers won’t contact you in advance to warn you that they’re about to leave. As such, spotting and targeting customers that are at-risk of churning is one of the best ways to reduce churn for SaaS companies.
So, you simply want to look for warning signs in your users’ activity to detect at-risk customers.
Some of such warning signs include:
- Rare log-ins. If a customer logs in rarely, you don’t even have to calculate their customer engagement score to know they’re disengaged. Rare log-ins essentially show that your customers aren’t using your product.
- Short visit times. This might be a sign that a customer isn’t taking full advantage of your product.
- Prolonged task completion. If a user takes a much longer time to complete a task than they’re supposed to, it might indicate that they find your product too difficult to use.
Once you spot at-risk customers, you want to be proactive and reach out to them. Ask your customers about their experience using your product and offer any help they may need, such as learning materials. This way, you can retain at-risk customers and, in turn, reduce SaaS churn.
#3. Improve Your Customer Support
An overwhelming 95% of customers say that customer support impacts their brand choice and loyalty to the brand. As such, it’s no surprise that improving customer support is one of the best ways to reduce churn for SaaS companies.
Simply put, if your customers have to rely on Google to find answers to their questions, they may eventually switch to a competitor that doesn’t leave them stranded.
Not to mention, your customers may get frustrated if they can’t get help with your product as quickly as their issues arise, which might also lead to customer churn.
Ideally, you want to offer your customers 24/7 live customer support. Apart from communication skills, you want to make sure that your customer support representatives have excellent product knowledge.
On top of that, it might be useful to create a help center on your website and pack it with FAQs, tips, tutorials, and other useful material so that your customers can easily find answers and solutions.
Slack, for example, has an intuitive help center that provides auto-suggestions, allowing customers to get answers without having to worry about phrasing their questions:
#4. Offer Incentives to Stay
Another way to reduce churn for SaaS companies is to offer churning customers an incentive to stay that they simply can’t refuse.
In other words, to reduce SaaS churn, entice your customers to stay.
If a customer wants to cancel their subscription, consider giving them a deal that will make them rethink their decision. Ideally, you want to offer personalized deals, so consider doing a churn analysis to learn why you’re losing customers, and what could motivate them to stay with you.
For example, you can offer customers that are about to churn an option to upgrade their subscription plan without any additional costs or to get a 30% discount on their current subscription plan.
#5. Reward Customer Loyalty
Building customer loyalty is a sure-fire way to reduce churn for SaaS companies and improve your renewal rate.
You want your customers to know you value them, and there’s no better way to do it than by rewarding customer loyalty.
So, consider implementing a customer loyalty program. You want it to contain attractive special offers, such as discounts, bonuses, and additional features. This effectively increases the likelihood of your customers sticking around.
#6. Collect Customer Feedback
Collecting customer feedback and using it to improve your products and services is an effective way to reduce churn for SaaS companies.
As such, consider periodically collecting feedback from your customers. Ideally, you want to get insight into different areas of your business, so make sure to conduct several micro-surveys throughout the customer journey.
For example, collect feedback from your customers while they’re using your product, after they contact your customer support, when they’re about to unsubscribe from your services, etc.
#7. Build Rapport With Your Customers
Besides special deals and offers, you can also build customer loyalty and thus reduce SaaS churn by building rapport with your customers.
Simply put, if you’re looking to reduce churn, your relationship with your customers shouldn’t be purely transactional.
Instead, you want to add a personal touch and show your customers that you actually care about them.
To make your customers feel appreciated and lower their risk of churning, consider:
- Sending personalized emails.
- Communicating with your customers on social media.
- Create polls to involve your customers in your decision-making.
- Share customer success stories in your newsletter.
- Add a blog to your website to encourage interaction and build a sense of community.
#8. Strive for Continuous Improvement
When it comes to business, standing still is never an option. Even if you have the best product on the market, eventually your competition will catch up with you unless you keep improving it.
As such, you want to always strive to make your products and services better. By adding new features, functionality, and services, you can enhance your customer experience and, as a result, reduce SaaS churn.
Not to mention, you should always inform your customers about any upcoming changes to your product. If you’re introducing a new feature, for example, send emails to let your customers know about the feature and its benefits.
Or alternatively, if you are increasing your pricing packages, you could lock in the existing price for existing users to mitigate any risks of increased customer dissatisfaction and churn rate.
#9. Offer Annual Subscription Deals
If you’re looking for a simple way to reduce churn for SaaS companies, consider offering annual subscription plans at a discounted price instead of just monthly plans.
Your customers may be more inclined to choose a longer contract if they get a significant discount, even if they have to pay upfront.
In the end, this is a win-win situation for both your company and your customers: they get your product at a lower price, whereas you get an annual contract that guarantees your customers will stick with you for at least a year.
Workable, for example, offer their recruiting software at a 20% discount for annual contracts:
#10. Analyze Your Competition
If your competitors offer superior products and prices to yours, it’s only a matter of time before your customers start flocking to them. Because of this, analyzing and staying ahead of your competitors is one of the most effective ways to reduce SaaS churn.
Essentially, you want to learn as much as possible about your competitors, their products, and prices. It’s important that you know both where their products succeed and fail so that you can improve your product accordingly.
Ultimately, this gives you a winning edge over your competitors, which can help you not only reduce SaaS churn but also attract more customers to your business.
3 Signs You Have a Churn Problem
There’s no denying that customer churn can be harmful to your business. After all, it can affect your revenue growth, reputation, and overall performance.
For this reason, you might want to look out for warning signs that can indicate a churn problem, including:
- You have a high churn rate. A double-digit churn rate is, in most cases, a sign of a churn problem. It’s important that you figure out why you’re losing customers. For example, if you mainly lose customers soon after they start doing business with you, it usually means that you’re targeting the wrong customer or lack effective onboarding.
- You keep losing more customers than you’re acquiring. If each month you lose more customers than you acquire, it’s very likely that you have a serious churn problem. In this case, it’s crucial that you try and reduce your SaaS churn. Also, consider upselling your existing customers so that your expansion MRR covers at least some of the losses.
- Shrinking CLTV. Customer lifetime value is directly related to the average customer lifespan, meaning the longer your customers use your product, the higher your CLTV should be. So, if you are rapidly losing customers, you might notice that your CLTV keeps decreasing month-over-month.
These are just some of the signs of a churn problem you might notice. If any of these apply to your business, you want to take action to reduce SaaS churn as quickly as possible. Otherwise, customer churn might affect all areas of your business.
Need help keeping your churn rate under control? Take a look at our churn management guide.
What Is An Acceptable Churn for SaaS Companies?
As mentioned above, some customer churn is virtually unavoidable. This also means that having a little churn is absolutely normal and to be expected.
You may be wondering, though, how much churn is acceptable, and how much is too much.
Although there is no straightforward answer, it’s generally accepted that a monthly churn rate between 5-7% is acceptable for SaaS businesses.
That said, you should always aim to reduce SaaS churn to as close to 0% as possible. If your churn rate climbs above 9%, developing a strong churn reduction strategy becomes critical.
Churn Rate Examples from SaaS Companies
Want to see how your churn rate compares to that of other companies? To make a fair comparison, it’s best to compare your churn rate against that of similar companies.
So, here are some monthly churn rate examples from SaaS companies, alongside their number of customers and annual recurring revenue (ARR):
- Castos has a 2.5% churn rate, 2,500 customers, and makes $480,000 in ARR.
- AirDNA has a 20% churn rate, 7,000 customers, and generates $9.9 million in ARR.
- Stratifyd has an ideal churn rate of 0% with just 50 customers and receives $5.6 million in ARR.
- Mailigen has a 4-5% churn rate, 2,000 customers, and makes $1.5 million in ARR.
- SpotMe has a 13% churn rate, 300 customers, and generates $17 million in ARR.
- Rosterfy has a 3% churn rate, 130 customers, and makes $3.6 million in ARR.
- EssayJack Inc. has a 50% churn rate, 2,000 customers, and receives $240,000 in ARR.
And there you have it – by now, you should be all set to reduce your SaaS churn.
Before you go, here’s a recap of the key points mentioned in this article:
- Churn rate is a metric that measures the percentage of churned customers over a given period of time, which is typically a month.
- Churn can result in increased expenses and revenue loss, which is why it’s important to reduce SaaS churn.
- Some of the ways to reduce SaaS churn include collecting customer feedback, improving your customer support, offering annual subscription deals, and staying ahead of your competitors.
- Shrinking CLTV and a high churn rate are some of the main signs that you might have a churn problem.
- A 5-7% churn rate is generally considered acceptable for SaaS businesses.