6 Ways to Reduce Customer Churn in Your SaaS Business

Companies lose $1.6 trillion per year due to customer churn. Yet surprisingly, more than two out of three don’t have a strategy for preventing it. Businesses often see acquiring new customers as more significant than retaining current ones – perhaps because we love the thrill of winning.

But it costs you 5 to 25 times more to acquire a customer than keep an existing one. So despite the satisfaction of winning new business, you need to focus your attention on the customers you already have. According to Gartner, 80 percent of a company’s future revenue will come from just 20 percent of its existing customers. Learning how to reduce the churn rate in your SaaS business could equate to more revenue in the long term. 

But how do you reduce customer churn in SaaS? This article describes six customer retention strategies you can implement today to stop your customers from churning. However, before we jump into them, let’s define what churn in SaaS businesses looks like. 

What Is SaaS Churn?

In SaaS, churn is the percentage rate at which customers cancel their recurring subscriptions. If you have a churn rate of five percent and 1,000 customers, you can expect 50 customers to cancel their subscription with your SaaS company in a given period.

Alongside customer churn rate, you’ll also need to track gross churn rate. This metric is the percentage of total monthly recurring revenue lost from canceled subscriptions, including both downgrades and complete cancellations. 

Determining both types of churn rates will help you understand where your recurring revenue bucket is leaking. Sound complicated? Here’s how you can calculate customer churn rate and gross churn rate in three easy steps. Once you’ve nailed down those numbers, you’ll be able to get a grip on churn in your SaaS by implementing the following strategies.

How to Reduce Customer Churn in Your SaaS Business

1. Educate Your Customers

The first step in reducing churn is educating your customers to make the most out of your product. Most SaaS products involve a learning curve, even if yours is small. You don’t want to throw your customers into your software and expect them to figure it out by themselves. Fifty-five percent of people stop using a product when they don’t understand it. 

That’s where onboarding comes in. Successful onboarding results in higher customer retention rates and customer lifetime value. What’s more, 63 percent of customers think onboarding is key to deciding whether to subscribe to a product in the first place.

What should your SaaS user onboarding look like? In a nutshell, show customers exactly what they need to do, when they need to do it, and how they need to do it. More specifically, use simple processes, supporting documents, chat support, and so on to walk them through your product. Also, experiment with different formats, like video, written content, product demos, and images, to see what resonates most with your audience. 

Does education stop once someone becomes a customer? Nope – it must happen at every stage of their journey. Eighty-six percent of customers say they will remain loyal if companies provide onboarding and continuous education. After their initial education period, keep showing customers how to be successful with new features and product updates.

HubSpot is well-known for its comprehensive customer education programs. The HubSpot Academy not only has courses to master the software, but also certifications that help customers become marketing and sales experts. Whenever you complete a course in HubSpot Academy, you’re rewarded with a badge and digital certificate that are often recognized outside of the HubSpot realm too. Customer education at its finest! 

Example of SaaS customer education to reduce customer churn
HubSpot Academy offers practical courses and certifications that teach customers the most sought-after business skills for free.

2. Ask for Customer Feedback 

Don’t know why your customers are churning? Ask them! If you’re lucky enough to get a response from a customer on their way out, consider those insights a goldmine. Churning customers are usually willing to point out flaws and areas of improvement that your current customers are too polite to share with you. 

You can collect churn feedback in various ways, depending on your product experience and customer journey. 

How to Collect Customer Churn Feedback

  • When a customer goes to cancel their SaaS subscription online, provide them with a dedicated space to share complaints, concerns, and their reason for leaving.
  • When someone reaches out to customer support to cancel their subscription, your team can ask for feedback directly.
  • Send customers a simple post-cancellation survey or email asking for their input.

Baremetrics, for instance, starts by sending an initial cancellation survey that asks customers their reason for canceling. Then, the company follows up with a personalized email asking for additional feedback. 

Example of collecting churn customer feedback to reduce customer churn
Baremetrics’ cancellation survey collects honest customer feedback.

Over time, patterns will emerge, and you can identify which areas of your SaaS business need improvement to reduce its churn rate. Then – and this is crucial – turn that information into action. 

It might seem obvious, but many businesses don’t do anything with the feedback they collect. Gartner found that 95 percent of companies ask for feedback, but only 10 percent act on it. Closing the loop can increase your retention by as much as 8.5 percent because it shows your customers you care about their input and are committed to improving their experience. 

3. Make Your Product Sticky

The more customers interact with your SaaS product, the more likely they are to stay. A “sticky” product translates to higher recurring revenue and lower churn. The average product stickiness ratio for the SaaS industry ranges between 13 to 20 percent. So for every 100 customers who use your product monthly, at least 13 will be active daily.

Early-stage SaaS companies often think that a sticky product means a product with many features. Instead, it’s about making sure your product solves a real problem for your customers and provides them with day-to-day value. 

Honey, for example, is a browser extension that automatically finds and applies coupon codes at checkout when you’re online shopping. It solves the problem of having to scour the web for promo codes and manually testing each one until you get a discount. If you enjoy online shopping, you’ll use this every time you check out. 

Example of building a sticky product to reduce customer churn
Honey’s browser extension solves a real problem for avid online shoppers.

Onboarding (more on that above) is also a key strategy for product stickiness as it reduces time to value. Customers want their problems solved quickly, so make it easy for them to experience the benefits of your product. Actively engage with your customers by giving them reasons to return.

Finally, encourage your customers to integrate your software with the rest of their tech stack. For the customer, integration makes processes easier and more efficient. For your SaaS business, it solidifies the relationship, giving your customer one more reason to stick around. Big names like Slack, Salesforce, Zoom, and Docusign are masters of integration, making sure users embed their software into their daily workflows. 

4. Identify and Target At-Risk Customers 

You can see churn coming, but only if you’re paying attention. Rather than wait until it’s too late, identify at-risk customers through churn prediction

In this process, it’s important to remember that not every churning customer has the same value. A high-value customer is someone whose business significantly impacts your bottom line. They rely on your product more than others and often stay with your company for the long haul. 

If your high-value customers are churning, you’ve got a problem on your hands. The top 10 percent of your high-value customers are spending three times more than your average customer, so preventing them from canceling is a top priority. 

How to Identify At-Risk Customers

  • Find patterns of behavior that often precede customers churning, digging through all the customer data and product data available to you. 
  • If a customer is inactive, aka not logging into your software or using your product, that’s a clear indicator that they’ll be thinking of canceling their subscription soon. 
  • Use your Net Promoter Score (NPS) to keep track of low customer satisfaction. The NPS helps you collect valuable feedback about what customers do and don’t love about your product, so you can make changes before it’s too late.

Once you’ve identified which customers are likely to churn and why (by getting their honest feedback, see above), build a strategy to battle customer churn. It’s crucial to catch them before they even consider leaving. 

Spotify, for example, sends personalized emails when a customer hasn’t opened the app in a while, alerting them when their favorite artist has released a new song. This draws customers straight back into the product. 

Example of targeting at-risk churn customers to reduce customer churn
After periods of inactivity, Spotify sends highly-personalized emails to their customers to convince them to come back to the app again.

5. Offer Alternatives to Canceling

Most of the churn reduction strategies we’ve discussed so far are preventative, but if they fail, offer an alternative to cancelation. When a customer is on the verge of ending their SaaS subscription, you have ONE more chance of convincing them to stay. How? Create a cancellation flow that enhances their experience and converts them back to your business. And the best way to do that is by offering worthwhile alternatives. 

Give exiting customers an exclusive offer that’s even better than canceling. For example: 

  • Offer your customer a downgraded plan at a cheaper price.
  • Offer a discount code or special offer that saves the customer money.
  • Offer a churning customer the option to pause their subscription, instead of canceling it. 
  • Offer one-on-one support to address any issues or solve any blockages the customer is experiencing. 
  • If a customer is still within a trial period, offer to extend their trial. This gives them more time to get the hang of your product. 

For instance, Audible offers customers trying to cancel their subscription two alternatives. One is discounted audiobook credits for three months. Since cancellations are often motivated by saving money, this might convince a customer to stay. The other is a membership pause option, keeping the door open to future business.  

Example of offering alternatives to canceling to reduce customer churn
Audible has a cancellation flow that offers customers two good alternatives to canceling their subscriptions. 

It’s better to keep a customer at a lower cost than lose them altogether. After you win them back, you’ll have a second chance to show them the true value of your SaaS platform and make it part of their must-have tools.

6. Focus on Negative Churn

Alongside your efforts in reducing churn, find a way to compensate for lost revenue from customers that will inevitably cancel. Usually, you don’t want your SaaS metrics to be negative, but negative net revenue churn (or negative churn) is the exception to that rule. 

“Negative churn is when the amount of new revenue from your existing customers is greater than the revenue you lose from cancellations and downgrades,” according to Baremetrics. In other words, negative churn is when up-selling or cross-selling to current customers exceeds the revenue you’re losing from churning customers.

So increasing the average spend of your existing customers will help you recoup lost MRR. Convince customers to upgrade their SaaS subscription to a more feature-rich (and expensive) plan or sell them one of your related products and services. 

Another way to increase average spend is by encouraging customers to upgrade to annual contracts. Transitioning from a monthly to an annual subscription is a surefire way to increase customer retention. Why? Because now customers only make one purchasing decision each year instead of twelve. Companies with a higher percentage of annual contracts experience lower churn rates.

It’s Time to Lower the Churn Rate of Your SaaS Business

The ultimate goal is to make your SaaS product part of your customers’ routine so that canceling isn’t even on the table. Like UXMagazine says, “The best way to reduce customer churn is to help your users see your product as an asset, not just an expense.” That all starts with keeping customers happy and engaged. 

On one side, this means offering a product that solves your ideal customer’s problem and adds non-negotiable value to their lives. On the other, it’s about providing a consistent and positive customer experience. Personalize your communications with relevant educational materials (product videos, how-to guides, tips and tricks, and so on) before people need to go looking for them. When customers do run into issues along the way, help them navigate those obstacles as swiftly as possible. 

If it does come to the point of cancellation, have a strategy in place to bring customers back from the edge. You won’t be able to win them all, but you’ll be able to dramatically reduce your SaaS company’s churn rate. 

What Is Customer Churn in SaaS?

Customer churn (or customer attrition) is the number of customers a company loses over months, quarters, or years. In SaaS, churn rate is the percentage at which customers cancel their recurring subscriptions with you. Most people refer to customer churn when discussing their churn rate, but you’ll also encounter employee churn, gross MRR churn, and net MRR churn.

What Are the Main Reasons Customers Churn?

There are many reasons why customers churn: Maybe your product doesn’t meet their expectations, your pricing is too high, you have a poor onboarding experience, your customer support is lacking, or the customer simply is not the right fit for your SaaS. Customers churn when they don’t find enough value in your products or services. 

There are many reasons why customers churn: Maybe your product doesn’t meet their expectations, your pricing is too high, you have a poor onboarding experience, your customer support is lacking, or the customer simply is not the right fit for your SaaS. Customers churn when they don’t find enough value in your products or services.

SaaS businesses should aim for a 5 to 7 percent average churn rate, annually. Some even say that a “good” churn rate for SaaS is 3 percent or less. However, it depends on your target customer. SaaS companies that target small businesses or individuals will have a higher churn rate than the ones targeting larger and enterprise businesses. In addition, early-stage SaaS startups will usually experience much higher churn (around 10 to 15 percent) in the beginning as they figure out product-market fit.  

How Do You Keep SaaS Customers Engaged?

Build a product that solves your ideal customer’s problem and adds non-negotiable value to your customers’ lives. Early-stage SaaS companies often think this translates to a product with a lot of features, but instead, it’s about making sure your SaaS product solves a real-world problem for your customers and provides them with day-to-day value. 

Once you’ve achieved product-market fit, you need to provide a consistent and positive customer experience. Actively engage with your customers through (automated) marketing communications on a variety of channels, giving them reasons to use your SaaS product again and again. 

Personalize your communications with relevant educational materials, such as product videos, how-to guides, and tips and tricks. If customers have trouble understanding or using your product, they are much more likely to churn. When customers do run into issues along the way, help them navigate those obstacles swiftly and effectively through customer support.

Your customers consistently interacting with your products and company is the most significant indicator that they are engaged – and means they are more likely to be loyal customers.

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