Article: How to Lower Customer Churn Rate in SaaS
Onifeloluwa Adebajo
Let’s be honest- customer churn is the silent killer of SaaS businesses.
You can have the best product, the most effective marketing campaigns, and the most well-organized sales team, but if your customers are jumping ship, all that effort goes down the drain.
But here’s the good news: you can do something about it!
If you can understand what causes customers to churn and how to keep them around, you’ll be well on your way to building a thriving business.
So, what exactly is customer churn? In simple terms, it’s the percentage of your customers who cancel or don’t renew their subscriptions.
Sounds pretty bad, right? If you’re losing a lot of customers each month, it can have a major impact on your revenue.
Let’s break it down.
If your SaaS company is making $100,000 in monthly recurring revenue (MRR), and you have a 0.5% churn rate, that means you’re losing $500 every month. Over the course of a year, that’s about $6,000!
It may not seem like much at first glance, but when churn starts creeping up month after month, that lost revenue can really add up… and fast. Imagine if you’re losing 5–7% of your customers each month. Yikes, right?
So how do we fix this? That’s exactly what we’re going to dive into today.
In my opinion, lowering customer churn isn’t just about having the best product. It’s about creating a top-notch experience that gives your customers a reason to stick around.
You want them to feel like they made the right choice in subscribing to your service and like they can’t live without it.
Ready to learn how to lower churn and keep your customers happy? Let’s get into it.
Why Do Customers Churn?
You’ve done all the hard work”: months of development, testing, marketing campaigns, and sales efforts.
You finally secure a solid base of paying customers. Everything looks great.
Then… bam! Customers start canceling their subscriptions and not coming back. You’re watching your revenue dip, and panic starts to set in.
You double down on getting new customers to replace the ones you’ve lost. And while that strategy works for a while, guess what?
After a month or two, those new customers start leaving as well.
So, why is this happening? What’s going wrong?
The simple truth is this: your customers are human. And humans get bored. They want something new.
If they don’t find enough value in what you’re offering, they’ll move on to the next shiny thing.
It’s okay to have some churn; no company can keep every customer forever. But when you’re losing customers at a fast rate, that’s when you have a churn problem.
If your monthly churn rate is above 1%, you’re in trouble.
How to Calculate Customer Churn Rate
Let’s talk numbers for a second.
Customer Churn Rate = (Total customers lost in a period) / (Active customers at the beginning of the period) * 100
Here’s an example:
Say you started with 80 customers at the beginning of March. By the end of March, 10 customers canceled. So, the churn rate for March would look like this:
10/80 * 100 = 12.5% churn rate.
Ouch! That’s a high churn rate for one month. If you continue with that rate, you’re in trouble for the long run.
Now, let’s talk about why a churn rate above 1% is a huge issue.
If your churn rate is higher than 1% per month, it means you’re losing customers at a rapid pace. That can mean bad news for your business.
In fact, if your churn rate is 2%, that means you’ll lose about 21.5% of your customers by the end of the year.
So, if you started with 100 customers, you’d end the year with only 78 customers unless you constantly bring in new ones to replace the lost ones. And that’s just to break even!
How to Lower Customer Churn Rates
Okay, now that we know why churn happens and how damaging it can be, let’s talk about what you can do to keep your customers around longer.
1. Improve Your Onboarding Experience — First Impressions Matter!
You know what they say: you only get one chance to make a first impression. The same goes for your customers.
According to some shocking statistics, 86% of people are more likely to stay loyal to a business that invests in a great onboarding process.
Imagine that: you could lose over 80% of potential customers just because they didn’t know how to use your product or didn’t understand its value.
So, how do you avoid this? Focus on getting your customers to the “Aha!” moment- the moment they realize, “Wow, this is exactly what I needed!” You don’t want them scratching their heads thinking, “WTH?” about how to use your product.
Offer training and guidance that shows customers how to use your service, and why it’s going to make their life easier. That will keep them coming back for more.
2. Offer Great Customer Support — People Love Help!
People love feeling supported. If they hit a roadblock or have a question, they want quick, helpful answers.
Providing excellent customer support is a major factor in reducing churn.
Whether it’s through live chat, email, or phone, make sure you’re there to help when your customers need it most.
3. Integrate with Other Tools — Make It Stick!
In the competitive world of SaaS, you need to make your service as valuable as possible. One way to do that is by integrating your product with other tools that your customers already use.
Think about it: when your product works seamlessly with other tools your customers rely on, it makes it harder for them to leave.
The more connected and integrated your product is, the more valuable it becomes.
4. Create Loyalty Programs — Reward Your Customers!
Want your customers to stick around? Reward them for being loyal. Studies show that 79% of people are more likely to stick with a brand if they’re part of a loyalty program.
You can offer perks, discounts, or even exclusive features to customers who renew their subscriptions. Make them feel like they’re part of something special.
5. Charge Upfront — Make It Harder to Leave
A little secret that big companies use to reduce churn is charging customers upfront.
Whether it’s an annual or quarterly payment plan, getting your customers to commit to a longer-term contract can reduce churn.
They’re less likely to cancel if they’ve already invested in your service for a year.
For Example: Let’s examine Google’s Digital Drive Storage subscription
With an Annual Account, you’re saving more because you can pay $100 for a year as opposed to $120; this means that you save $20 but you’re also investing more to get started.
When you’re paying as much as $100 upfront, you’ll take the product seriously because you want to make an ROI as quickly as possible and ‘use your money’s worth”.
From a business standpoint, the annual plan is effective because it attracts customers and reduces churn.
Offering annual subscriptions also reduces your customer acquisition cost while increasing your customer lifetime value.
The key to lowering customer churn is simple: prioritize customer experience.
Your customers have endless options, so you need to constantly give them reasons to stay with you.
As Jeff Bezos once said, “We see our customers as invited guests to a party, and we are the hosts. It’s our job every day to make every important aspect of the customer experience a little bit better.”
So, are you ready to lower your churn rate? Your customers are waiting for you to make their experience unforgettable!
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Posted Dec 16, 2024
In this article, I discuss how SaaS brands can keep most of their customers from leaving... with all their money.
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