5 Strategies to Reduce Churn in SaaS

Published on Jul 01, 2019 by Tom Jenkins | 4 min(s) read time

It’s safe to say that when you spend time, money, and resources to secure a customer, you want to keep them with your business for the long term. Otherwise, you’ll just be chasing your tail, spending money on securing clients but never seeing the benefits of ongoing revenue. 

 

As a SaaS company, especially one in growth mode, it’s important to keep your churn rates in check, building long-term relationships that can help your business thrive in the future. 

 

What Is Churn? 

 

Churn is the rate at which customers cancel their use of your product or service. For SaaS companies in particular, churn involves the cancellation of recurring revenue subscriptions for software products. 

 

Why Does Churn Matter for SaaS Companies? 

 

Churn tells you how you’re doing retaining customers and can also help you forecast for the future. By looking at your SaaS churn rate, you can determine the probability that clients will cancel their services in the future and take steps accordingly to adjust your practices. 

 

Keeping churn low is important because it’s much more costly to bring in a new client than it is to maintain a relationship with an existing one. And, even a 5% increase in customer retention rate can generate heavy increases in revenue. 

 

Some level of churn is always going to occur, but research shows that avoidable customer churn costs businesses $136 billion a year

 

For SaaS Companies, What Level of Churn Is Acceptable? 

 

As an incredibly general statistic, acceptable rates for gross churn fall in the 5% to 7% range, but of course this will vary from business to business. 

 

 

How to Fight Churn

 

 

When you’re trying to lessen your churn rates, the most important thing you can do is make it easy for your customers to stay with you. The following guidelines will give you some ideas on how to make renewing and maintaining customer relationships key to your business.

 

 

#1 - Focus on Service

 

Focusing resources on creating good service experiences is critical to reducing churn. According to Forrester, 66% of customers say providing a good service experience that values their time is the most important thing a company can do to maintain their business. 

 

And, customers aren’t afraid to see whether the grass is greener if you can’t provide the level of service they expect; two-thirds of customers have actually terminated business relationships because of poor customer service. 

 

 

#2 - Focus on Pain Point Resolution 

 

Looking at the way customers are using your product – and finding ways to make it easier – can help you keep churn under control. Customers don’t expect your product to be perfect, but they do expect you to reduce friction for them and make their user experience as painless as possible. 

 

If customers bring a mistake or issue to your attention, deal with it promptly; research has shown customer churn can be reduced by 67% if companies can be relied upon to resolve customer issues on the first interaction. 

 

 

#3 - Increase Communication 

 

It can be really surprising when a customer does the equivalent of ghosting you; when they never talk about issues, it can be easy to assume that they're happy with the service you provide. 

 

However, only about 4% of customers (one in 26) actually express dissatisfaction; the others just cancel services or start shopping for new vendors. 

 

Staying in constant communication and being very open to feedback is the best way to avoid this type of churn. 

 

Ask your clients what they love about what you’re doing, as well as what they’d like to see you do better. Surveys, questionnaires, check-in meetings, and more can facilitate conversations.

 

And, when clients share an issue that they’d like to see resolved or improved, bring a high level of transparency to the conversation. Let them know what you can do to make it better, what your timeline is, and the final resolution. 

 

 

#4 - Upsell 

 

Upselling provides dual benefits for your SaaS company. First, by upselling, you can reduce the expense of bringing in new revenue; the median cost to bring in a new dollar of revenue is $1.32, while the median cost to upsell is only $0.71 per dollar of revenue. 

 

At the same time, increasing your customers’ commitment to your product will make them less likely to look for an opportunity to change vendors. The more tied-in and committed they are to your platform/service, the more likely they’ll be to see value demonstrated and choose to stay with your platform. 

 

 

#5 - Secure Longer Commitments

 

Asking for a longer contract improves your chances that a customer will stay with you. Data shows that companies with longer contracts (2+ years) report lower annual revenue churn. 

 

You may need to offer incentives to make the longer contract palatable, but extending the time frame a client will use your services makes it more likely that they’ll become familiar with the software and realize the benefits it provides. 

 

 

Culture is Still Key

 

Overall, the best way to improve churn rate is to take a look at your company’s culture. A culture that’s dedicated to offering value, focusing on experience, and building relationships will flourish and retain customer loyalty, which, in turn, will have a positive impact on churn rate. 

 

What methods have you used to reduce churn? Feel free to share in the comments below:

 

 

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