Keeping track of metrics is essential for the growth of a SaaS-based business. So marketers must pay attention to such crucial metrics as customer churn rate. It shows the number of customers you are losing.
What is the customer churn rate?
The customer churn rate is the percentage of paid customers you lose in a fixed time. For example, you have a hundred customers at the beginning of the month. You lost ten customers because of non-renewal or cancellation and only acquired eight new customers in a month. Therefore, 10% is your churn rate.
The calculation is simple in the above case. (number of lost customers / the number of customers at the beginning of the month) * 100.
However, you added new customers. But, while calculating the churn, we should exclude the new customers. So, the new customers we will add when we calculate the churn for the next month.
There is another churn that you must take note of is MRR churn. MRR churn is the amount you lose in a month because of customer churn. While reporting both churns are considered. Because they are separate things and give you different insights for the growth trajectory of a SaaS business.
For a SaaS business, the customer churn rate is a noteworthy thing.
The money you inject for marketing will only be successful if you retain the customer. Therefore, calculating the churn rate is essential for the growth of a SaaS business. However, you can't make it down to zero. But it must be in a range. Otherwise, the organization will not thrive.
As a marketer, you must be aware of how costly and the effort goes into acquiring a customer. In addition, improving the customer churn rate helps you retain the customer. These two metrics, CLTV and CAC, are related to customer retention. First, The churn rate enables you to improve customer lifetime value. And it reduces customer acquisition costs. Therefore, it is a win-win for SaaS marketers to work on customer churn rate if they want to grow a SaaS-based business.
A higher churn rate means looking at the organization and within marketing efforts.
Important Note: A SaaS business should consider a single-digit percentage churn rate. However, it is impossible to achieve a zero churn rate.
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The product must be up to a standard
Your product might need to be better. So in this hyper-competitive world, your product must be up to a standard to grow. It doesn't matter how much money you pump into marketing. Your business will struggle with a bad product.
Let the customer know how easy it is to use your product
The customer least cares about the technology you used to build your SaaS. To them, how easy it is to use is the primary concern. So you need to educate your customers. How easy it is to use. Let them know. It is possible with a knowledge base system for your product. Make it easily accessible. Find a way to embed your knowledge base link in your welcome email. An email marketing tool with an automation feature for such an activity is best. Remember to create campaigns based on customer interaction with your product.
Conversational intelligence software is good to have
Yes, you read it right. This software is must-have. You must know how to use it effectively. You can integrate this software with your knowledge base system. Your customer could quickly seek help from the chatbots. Your support team can also be at ease and focus on other issues.
A Customer Support Team
Suppose you have a great product, a knowledge base system, and a higher churn rate. It would be best to have a technical support team who can address your customers' trouble. Chat support, if needed, a call is necessary to understand your customer's exact problem. If you have a support team, train them to engage with your customer frequently and address their issue.
You might be targeting the wrong audience
So many platforms are available to run paid ads. Creating ads on such platforms and running them is a relatively easy task. The challenge is to reach the right audience and many other tasks. If you can drive relevant visitors soon, your ads will continue performing. An unrelated business will become a paid member but, eventually, leave you.
Sometimes people make impulsive buying decisions, particularly in retail. In a few instances, I have also seen it in SaaS-based businesses. They got to know about a system that yields results. They buy the product hastily but need to figure out how they can use it for their benefit. You can only do a little for those customers. However, build a personal rapport so once they need it fully. Then, they come back to you.
How to reduce the customer churn rate?
I will share some findings on Churn from my experience of creating reports for a SaaS company.
There are two important Churn that #SAAS companies look at:
Customer churn and MRR churn. The both churn are intertwined but give you separate insight to understand the growth trajectory. For example:
If your customer churn is higher but MRR churn didn't increase significantly.
The chances are you lost low-bucket clients in the month.
But if MRR churn is higher and the percentage of customer churn is regular. In that month, you lost high-paying clients.
Balancing is the key.
Your strategy should be such that you are acquiring both types of customers.
The best is to convert your low-paying customers into high-paying customers.
In other words, persuade existing accounts to expand their accounts.
Account expansion is a way to keep your Churn in control.
Another interesting aspect of churn is that your MRR churn can be improved even if your customer churn is higher.
In these two conditions, you can have an improved MRR churn.
- If the existing customers opt for a higher plan. (Account Expansion)
- You acquire new paid accounts that are on a bigger plan than the churned customers.
Analyzing your customer churn is essential. You improve things when you know the problem. Below I have mentioned a few issues that most SaaS business face. My experience says you need a holistic approach to fix customer churn.
When a customer doesn't renew the subscription, it would be best to ask them why.
Here is how you can do it. Before the subscription is about to expire, you inform the customer about it. The moment they cancel their subscription. It would help if you asked there the reason behind it. However, The last thing you want to do is to irate a customer when they leave. So remember to make the process easier for them.
Listening to the feedback of customers helps you understand your product better. You know the shortcomings you should fix to improve them.
Another way of bringing change to your product is to look at competitors. Suppose you come up with better what your competitors have to offer. Then with this, you shall be able to keep your customers hooked to your product.
Tell them what they will miss if they cancel their subscription.
Make video tutorials
Video tutorials are a better approach to telling your customer how easy your tool is to use. One advantage you have of a Youtube tutorial is that it will give you an online presence. Therefore, upload your tutorial on Youtube.
Create a good deal for the customer
Most businesses offer a deal or discount to allure a customer. If a 10% discount you are offering for a month. If applicable to your business, make a deal with the customers to give them a 15% discount for three-month subscriptions. It would help if you worked on creating offers.
Conclusion
Losing a customer is losing a business. So retention is essential to thrive in SaaS based business. Acquiring a new customer is always a costly thing. The suggestion will be to do all the necessary things to control the churn. If you want to grow your business then also keep working on acquiring the new customer. Both should be your priority. Because there will be some month when you don’t get the desired number of new customers. In those months, existing clients can help you gain the customer. Likewise in those months, when the existing customers didn’t expand the account, new clients can help you reach the revenue numbers.
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