5 Strategies to Maximize Subscriptions with an Effective Cancellation Flow
The early stages of SaaS growth can feel do-or-die (and, to be fair, they are). There’s the pressure to prove product-market fit, release new product features and attract next-round funding – and only a small team to get it all done.
This pressure to perform can feel especially strong in customer acquisition because your cost to acquire (CAC) customers is a KPI to watch closely. (And when it costs 7x more to acquire a new customer than to keep an existing one, it’s easy to see why).
To be profitable over the long term, it’s not enough to land new customers. You need to keep customers, maximize their subscriptions and increase their lifetime value (LTV).
Implementing an automated cancellation flow is a solid option for this challenge. You just need to understand how the tools work and which strategies get the best results. Here we round up what’s working for SaaS companies in all stages.
Start at the very beginning by getting crystal clear about your churn rate (i.e., the percentage of your customers who voluntarily cancel their subscription or don’t renew). When you know where you stand, it’s much easier to identify what’s moving the subscription retention needle later on. Here’s the churn rate formula:
For example: If your business had 10,000 customers at the beginning of the month and lost 25 customers by the end, you would divide 25 by 1,000 to get 0.025. You then multiply 0.025 by 100, resulting in a 2.5% monthly SaaS churn rate. (We recommend calculating both your monthly and annual churn rates, if applicable because they can differ dramatically.)
Wondering how you stack up? The average SaaS churn rate across industries and business types is 5.6%.
Next, you need to find out why you’re losing customers. One of the simplest ways to do this is using an automated cancellation flow. Platforms like ProsperStack make it easy to ask your customers tailored questions at the point of cancellation and get feedback about your product or user experience.
In our experience, it’s best to keep exit surveys simple and straightforward. This isn’t the time to build complex nested menus or require multiple checked boxes. Instead, ask customers two simple questions:
What is your primary reason for leaving?
What can we do to improve?
Once you understand why you’re losing customers, you can start using the data to segment customers based on factors like:
How long they’ve been a subscriber
The reason they’re canceling
Likelihood you can win them back
This helps you determine your most profitable customers and prioritize your retention efforts. (Of course, your long-term goal is to keep as many customers as possible. But, when you’re in the early growth stage, you need to focus on profitability first.)
You’ve identified your segments. Now, it’s time to personalize your cancellation experience and maximize your subscriptions. With an automated cancellation flow, you have several options, including:
Coupons and discounts work well when customers indicate cost or ROI as their reason for leaving. If discounting your subscription gives you pause, remember that a temporary hit to revenue is better than a canceled account. Think LTV, not MRR.
Trial extensions work well for customers who signed up for a trial but decided to cancel rather than convert. Offering a trial extension gives them more time to see the value of your product and can improve your conversion rate.
Offer subscription pauses are persuasive for smaller, newer customers who tend to be more subject to fluctuations in business. Giving them the option to pause their subscription for a few months is far better than letting them churn and having to win back their business all over again.
Learn more about creating offer rules with segments in our documentation.
Once you have a foundation, customize your cancellation flow based on what you learn or what’s working well for you. (If the word “customize” makes you nervous, we get it. Your developers already have plenty to do. That’s why most of our customizations are easy to implement and don’t require a developer.)
The best way to see what performs best is to pit different offers head-to-head with A/B testing. Remember that even small improvements can have a big impact. For example, increasing customer retention by just 5% can increase profits anywhere from 25-95%.
If you repeat and refine these five strategies, you will improve your retention and maximize your subscriptions. We see SaaS companies just like yours do it all the time. In fact, most of our customers reduce churn by up to 30%.
ProsperStack is a seamless, user-friendly, and low-code solution that your development team can implement within days. So, whether your customers decide to cancel or stay, make it a better customer retention experience with ProsperStack.