How SaaS Businesses Can Avoid Churn Risk
In just about every article about the metrics a SaaS company should care about, there’s one word that comes up repeatedly. Churn.
Whether it’s called customer churn or revenue churn – or both – churn risk is a critical measure of a SaaS company's success and financial health. And in the increasingly competitive SaaS space, it’s a metric even the newest startups have to watch closely and address directly. You simply can’t afford to wait.
This post explains churn risk, and why it’s important for SaaS businesses and offers four steps to avoid it – all of which can be easier than you think.
If you’re not familiar with churn risk, let’s start by defining what it is and why it matters.
In the simplest terms, churn is when customers stop using your product or service. The concept is typically expressed in a percentage tied to a timeframe. Among all industries, the average churn rate is 5.6%, with the SaaS average coming in just a tick higher than that.
To calculate your churn rate, divide your number of lost customers by your total of all customers at the start of a chosen time period and multiply it by 100. That’s your churn rate.
To avoid churn risk means you actively address why you’re losing customers. This is especially critical and relevant for SaaS companies that rely on monthly recurring revenue (MRR) to:
Create a more predictable revenue stream
Reduce their financial volatility
The ProsperStack team has a background working for and with SaaS companies, and we’re a SaaS ourselves. So, we created an automated customer retention platform to help other SaaS companies get after why they’re losing customers.
To be fair, you could certainly address churn further upstream by analyzing what customers you’re acquiring and focusing on driving their engagement. (Our friends over at Chargebee have some great ideas along these lines.)
But if you need to move fast, and get insight quickly, here are four steps SaaS businesses can take to avoid churn risk.
An automated cancellation flow asks customers tailored questions at the point of cancellation. For example, you can ask customers their primary reason for leaving:
Service or features
Billing issues or processes
Product/service performance issues
With minimal dev time, you can seamlessly integrate the ProsperStack cancellation flow directly into your product. Plus, you can add, delete, or change the questions you’re asking, like many of our customers did when COVID hit.
Once your cancellation flow is in place, you’ll have access to up-to-the-minute data about why your customers want to cancel. We’re talking actionable data, too, like seeing which issues directly correlate to lost MRR.
This level of insight helps you and your teams make smarter decisions and prioritize your efforts. And it’s delivered to you in an easy-to-use and easy-to-share dashboard.
Once you’re clear why customers are leaving, you can automatically present coupons and other incentives to keep them based on their survey answers. For example:
If a customer is concerned about price, you can offer a discount
If a customer isn’t converting when their trial period ends, you can extend the trial time frame
If a customer isn’t using your product, you can pause rather than cancel their subscription
This step can be straightforward, or you can design more sophisticated rules and target your offers based on MRR, plan, billing interval, or custom data from your CRM or CDP. You can even A/B test and pit offers head to head to discover which performs the best.
Use the insights you’ve gathered to improve your product and re-market to lost customers. For example, your:
Customer Success team can identify at-risk customers or reach out to customers who viewed your cancellation page
Product team can determine when bugs, missing features, or slowness are costing you customers
Marketing team can use the right offers, messaging, and timing based on why customers left
We designed our cancellation experience based on industry best practices and watched how these teams (and more) use cancellation data to improve what they do and win customers back.
An automated customer retention solution allows you to mix and match reusable components and easily customize the customer’s experience. Combined with our tried and true best practices tailored to your audience, you’ll be able to create a powerful cancellation experience that customers won’t hate and that both reinforces your value and reduces your churn risk.
To get the most out of your automated customer retention solution, look for one that lets you:
Quickly make changes at any time without a developer
Easily create rules to target your offers to the right customers at the right time
Effortlessly run A/B tests to discover which offers to perform the best
Seamlessly connects to your billing system, so it’s fully integrated and runs automatically
Want to learn more about how an automated customer retention solution helps SaaS companies avoid churn risk? Get a demo today.