For any SaaS company, keeping customers happy is the key to profitability. In fact, profitability potential is why a subscription-based business is such an attractive model in the first place. The benefits of recurring revenue are major. Having high customer loyalty and retention increases overall lifetime value and allows for more predictable revenue streams. Both are important metrics for overall business profitability and KPIs that investors consider during fundraising.
What’s even better is that on average it costs up to 7x less to retain a customer than to acquire a new one and increasing customer retention by only 5% can increase profits anywhere from 25-95%. Making investing in customer retention strategies a no-brainer.
So how do you create a customer retention strategy that keeps subscribers engaged and happy? It all comes down to churn management – keeping customers from canceling their subscriptions. We’ve put together the following proven strategies we’ve seen work for companies of all sizes and across industries to reduce churn and improve customer retention.
You might think you know why your customers are churning, but the only way to be certain is to ask them. This can be done a couple of different ways, and your business would likely benefit from implementing both tactics.
Complete regular surveys – just getting started? Check out our blog to find out what two questions every customer exit survey should be asking.
Implement churn management software to gather feedback and address churn at point-of-cancellation.
Categorizing your customers into segments will help you prioritize your efforts for maximum customer retention. Using data to understand subscription length, usage habits, and overall satisfaction will ultimately help you determine how likely a customer is to churn as well as the likelihood they will be receptive to an incentive to stay. The image below shows how you can categorize different groups to glean insights specific to each of your customer segments.
A customer’s decision to renew or cancel typically comes down to two main things – are they getting the expected value from the product and do they like and trust your company. According to Edelman’s Trust Barometer, three-quarter of people actively recommend a business they trust. Gerry Wisniewski, managing director at Edelman expands on why trust is so important by saying:
“This means [customers will] be willing to pay a premium, they’ll want to try your latest innovations first, and they’ll stick with your brand even if a competitor gets better reviews or is more innovative or greener.”
Consistently meeting – and even exceeding – your customer’s expectations and communicating transparently sets the foundation for building longstanding trust.
Part of instilling trust is providing regular and transparent communications. We’ve already mentioned completing regular customer surveys, here are other types of customer communications to consider:
Usage-based updates – there’s a reason Spotify’s Wrapped takes over our social feeds each December. People love learning about their day-to-day habits. But the true genius of this tactic is that it also serves as a subtle reminder of just how much you use and love Spotify throughout the year. Consider what usage-based information you could share with customers on a regular basis to illustrate just how much value they receive from your product.
Company newsletter – sending a regular company newsletter is a simple and cost-effective way to build loyalty among customers. A newsletter is a great way to introduce new product features, send promotional deals, and share stories of how other customers are benefiting from the product. The advantage is that customers are reminded of your product every time the newsletter hits their inbox.
Making sure your products exceed customer expectations is critical to building long-term customer loyalty and retention. By implementing a point-of-cancellation churn management tool you gain a better understanding of why customers cancel. Look for trends in this data to identify any product-related issues or desired new features that customers are stating as reasons they aren’t renewing. Building a feedback loop from the customer back to your product team can help inform product roadmap decisions.
Once you understand why your customers aren’t renewing you can develop strategies to win them back. Addressing customer churn at point-of-cancellation allows you to offer an incentive that keeps the customer from canceling in the first place.
As shown in the image below, incentives like extending a free trial, offering a price discount, or even pausing their subscription for a few months can go a long way to retain the customer.
Churn management is not a one-and-done. It is a long-term strategy that should be ingrained throughout the company. If done correctly, it is also a strategy that you will learn from and improve upon over time. For example:
Understanding what incentives work best for each customer segment gives you the intel needed to win back more customers quicker, leading to more revenue saved.
Measuring what communications your customers interact with most will help you further refine your customer outreach strategy.
A/B testing multiple offers gives you the ability to put strategies head-to-head and see which one garners the best results.
Don’t let customers slip away. By implementing these proven churn management strategies, you can reduce churn by as much as 30%. ProsperStack offers an easy-to-integrate, automated cancellation flow solution that makes customer loyalty and retention easy. Learn more and see a demo today.