Churn management

11 Ways to Reduce Customer Churn in SaaS

November 21, 2023

Acquiring a customer is just the start of generating revenue. Not everyone stays with you long enough to cover the cost of that acquisition. In a typical scenario, someone signs up, dabbles a bit and then logs off for good. 

You’ve lost that customer and may not even know it yet. Customer churn is inevitable and costly. Businesses lose $136 billion each year as a result of it. To reduce SaaS customer churn, you’ll need to understand and measure it and create strategies to combat it.

SaaS churn as a metric is the rate customers cancel their subscription to your platform. 

Churn rates for SaaS vary. Those companies that operate in the small- and medium-sized business (SMB) have a 3-5% monthly churn. SaaS organizations that support enterprises have a much lower 1% churn rate, and startup ventures can see a churn of 12% in their first year.

Also, the key to addressing attrition is understanding the difference between SaaS churn rate vs retention rate. The retention rate measures how many customers are staying. The churn rate calculates who’s leaving.

Let’s review everything you need to know about customer churn so you can effectively decrease its impact on your revenue.

Churn Prevention vs Churn Reduction: What’s the Difference?

There’s a difference between churn prevention and churn reduction. The former is preventative, and the latter is reactive.

Churn prevention refers to the percentage of your current customers who end their subscriptions after a period of time. Tactics on the preventive side focus on building customer loyalty. 

Some examples are providing a discount at renewal, continuous communication about features and usability and asking for feedback for new functionality. Churn prevention can increase customer lifetime value (CLV) if executed well.

Churn reduction describes the steps you take once a customer has begun the process of unsubscribing. There may still be time to eliminate revenue churn at this point. A workflow could guide a customer if they want to cancel that delivers incentives to halt the churn.

What Causes Customers to Churn?

The root cause of churning can vary. Customers who leave have various motivations. Product dissatisfaction, cost and poor customer experience all factor into SaaS churn.

Let’s take a look at what to keep an eye out for.

Lack of Product-Market Fit

Fit can still be an issue even if you’ve clearly defined what your software does and who the target market is. If churn spikes, you may need to rethink your analysis. 

You may have missed key features your users think are a must-have. For example, if your software helps businesses streamline accounting but doesn’t have functionality around managing expenses, it won’t appeal to its intended users.

Product Pricing

Cost is a purchasing driver. According to a study, it noted that 78% of buyers look for “fair” prices when making decisions. The cost has to align with their budget, and they also need to feel an even value exchange.

The cost for your product may be competitive, but some customers are more price-conscious than others. Churn can be a response to price increases, which you deem necessary for profitability.

A Poor Customer Experience or Poor Customer Success

Customer experience and success cover a few areas. First, there’s the user experience, which describes how intuitive and modern your software is. Second, there’s the interactions between customers and support. Third, there are the expectations that users have of a product that it will solve their problems.

If any of these go sideways, churn is likely to follow. Meeting customer needs is the foundation of your product and support. Yet, most companies have failures here. On average, companies fall short of expectations by 38%.

Continuing to improve on all three aspects of experience directly impacts churn. If reducing SaaS churn is your goal, optimizing and prioritizing these matters.

Not Monitoring Usage of Features for Inactive Users

Another cause of churn is usage drop-off. It’s critical to monitor this to identify those users who may be on the verge of churn. A survey of businesses relating to churn found that 20% of respondents rated this as the highest reason for churn.

Tracking this and accessing real-time data on usage and engagement provides insight. You can deduce what features have value and if there is friction. It can work as a strategy for churn prevention and enable you to personalize experiences and proactively address usability concerns.

Onboarding Issues

The potential for churn starts on day one. Creating an onboarding strategy and workflow for your new users impacts their experience. Simply giving people a login and some general information doesn’t accelerate their adoption of the software.

Instead, make training, education and user tips part of the process. Some onboarding success tips include:

  • Using an interactive guided tutorial at first login

  • Creating a robust library of user resources in multiple formats (e.g., text, video)

  • Launching an onboarding email nurture series that drives people back to learning materials

  • Hosting onboarding webinars with users led by product specialists

Now that you know why churn happens, you’ll want to focus on strategies to reduce it.

11 Customer Retention Strategies for SaaS Companies

Get inspiration and tips with these strategies to reduce your SaaS churn rate.

Examine Your Best Customers

One way SaaS companies can improve customer retention is to study your best customers. Your “best” customers are those that are active users and engaged.

Look at your data for these users and determine their common characteristics. Then, apply that to develop your target market and most profitable customer profile. Understanding what makes these people tick can be an effective way to reduce customer churn.

Prioritize Proactive Customer Service and Actively Address Customer Frustration

Practicing proactive customer service means you have a plan to address customer frustration and dissatisfaction. Today’s customers want transparency and consistent communication from companies.

Proactive customer service involves anticipating buyers’ needs and problems before they do. Some examples include:

  • Alerting customers to outage or feature issues

  • Providing a self-serve option for customer service that’s easy and fast, such as using chatbots

  • Creating content for your resource library that answers the most common questions customer success teams hear

With all these touchpoints, retaining customers becomes more predictable. They’ll see your organization is serious and committed to better experiences for them.

Provide a Personalized Onboarding Process for New Customers

Failed onboarding can be a cause of churn. A personalized experience is a proven retention strategy, and 86% of people said they’d be more loyal to a company that invests in onboarding content.

Customers want a user-friendly experience that aligns with their needs. You may have several onboarding workflows depending on the type. 

When it’s smooth and offers them the support they need to get moving, they’ll become the best customers you want. Customer success should be the guiding force behind your onboarding program. Be sure what you create is easy, practical and accessible.

Send Win-Back Emails to Churned Customers

Stay in touch with churned customers by continuing to send them emails. They can update them on the latest and greatest features. Showcase the value of these in addressing the reasons why people use your software. You can also offer them a special deal if they come back.

Create an Online Community to Improve Customer Relationships

Cultivating a community of users can be very effective in reducing customer attrition. They become an extension of customer support and allow other users to connect and discuss tips for using the software.

With a community, you can improve customer loyalty and engagement. As a result, CLV increases. You can create these groups on social media (e.g., LinkedIn or Facebook groups) or host them on your website.

Exceed Customer Expectations by Educating Existing Customers

Never stop educating your existing customers. Communicate with them often about features and product updates. Remind them if they aren’t using valuable functionality that could make their experience better. Partner with customer success teams for these initiatives.

Additionally, have customer success and product experts host regular webinars. They can focus on the newest features, product roadmaps and frequently asked questions.

All these efforts will improve CLV and reduce churn.

Assign Customer Success Managers to the Most Valuable Customers

Your VIPs should have a dedicated customer success manager. They can build relationships with customers and become a valuable resource. This one-to-one contact fosters loyalty and demonstrates your commitment to their success.

Monitor Customer Data and Product Analytics

Data can help you identify customer churn and indicate what can help you retain profitable customers. You can predict churn based on customer behavior in a customer churn analysis. A drop in usage could be a sign of impending churn. When these triggers occur, focus back on proactive ways to prevent attrition.

Implement Incentives, Loyalty Programs and Churn Surveys

Next, you can deploy strategies meant to stop churn before it happens with incentives and loyalty programs. Those can include:

  • Discounts and promotions

  • Referral programs

  • Loyalty rewards

  • Upselling and cross-selling opportunities

Churn surveys are a way to get intel on why people churn. Collect this feedback through a short survey that asks them why they’re leaving and what you could have done to prevent it.

Use a Cancellation Flow

A cancellation flow is a good way to avoid churn risk. It asks customers why they are leaving. With this information, you can determine what you can control and how to address issues. 

With an automated customer cancellation flow, you have a tool for uncovering customer motivations. It can include incentives and offers that could cause customers to rethink and stay loyal.  

Churn management software can facilitate this, so it’s easy to launch and customize.

Establish Customer Churn Metrics

Measure customer churn regularly and track any benchmarks to address high customer churn. This practice enables you to operationalize churn management. It leads to data-driven decision-making to reduce SaaS churn rates.

Reduce SaaS Churn With Well-Defined Strategies

Reducing churn is the aim of any software company. While you’ll lose some customers no matter how strategic you are, you can also proactively prevent it. 

Understanding why people churn is vital. Then, you can apply these approaches to best address the root causes.

You should continuously improve and enhance your strategies based on data and activities. Keep evolving them as needed. As you do, you are more likely to increase customer retention and profitability.

How ProsperStack Can Help

ProsperStack offers innovative churn software that supports many of these strategies. Implementing ProsperStack can help reduce churn in SaaS by up to 30%, saving customers and growing revenue.

How are you addressing churn rates? Feel free to share your tips and ideas below. 

For more information on ProsperStack, get in touch today.

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