It goes without saying that SaaS companies have become obsessed with churn rate, and rightly so.
Keeping up with what’s happening in the industry and discovering new ways to improve is one of the most important key methods to keeping up industry leaders (or even becoming one yourself). Learning how to keep your clients is crucial for the business to grow.
Having said that, one of the most commonly asked questions in subscription-based organizations is, “What is a good churn rate in SaaS?”. Some say it should be between 2-8%, whereas others suggest anything below 5% is top-notch.
There’s no straight answer to this question (sorry). However, there are various key strategies that your company can follow to minimize its churn rate.
Before we look at these, let’s dive into exactly what churn rate is and how to calculate it for your SaaS company.
This article will cover:
- What is churn rate in SaaS?
- How to calculate churn rate
- How to improve churn rate
- What to avoid in order to decrease churn rate
What is churn rate in SaaS?
Churn rate refers to the percentage of users who have stopped using your software over a period of time. The reasons for your churn rate can vary greatly; it could be that your software is no longer meeting their expectations, or that a competitor has managed to steal them away from you.
Reducing the churn rate is crucial for all subscription-based businesses. And although the reasons for leaving your product might differ, there are some key things you can do to prevent them.
But first, how do you actually calculate your churn rate? You’ll need this figure to know exactly how much work you’ll need to do.
How to calculate churn rate
Luckily, there is a super easy formula to help you calculate churn rate!
As a percentage, divide the number of customers lost over a period of time by the number of customers present at the beginning of that period, then multiply that number by 100.
For example:
Let’s say that you sell your product to 5000 customers at the beginning of the quarter, but, you lost 500 customers.
Customer churn rate= (lost customers ÷ total customers at the beginning of time period) x 100
Your company churn rate= (500 ÷ 5000) x100 = 10%
Let’s be honest, no one likes math. Plus, we’re all trying to save time so we can focus on the important stuff. That’s exactly why we’ve created our churn calculator to do it for you. You can use this to instantly receive a ballpark figure for your company’s Annual Churn Rate.
What can I do to improve my churn rate?
So, you know your company’s churn rate. What next?
Although we would like your churn rate to be 0 – that’s just impossible. However, you can follow a few strategies to get you much closer to your goal.
We’ve listed the most important “to do” tasks to help you improve your churn rate! You can use the following as a checklist to tick off when reviewing your own product-led strategy.
Understand why churn happens
Understanding why your SaaS is failing will help you define the roadmap to product-led success. You can understand churn by analyzing your product flows and seeing where your customers stop engaging. As a result, you’ll be able to identify your product’s weaknesses and solve the issue before further churn occurs.
Ask for feedback
Asking users what they love about your product is the best way to get valuable information – after all, the customer is always right! Talk to your users, ask them questions, and find out what they particularly like (and dislike) about your product. Most users don’t mind filling out a short survey, especially when they know their opinions will be heard. In addition, by reaching out to your customers before they need it, you’re showing you care about providing them with the best service possible.
Maintain a relationship with your customers
Once you have a good number of subscribers, you need to maintain a strong relationship with each customer. You might reduce churn by personalizing communication with them. Not only will this help drive engagement, but it will also show that you have a vested interest in their needs and success.
Focus on the right customer
To reduce churn rate, many companies spend time and resources keeping all of their users. However, this strategy can be overwhelming at times and simply not worth it. We recommend focusing on your most profitable customers and creating retention plans for them.
Let’s say you have two customers; customer A rarely uses your product, while customer B uses his subscription to Improve customer success. If you try to maintain both users, you will have to spend more time and resources. In contrast, if you offer an incentive to user B and focus more on finding customers similar to them, you’re way more likely to keep a profitable user and expand your market. This method is actually related to behavioural segmentation – grouping your customers based on the way they interact with your product and adjusting your approach to fulfil their specific needs.
Generate a community
Being part of a community always makes users more loyal to brands. A simple way to start might be creating a Facebook group in which they can exchange useful information, or setting up different events for your most valuable customers.
What to avoid in order to decrease churn rate
Now you have a good list of do’s, let’s take a look at some don’ts:
One Size Fits All Customer Support
When a customer needs expert help or support from a SaaS company, this must be easily accessible. Even if your product is better than the one your competitor has, customers won’t stay if they don’t get proper support when they require it.
Making sure you have a reliable, proactive customer support toolkit is essential. It will allow you to anticipate your customers’ needs, increase the response rate sevenfold and keep all communication centralized. Not only will you improve user experience, but you’ll also empower your team.
Static Onboarding
Finding it hard to use the product or discovering that it isn’t user-friendly may cause an increase in customer churn. Perfecting your onboarding process is essential for each Saas company. Retain and engage your customers with simplified onboarding tools and give your customers what they need to become brand advocates.
Reactive vs. Proactive
Some users will quit the subscription to your product if they find that another company offers them more features or solutions. Therefore, it’s important to continually monitor and analyze what your competitors are doing.
Frequently benchmark and implement – you can reduce your churn rate dramatically by providing similar solutions and adding similar features. Then your customers will have no reason to jump ship.
Ways to improve SaaS churn rate
As we’ve said before, churn rate is something that every subscription-based company has to face. Once you’ve calculated your churn rate, you can easily create a unique strategy using the methods listed above to get that churn rate down.
We recommend diving deeper into the following features and solutions that can be the key to a low churn rate:
Looking for more? Check out our latest article on How to build your Customer Success Strategy using a Product Success Platform.
