We know customers are the backbone of your business. That’s why they’re so valuable. Obviously, you want to retain them no matter what, but it’s no surprise that this is one of the hardest things to do in any industry, especially in SaaS.
Knowing which customers are most likely to churn can be challenging for many companies. Unfortunately, the truth is that churn can occur at any time for any number of reasons. For example, PWC found that 32% of people, after just one negative experience, would stop doing business with a brand or company they’d previously loved despite excellent customer service up to that point.
This goes to show that no matter how well you’re doing it, with just one single negative experience, you can lose a vast number of customers. Nevertheless, everything isn’t bad news. There are currently many different metrics to measure retention and adequately analyze your customer base. And there are also ways to get a handle on churn prediction. But what is churn prediction? What are the different types of churn? When are customers at high risk?
In today’s article, we will address all of these questions and more, including:
- What are the reasons for churn?
- When are customers at high risk?
- How to predict churn in SaaS
Let’s dive in!
What are the reasons for Churn?
There are different reasons why customers stop paying a subscription to your SaaS. Here are the most common ones:
- You aren’t targeting the right customers
- You need to improve your customer support
- Your competitors are offering better solutions
- Your pricing strategy isn’t aligned with your product and service
- Your product has bugs
- You’re offering fewer features or too many features
- Your company has scalability issues
- Your customers can’t find the value of your product
If you’re interested in learning more about customer churn, check out our last article SaaS Churn Rate – Calculation, Averages & Benchmarks [2022 Guide].
What are the different types of Churn?
Delinquent churn? Negative churn? Did you know that there are different types of churn? Yes! Let us help you monitor and improve your SaaS startup’s growth by explaining which ones are and how to use them.
Proactive churn refers to the number of users who canceled their plans on purpose.
Delinquent churn instead refers to people whose credit cards failed or expired and who couldn’t pay the monthly or yearly subscription due to this error.
This type of churn is more common than you think; according to VISA and Mastercard, an average of 15% of all recurring payments are declined, a percentage that can get even higher for certain industries. Crazy, right?
Negative churn is the best thing that can happen to a SaaS company. This occurs when new revenue from existing customers, due to upgrades and cross-sells, exceeds the revenue lost due to cancellations and contractions. It means your company offers a powerful product or service and a well-designed business model.
Customer Churn rate:
Customer churn rate is the most known term. It refers to the number of users who canceled or paused their subscription to your product or service.
If you’re wondering what your SaaS business’s churn rate is, try our Churn Calculator today and get a ballpark figure regarding the annual churn rate of your company.
MRR Churn rate:
Similar to customer churn rate, MRR shows how much recurring revenue is lost over a period of time.
The difference between the MRR churn rate and the customer churn rate is that the first shows a percentage of revenue lost due to churn, and the second refers to the percentage of customers who stopped the subscription.
Let’s say you have 50 customers, but one of them generates half of your monthly revenue. If you lost that customer, your customer churn would be 2%, but your revenue churn would be 50%! See the difference? That’s why keeping an eye on your MRR churn rate is very important.
What is Churn Prediction?
Churn prediction consists of predicting which customers are most likely to churn and cancel a subscription with your company. It’s based on their behavior within your product and overall satisfaction.
For churn prediction to be accurate, you must use internal team-defined indicators to signal when a customer may churn, so your company can act accordingly. A good example is asking questions like “Will this customer renew their subscription with us?” or “Will this customer leave us in 3 months?”.
All the information collected from churn prediction will help businesses focus more on the customers at a high risk of leaving and improve their strategies to prevent churn.
When are customers at high risk?
Identifying your high-risk customers before they churn and implementing retention strategies can be key factors in having a sustainable SaaS business. But how to know when customers are at high risk? Continue reading to discover how!
1. Product/Feature Usage is low
If the customer isn’t using the product regularly, it’s probably because they’re not getting the expected solution. Product usage is a crucial statistic for you to understand which customers have found the value of your product and which ones haven’t.
2. Customer Success Metrics
Customer success metrics such as net promoter score (NPS), customer satisfaction score (CSAT), or customer effort score are benchmarks that measure customer success and help businesses ensure that their products and services allow customers to achieve their desired results.
These metrics can provide an overall picture of your company’s customer success and are fundamental to improving the results of SaaS products or services. Check out our latest article, The Main Customer Success Metrics your SaaS Needs to Track in 2023, to understand everything about customer success metrics.
Metadata can provide you with different information about your customers. For example, if you’re a B2B company, metadata might include customer demographic data like company size, industry, and more. When you’re a B2C company, this might include demographic information such as age, gender, and occupation.
Collecting all this information will allow you to conduct a more precise analysis to help with churn prediction.
4. Engagement Metrics
One of the best ways to analyze if your customers are at risk of leaving is through engagement metrics. In general terms, these metrics measure the interaction a customer has with your company.
Some of these metrics are conversion rate, average session duration, customer satisfaction, ticket volume, social media engagement, customer lifetime value, or customer retention rate. It’s important to note that choosing which ones to track will depend on your campaign, channels, and goals.
You’ll know how much your customers engage and interact with your company through them. The more they’re engaged, the more likely they’ll stay.
How to Predict Churn in SaaS
Churn can happen because of many reasons. You may not be attracting the right customers or implementing the right customer success strategies, or perhaps your competitors are just offering better solutions.
Luckily, some strategies can help you predict churn and identify when your users are at high risk of leaving, such as customer success metrics, metadata, product usage, and engagement metrics.
Churn prediction is the most effective way to predict churn and, consequently, implement strategies to increase customer retention. It’s time to start preventing churn today and achieve a negative churn result! Book a demo today with FROGED to learn more about how it can help you reduce churn by 76%!