7 Smart Ways to Reduce SaaS Churn
Let’s start by explaining churn rate. It can be described as the rate in which resources are lost in a given period of time. In startups, more specifically SaaS businesses, that resource is customers.
For instance, if your churn rate is 4%, that means each month 4% of your customers are cancelling their account and going elsewhere. Let’s do some quick math:
(7 customers lost/100 customers) * 100 = 7% churn
The real pain starts when you start thinking in terms of revenue. At $99/month, losing 7 customers per month means you are losing $700 in MRR.
Now that we know that churn is cutting growth significantly, let’s take a deep look at how to reduce it.
Show Users the Product’s Core Value
Chamath Palihapitiya, former head of growth at Facebook, explains that one of the most challenging tasks when growing a product, but one of the most important ones, is constantly showing your users the core value of your product. This applies to SaaS startups as well.
Show your customers on a regular basis the value you’re providing or the pain that you’re solving. A fantastic way of doing this is by showing how your service affects their business in a positive way (e.g. hours saved in the week or how email open rates increased).
Invest in Lifecycle Messaging
Josh Pigford, founder of Baremetrics, conveys that ‘keeping in touch with users makes for happier people and ultimately results in lower churn’. I happen to agree with this claim. The best way of doing this is by automating a series of different emails (or SMS) during your customers lifetime.
- Welcome email + message from the leadership team
- Transactions & plan upgrades
- Failed charges
- Personal followups
At first, most startup founders are afraid of charging a high price point for their service. They are unsure they are providing real value so they sell to single founders or small, cash-hungry startups at $8/month-$29/month.
At first, this is valuable because you’ll learn a lot about your business and what your customers want. The problem is low price-point customers are a high churn group.
By increasing prices, you can intentionally alienate that group and start dealing with real businesses with an adequate marketing budget.
This will not only reduce churn significantly and increase your MRR, but you’ll also reduce the number of customers you have to offer support; and as you know, a more personal support decreases churn even more.
Focus on Becoming a Need
A fantastic way of reducing churn is making your product indispensable. You should focus on making it part of your users’ daily workflow by providing value their business can’t live without.
There are two main ways of doing this: (a) send them weekly/monthly reports showcasing the value of your product to users or (b) offer multi-user support so your product becomes part of the entire company’s daily workflow.
Stay Top-of-mind With Retargeting
Retargeting is a great way to reduce churn by gently reminding users you exist. Many people who do retargeting filter out existing customers, but in reality, showing ads to current customers to stay top-of-mind is extremely effective.
A powerful way to do this is to target ads to your existing customers linking to new content, explainer videos or case studies.
Look for ‘red flag’ metrics
When running a SaaS business, you should keep an eye on a certain set of engagement metrics, specially the behavior difference between users who churn and users who keep using and paying for your service.
Let’s lead with an example: Groove run a small test and observed that the average user who did not quit after 30 days spent 3 minutes and 18 seconds using the service in their first session, and logged in an average of 4.4 times a day.
The average user who quit spent 35 seconds using Groove in their first session, and logged in an average of 0.3 times per day.
The solution: sending targeted emails to users who spent less than 2 minutes on their first session, and to those that logged in fewer than 2 times a day in their first 10 days.
Beware of promotions and coupons
Discount codes are useful to get your product out there and acquire the first batch of users. This is useful because you’ll be paid to experiment with your product and be able to learn from real customers using your product.
The problem this type of users, enticed by the offer, sign up for your product and take it ‘for a spin’. After the test drive is over and they go back to your original pricing, they usually quit, leaving your business with a massive churn rate.
Updated: June 03, 2019
Written by SaaSicorn
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