How to reduce SaaS customer churn

02 March, 2017

SaaS companies are always looking for new ways to reduce customer churn. This blog post will cover how to decrease customer churn and increase revenue.

With the improved access to information, “customers are more transient, and it is easier and less costly for them to switch between competitors,” says Fred Wiersema, from Pennsylvania State University.

  • B2B customers are fewer in numbers but make larger, more expensive, and more frequent purchases.
  • SaaS is mostly subscription-based. Companies require a recurring revenue stream, and they are more sensitive to customer satisfaction, according to academics from Radford University.

What is customer churn?

Simply put, it is the number or ratio of clients that your business has lost over a particular period.

Imagine that at the beginning of the year your company had 400 customers. Then, at the end of the year, out of those first 400 customers, you lost 20. That is a 5% churn rate.

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Crazy Egg founder Neil Patel explains that SaaS must have a steady customer acquisition and successful customer retention. He quotes statistics from Groove:

  • There’s a 5-20% chance of selling to a new prospect.
  • You have a 60-70% chance of a successful sale of your existing customers.

How to reduce SaaS churn rate

  1. Analyze your numbers
  2. Detect significant patterns
  3. Improve your value proposition
  4. Delight customers
  5. Upsell to existing customers

1. Analyze your numbers

Is your company measuring customer engagement? How regularly are they using our product? What are they talking about?

Kissmetrics recommends tracking product usage data.

“If a customer regularly uses your product, you have nothing to worry about. If on the other hand, the customer’s usage level drops off, you need to find out why it dropped and what to do about it.”

For instance, rather than looking at churn alone, HubSpot created an App Usage Index to measure the degree to which customers practice inbound marketing and monitor how many different tools on the app the customer is using. 

Rather than looking just at churn, they calculate:

  • How frequently customers blog and track leads through the software.
  • Whether they email and conversion campaigns.
  • Whether they engage in social media.
  • And much more.
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Since customer engagement is the first predictor of retention, it’s important to measure it. These numbers and figures can help you get to know your ideal buyer persona, so you can not only target the best potential customers but those who have the best potential lifetime value.  

"So, get the good customers in – the ones who’ll be profitable and stick around a long time – and work to keep the bad customers out, and many of your churn problems will get resolved before they’re actually churn problems."

Lincoln Murphy, Sixteenventures.com

We're not just talking about looking at your marketing dashboard, CRM, or business intelligence tool. Try looking at their social media!

2. Detect significant patterns

Your stats can give you early warnings of people risking leaving your product or signing out of your service. For instance, HubSpot assigns Inbound Marketing consultants to help implement the software and work for them during their onboarding period. 

"Regardless of age or experience, each customer receives a personalized monthly account review, the goal of which is to help them get as much out of their subscription as possible." 

3. Improve your value proposition

Software as a Service company often considers that their value lies only on the software itself. If the client can find a similar software at a lower price, so be it.

So, it would be best to use all the tools at your disposal to remind existing customers of the value behind your software beyond the algorithms. Rather, how does it make their lives better?

4. Delight customers

 This sounds like marriage counseling.

The same goes for a customer that shows signals of losing engagement. Remind yourself, using data analytics and your CRM host, what appealed to that customer in the first place?

Imagine the picture: you have a recurring software glitch. You turn to customer service, and after running some diagnostics and fixing a bug, the company representative closes with “I’m done. Good day”. You don’t hear from them until you have the same glitch. Is that customer care? Follow up!

That is why HubSpot recommends using what it calls “the three pillars of delight”:

  • Innovation: change is better than the status quo. Therefore, innovate to serve people with the right products.
  • Communication: personal is better than impersonal. So, communicate to help people.
  • Education: empowering is better than ignoring. So, educate people to grow their knowledge.

Your company must use the benefits of social monitoring as a listening tool! Data improves how you execute these pillars and helps you pay attention both to verbal and nonverbal communication to follow up and solve problems on time. 

5. Upsell existing customers

Most SaaS are subscription-based models. A customer may choose one product from your suite at a basic level. Is that enough for them? Even more, is that enough for you?

There is so much more than you can offer! Upselling helps you improve your relationship with your customers on a more in-depth level. As their company grows, so do their requirements. For example, they may need a larger storage capacity,  more advanced capabilities, or extended coverage.
Make sure you can grow with them before they turn to other options.  

Are you a software or a service?

This isn't very easy.

But Neil Patel asks the question: “why is it that your customers pay you every month? Because you’re serving them."

  • Can they see that?
  • Can they feel that?
  • Do they know that?

"If you can provide service in tangible ways, you will become vastly more successful at retaining customers.”

What’s your current company’s customer churn rate? How are you addressing it?

Izzy

Izzy

My name is Izzy and I am a co-founder of IDS, an award-winning HubSpot Solutions Partner. I lead our team of consultants who provide professional guidance to help businesses implement the HubSpot CRM platform migrate, integrate their tech stack to HubSpot to create a seamless environment for sales reps to use. There is nothing I love more than solving the challenges that come up when someone wants to migrate an old system or integrate their tech stack with HubSpot - it's like a puzzle!

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