Thu, Mar 2, 2017

How to reduce customer churn rate at SaaS companies


software as a service churn reduction hubspot

When it comes to customer relationship management, the churn rate of any business is an important indicator of health. In the case of the B2B marketing and sales process, and especially Software as a Service (SaaS) companies, reducing churn is a priority.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.

Crazy Egg founder Neil Patel explains that SaaS must have a steady customer acquisition and a 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 churn then?

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 run email and conversion campaigns.
  • Whether they engage in social media..
  • And much more.

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 assign 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. Remind (or improve)  the value of your proposal

Software as a Service companies often consider 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, you need to use all the tools at your disposal to remind existing customers what is 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 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 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

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

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

Reducing churn. Are you a software or a service?

This is complicated.

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.”
Learn how Inbound can grow your company

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


Ismail Aly
Ismail Aly    

Inbound Marketing & Sales Enablement Consultant, HubSpot User Group Leader, HubSpot Platinum Partner