The feeling of watching your customers cancel their subscriptions and abandon your product is worse than ever. Every customer manager tries to prevent a non-renewal as the crushing feeling of losing a customer never fails to sting. However, this is all a part of business so no need to panic. Instead, try to fix this by keeping an eye on your SaaS churn rate.
Are you wondering what that is? Sit tight as in this blog we are about to explore the SaaS churn rate in detail so that you can stop your customers from giving up on your brand.
Let’s dive in.
What Is SaaS Churn Rate?
The SaaS churn rate is the percentage of customers that left your product over a while. It is a rate at which your customers are cancelling their recurring subscriptions to your SaaS product. While product managers like to see every bar shooting up when it comes to the success of their business, SaaS customer churn is the only metric they want as low as possible.
If the churn is low, it means that the business is performing well as fewer people are leaving the platform. However, if the SaaS churn comes out to be higher, it shows that your business is not performing well as several customers are giving up on it.
So what are you waiting for? Calculate your SaaS churn formula by using the equation below so that you can know where is your business standing.
What Should Be The Average Churn Rate Of Your SaaS Company?
A common question of many SaaS companies is what should be the average SaaS churn rate so that they can make efforts to ensure it falls within the limit. A good churn rate for SaaS enterprises depends on their individual industry, customer expectations, and business model. However, according to several statistics, it is revealed that a healthy churn falls typically between 2% to 8% for companies offering self-serve services. It’s essential to note that the ideal churn rate may differ for startups, established businesses, or those targeting specific markets.
It is best to keep the churn rate as low as possible if you are starting a business so that you can develop a solid customer base. This is necessary because as your company grows, so will the churn rate due to competition and changing customer needs. Your ultimate goal should be to strike a balance between acquiring new customers and retaining existing ones, ensuring long-term growth and success.
What Factors Influence SaaS Churn Rate?
Unhappy Customers
It has been estimated that the products in abandoned carts add up to $4 trillion per year due to customer’s unfulfilled needs. This shows that the biggest reason for the increased SaaS business churn rate is unsatisfied customers. As a result, if your product fails to meet your customer’s ever-evolving needs, they will move on.
Pricing Issues
Another prominent reason for elevated SaaS churn is unusual pricing. Your customers will abandon your products if your prices are high compared to your competitors. They will move towards your competitors and subscribe to them as they will be more affordable.
Poor UX
User experience matters a lot when it comes to whether the customer will complete their journey on your product or not. From poor onboarding experience and boring interfaces to complex navigation and confusing site maps, your customer would be frustrated and desert your platform in search of something user-friendly.
Competitor Offer
In today’s fast-paced digital world, there is heavy competition as every SaaS company is consistently coming up with emerging innovative technologies. Several businesses are competing online for attention. If you fail to upgrade yourself or keep up with the latest dynamic market trends, your customers will start taking services from somewhere else that is offering more advanced and latest services.
Poor Service Experience
Another major put-off for customers is poor service experience which makes them abandon your site. If your customers feel ignored or sense that their queries and concerns are not being answered in time, they will eventually leave you. This would excessively elevate your SaaS churn rate.
Product Updates and Features
Failing to upgrade your product and its features can result in a major downgrade to your platform. This depicts that you are not interested in adding value to the lives of your customers through their products. This makes the customer feel abandoned and they leave you for other companies that continue upgrading their products.
Contract Length and Terms
Not offering clear communication on contract terms, renewal processes, and cancellation policies builds vagueness and doubts. Moreover, failing to offer trial periods to new customers also results in customers picking those who offer these things.
Customer Feedback and Surveys
If you do not get your customers’ precious feedback through reviews and surveys, it is evident that you will not be able to know or improve your grey areas. As a consequence, this would result in the customers’ concerns not being addressed. It would give them another chance to increase your SaaS business churn rate by leaving the products for something better.
Why Should You Track Your Churn Rate?
According to a survey by Harvard Business Review, it has been estimated that around 80% of companies use customer satisfaction scores to analyze the customer’s experience to improve it. A common way companies use to asses user experience is by tracking their SaaS churn rate.
This metric is essential to track as it enlightens companies whether customers are satisfied with their services or not. You can use SaaS customer churn to retain your users as it provides insights about the latest trends within the user base. This enables companies to take effective measures to reduce customer issues to increase their satisfaction.
Moreover, it also aware product managers about the areas with UX and engagement issues so that they can take actions to not only attract new customers but also retain the existing ones. It is super important for SaaS companies to keep their churn rate in mind to continuously improve themselves in the competitive SaaS industry where retaining your customers is more important than ever.
Practical Tips For Reducing Churn Rate
It is crucial to bring down your SaaS churn rate as soon as possible before it starts bringing down your business. Here are some practical tips to reduce customer churn.
Identifying The Real Cause Of SaaS Churn
The primary step towards eliminating high churn rates is identifying the real cause of increasing and existing SaaS churn. It is crucial to sit with your revenue or sales team to go through your churn metrics at a consistent time. Dive deep into the customers who left your platform by tracking all their SaaS metrics and churn analysis. This way you with your sales and revenue team can list down things that you could have done better to retain those customers.
See if the churn is voluntary or involuntary to come up with relevant solutions accordingly. Make sure that you perfectly align your target users and market to attract new customers.
Focus On Improving The UX Of Your Product
It has been estimated that 67% of customers have agreed a bad UX experience is the major reason for their churn. As a result, if you want a good churn rate for SaaS, start focusing on improving the UX of your product.
Make sure the users are completely hooked on your platform as soon as they start interacting with it. This can be achieved by
- Having a good onboarding strategy
- Creating visually appealing interfaces
- Ensuring top-tier functionality
- Preventing complex navigation
- Making sure the users have a smooth, fast, and efficient journey from start to end on your product.
Continuous Innovation
It is highly important to opt for continuous innovation when it comes to keeping the SaaS churn rate low and customer retention high. Make sure you have a fine understanding of the latest market movements and ideas so that you can consistently update and innovate your product. Address emerging customer needs, stay ahead of industry trends, and communicate these enhancements to showcase your dedication to providing a cutting-edge solution.
Try To Reduce Payment Failure Rate
Common payment failures become a major reason for an increase in churn. It has been estimated that up to 20-40% of customer churn is due to credit card failures. This comes under involuntary churn which means that the user is giving up on your platform due to an unavoidable reason like payment failure. There are several churn rate SaaS solutions to fix this issue including
- Use debit cards
- Recurring transactions
- Use Visa Token Service (VTS)
- Real-time Account Updater Service
- Use clear descriptors
- Customer acquisition
Spot And Get Rid Of Churn Indicators Quickly
It is essential to spot any churn indicators early on so that you can address them before they become big and serve as a major blow to your SaaS renewal rate benchmark
As a product or customer relationship manager, you should not hesitate to communicate freely with your clients. Start having direct conversations with them to ask them what they think about your product and dig down even into the minutest of issues they mention.
Note down everything that they mention and then start working on the problems they have mentioned with relevant teams. After the issue has been sorted, follow up with your clients to ensure their issues are solved. This not only resolves customers’ problems they face while interacting with your product but it also shows them that you are committed to adding value into their lives through your platform.
Upselling and Cross-Selling
Identify opportunities to upsell or cross-sell additional features or plans that align with customer needs. Offering added value can increase customer loyalty and reduce the likelihood of seeking alternatives. This will significantly bring down the SaaS churn for your business and even offer more benefits like
- Boost revenue
- Less effort to sell
- Strengthens customer relationship
- Reduces cost
- Increases order value
- Renewal Incentives
Introduce renewal incentives, such as discounts or additional features, to encourage customers to continue their subscriptions. Make the renewal process straightforward and remind customers of the benefits they receive. This will help you achieve a good churn rate for SaaS which will benefit your company in numerous ways like
- Customer retention
- Adaptability and Flexibility
- Stable revenue stream
- Loyalty
- Cost-effectiveness
- Brand Reputation
Customize Your Cancellation Offers
When a buyer is ready to cancel an order, they might not be entirely ready. This gives you a soft spot to talk them into not cancelling their order by giving them customized offers when they come in for cancellation. It is better to offer discounts to a customer than to lose them entirely. This way you can not only retain your customers but also keep your customer acquisition costs (CAC) low. Additionally, this will also result in lower churn rates.
Create your cancellation offers by revisiting the reasons the buyer initially chose your product. Review any support tickets or issues they raised and determine if you can address any specific concerns by providing a feature beyond their current payment tier. Don’t forget to understand why your buyer wanted to leave. This will give you the exact reason which you can target. If the customer still ends up cancelling the order, note the cause of non-renewal for future learning.
Try Denovers To Bring Down Your SaaS Churn Rate
Are you still confused about how to bring down the rising metrics of your SaaS churn rate? Try Denovers as we are a team of expert product designers who can efficiently audit, track, and fix what’s wrong with your product that is causing so many customers to bounce and abandon your platform.
Our professionals have years of experience in not only developing and designing platforms but also fixing the various issues that bring down the UX of any product. You can count on us to lower your churn and increase your customer retention and acquisition rate through our innovative and effective UX and UI designing skills and experience.
Wrapping it Up
SaaS churn rates are one of the key metrics to target no matter if you are a big or small company. Additionally, if you are a startup, you should pay special attention to the churn rates as its growing bar can even shut down your new company. Moreover, for the bigger picture, try to focus on why is your SaaS business churn rate increasing. This will give you insights into the prime reasons why your customers are leaving so that you can focus on fixing them particularly to bring down the churn rate.
How does the SaaS churn rate impact the financial health of a company?
SaaS churn rates can significantly impact the financial side of your company. High churn rates affect revenue, profitability, and the overall financial sustainability of a SaaS business. It may also affect the connection between churn rate and customer lifetime value.
What role does customer feedback play in reducing SaaS churn?
Customer feedback contributes to understanding and addressing the root causes of churn. The valuable reviews of customers can enlighten us about the real issues that they face while interacting with your platform. This enables you to work directly on those issues so that you can efficiently improve the overall customer experience and bring down the churn of the overall customer experience.
How can SaaS companies calculate and measure churn rate effectively?
SaaS companies measure churn rate by calculating the percentage of customers lost during a defined period. Segmentation, customer feedback analysis, and trend monitoring are key. Benchmarking against industry standards and considering expansion revenue provide context.
What are the warning signs that a customer may be at risk of churning, and how can they be identified early on?
Warning signs of customer churn in SaaS include reduced product usage, diminished engagement with support, delayed payments, and changes in user behaviour.
