How many people left your business last month? It feels like an awkward question to ask a business operator, yet customer churn can be an indicative measurement of success — especially for SaaS business owners.
Customer churn isn’t a percentage to be ashamed of or avoid talking about. Without understanding the volume of customers who are leaving, a SaaS business can’t gain insight into how to keep them from doing so and subsequently will fall short when creating a sticky SaaS product.
Customer churn reduction: What’s the big deal?
Customer churn is the metric of how many people — customers, clients, subscribers, or users — leave a SaaS business. Business owners typically say that a customer has “churned” after a specific time period without any interaction with the product. This could range from not logging into an application or cancelling a service entirely.
One simple way of calculating customer churn is by measuring the number of customers that dropped off in a specific time period divided by the number of new customers acquired in the same period. Let’s say you have a new accounting SaaS business and in Q1 you lost 5 customers and gained 100 new ones. Your churn rate would be 5%.
Quantifying a churned customer is dependent on the business. Some SaaS owners don’t consider a customer to be a true user until they’ve taken two monthly payments. This action solidifies their relationship with the business and allows for owners to discount anomalies of people who sign up for one month (often the trial month) then quit.
Ultimately customers who leave a business have a negative impact on not only revenue but other business metrics such as Customer Lifetime Value (CLV), Customer Acquisition Cost (CAC), and Monthly Recurring Revenue (MRR). High customer churn also affects a business’s ability to scale and grow.
How to prevent customer churn and increase stickiness
Customer churn occurs in every single business, from new startups to enterprise-level companies. Preventing customer churn and understanding tactics that achieve customer stickiness, i.e. people regularly engaging with and using your product, can make or break a SaaS business.
1. Exceed customer expectations
SaaS business owners need to make sure their customers are happy. Customers have to feel a need for your service, therefore keep wanting to pay a monthly fee. Setting, meeting, and exceeding customer expectations is one way to retain customers.
Apple uses this tactic each and every day. Repair times are often over-quoted so that the customer receives an email or telephone call telling them that their machine is ready for collection earlier than they expected. Exceeding customer expectations is ingrained in their company culture. Whilst this might sound like a sneaky tactic, it’s worth noting that Apple has one of the highest customer retention rates in the world.
Set realistic expectations from the initial sale onward. If you’re going to follow up with a telephone call, do so; if you say you’re going to get a glitch fixed within 24 hours, make it happen. Make sure you know how high you can jump, before setting the bar. Underpromise and overdeliver is a strategic method to preventing customer churn.
2. Build customer relationships and loyalty
Customers are less likely to churn when a relationship has been established. While this isn’t an instant achievement, customer loyalty can be built up over time.
Build on the relationship from the very start of the customer journey. Ask questions and engage with your subscriber. Do they have any concerns as a new user? Are they aware of the full range of services you offer? Consider adding personal touches as a part of your SaaS business, for example, a well-written email or well-timed telephone call. Ask your customers how their business is going in relation to the service. Remember key dates, be personable, and keep in contact.
3. Evolve your product
Reducing customer churn is about giving your subscription base something to be excited about. Think about what keeps your customers coming back and using your software or application. If they’re starting to drop off, have you given them a reason to return lately?
Constantly evolve and challenge yourself and your product. Business owners don’t necessarily have to create new features or add-ons, they simply need to improve their current offering and not become stagnant.
4. Create dependency
Every SaaS business that wants to prevent churn and improve stickiness needs to create a product that people depend on; it needs to be habit-forming. Think about any additional value that your SaaS business has over its competitors. For example, if you ran a SaaS accounting business, do you offer custom-built invoices or an expense receipt tracker?
Going above and beyond the usual expectant levels of service creates dependency for the end user. It isn’t enough to be the best brand anymore, you need to create a brand that customers “love and need.”
5. Understand cancellations
Customer will churn — that’s a given. Without investing time and specifically finding out why they’ve churned, your efforts on retention will prove fruitless.
Compile a list of questions to ask churned customers — during the moment they are churning — that aim to uncover the specific reasons for their departure. “Why did you decide to cancel with us?” or “Were there elements of our service you didn’t understand?” Probe to find out specifics and use this information to tailor your product and reduce further churn.
With customer retention paramount to SaaS business success, taking steps to prevent customer churn and increase stickiness should be at the top of every SaaS business’ list.
Originally published on the now defunct Control blog.