Whether you’ve been running your SaaS company for 3 months or 3 years, growth is likely your #1 priority. And while focusing your efforts on growth is not necessarily wrong, many companies adopt a limited view of “growth” that can be quite dangerous.
Growth, in these cases, is often defined as customer acquisition. Simply put, the more customers you bring in, the more successful your business is. Sounds simple. And when something feels too easy, it probably is.
The problem is, if you’re putting all your focus on customer acquisition, but ignoring the other side of the equation (your churning customers), you may be pouring water into a leaky bucket.
Customer acquisition is hard, expensive, and never ends. You don’t want to waste all those hard-won customers by turning a blind eye the holes other side of the formula. The sooner you can start looking for, understanding, and squashing churn, the better chance you have at building a digital empire.
So, where should you start? To answer this question, we spoke to founders of some of the largest SaaS companies to find out the 6 things that have had the biggest impact on their churn.
First things First: Why are Your Customers Churning?
Diagnosing the reason why customers leave should be your first plan of attack when it comes to churn, and it’s actually much simpler than it’s made out to be.
No matter how big or small your company is, there are only two reasons a customer churns:
- They choose to leave (voluntary churn)
- They churn involuntarily (or passively)*
*Involuntary (or passive) churn is hands down the easiest bucket to fix since these customers don’t intentionally leave your product. We’ll discuss this in more detail later in this post.
Let’s start by focusing on the customers who choose to leave. Within the voluntary churn bucket, there are only two core reasons customers choose to leave: Either something happened to them or they weren’t getting enough value from your product.
For example, Roy Olende, a product researcher at Buffer, explains how these reasons apply in the context of their customers:
“Customers churn because either other aspects of their work take up a greater significance leading to social media marketing taking a back seat (something happened to them). Or, folks are searching for a specific feature and if we don’t have it, it’s easy to switch to another product (they didn’t get the value they were looking for).”
Understanding the motivations behind why people leave is great. But how do you go from that to stopping them from churning?
Here are 6 powerful suggestions on how to squash churn from some of the world’s top SaaS founders.
1. Set up systems to alert you of when and where churn is happening
When it comes to churn, some people miss the forest for the trees. Not only because you underestimate the importance of retention, but you likely don’t know what churn looks like for you, and therefore don’t know what to look for or measure.
As Steli Efti, CEO of Close.io explains:
“It might take you 6–9 months to grow your customer base to a point where churn is really eating up all your growth efforts and creating issues. But it’s going to take you a year or more to make changes to address them.”
If you wait 6-9 months to start looking at your churn, you could be too late. Instead, there are all sorts of signs and red flags that will tell you churn is becoming an issue early on. Here are a few things to proactively track to spot churn before it happens:
TRACK REVENUE CHURN
Revenue churn is a great place to look to see if your customers have changing priorities and are at risk of completely churning. For example, many SaaS products charge “by the seat.” If a customer goes from 30 “seats” to just 1, you’ve lost a significant amount of revenue, but they’re still technically a customer and haven’t fully “churned.” Hence the label “revenue churn”.
You need to know when customers are making these changes and proactively reach out to them. Which comes down to building an effective support team.
At Teachable, founder and CEO Ankur Nagpal, explains that by hiring and investing in a larger customer care team, they were able to drop their response time from over eight hours to under an hour. Not only did this help them serve their customers better, but it reduced their customer churn significantly.
In your own company, it’s important to have a way to keep tabs on how the status of your customers changes over time. Even more important is to have a sales support or success team that can reach out and try to mitigate or address the issue before it gets too bad.
TRACK USAGE CHURN
When it comes to seeing if customers aren’t getting the value they need from your product, there are a few red flags to watch out for. The most important one is usage churn—where customers are still paying you, but have stopped using your product.
For Jan Schulz-Hofen, founder and CEO of Planio, usage is something you should have a clear view on and be able to jump in and address:
“Keep an eye out and jump in and offer to help any customers who are showing signs of inactivity. At the very least, you should have a short ‘why did you cancel?’ survey to identify the reasons and improve your product in the future.”
TRACK UNUSUAL BEHAVIOR
What other signs can you look for that a customer is looking to leave? Maybe they’re visiting your pricing page multiple times , or looking for ways to cancel their account. If you can build systems to see when people are showing these signs, you can proactively reach out and try to turn things around.
A lot of times, when companies think about churn they ignore the months of red flags that an account isn’t healthy and is on the way out. But, as Close.io’s Steli points out:
“There’s a great opportunity to learn and retain customers and revenue if you’re more proactive in those stages. And most growing startups aren’t. They’re not set up to pay attention to these things and act on them.”
2. Invest in Better User Onboarding
Your first few interactions with a customer can have a massive impact on whether they become a loyal client or churn out. However, many SaaS companies make the simple mistake of treating user onboarding as a one-time task. Or worse, only focus on it when something feels drastically wrong.
But, as Stephen O’Brien, director of engineering at Intercom writes, your onboarding has a shelf life. As your company grows and your customer base evolves, so should your onboarding process. Be sure to track metrics on your onboarding consistently so you can see shifts in its effectiveness.
Don’t let your onboarding become stale and ineffective by treating it as a one and done task–it should permanently reside on your to-do list. Your onboarding sequences and processes should be constantly updated, tweaked, and tested to find the right concoction.
Now, you might feel like you don’t want to bug your new customers too much or overload them with information right off the bat. But more in-depth onboarding and education earlier on will help you weed out the customers who might hang around for a month or two, but will ultimately churn.
As Bench CEO Ian Crosby explains:
“The best tactic we’ve found for reducing churn was to insist on a thorough onboarding and education for new customers before they pay us money. It doesn’t matter how good your product is; if it doesn’t become embedded in their workflow quickly, you’ll lose them.”
There’s no secret sauce to user onboarding. Test different content, email sequences, and intensity of your onboarding process. You may find that sending 3 emails to a new user performs better than sending 10. Alternatively, you may find that 3 does not give them enough information to feel confident with their purchase. Again, it all comes down to testing.
As a general rule, the more you educate on the front-end of their journey, the more likely they are to find and understand the value in your product.
At Teachable, Ankur says they focus on educational content to train customers not just about features, but to coach them through to their ‘point of activation’ —where they see the success they were looking for with your product. In their case, this means helping new customers sell the courses they make on the Teachable platform:
“In addition to our blog, we give them premium online training completely free—with the idea that consuming that content will take more people to their first sale. People churn at a much, much lower rate after they have had their first sale.”
Consider adding in more training and educating resources into your onboarding experience (and beyond). If people feel like you’ve gone the extra mile to make your product beneficial for them, they are less likely to churn.
When customers feel you are invested in their success, they will be more active in letting you know how they feel, giving you more opportunities to solve any issues they have before they leave.
3. Speak to your customers and find out what they really want (and give it to them)
In the early days of your SaaS startup, you’ll spend a lot of time trying to figure out product-market fit, which makes churn an invaluable metric for you. When customers churn, they’re really telling you where your product isn’t a fit—allowing you to tweak where you need to improve.
This is why looking at churn as just a set of numbers to track simply isn’t enough. Churn is a story your users are telling you about your product: where it excels, where it falls short, and how you can prevent future users from churning.
The more you can focus on finding the places your customers succeed, the better you can make your product for them (and reduce churn in the process).
The key here is communication. Openly conversing with your users from day one will give you more opportunities to keep them from leaving when a problem arises. It boils down to creating valuable relationships with your customers so they feel as if they CAN talk to you about their concerns before they up and leave.
As Zapier’s Chris Geoghegan explains:
“It might be nuanced, but I think you (and your customers) will be better off if you focus on creating more successful customers rather than trying to reduce the number of failed ones.”
“It’s a higher bar to set for yourself and it causes you to focus on building a valuable product instead of focusing on tactics that might tend to the more gimmicky side of things. Focusing on account expansion means focusing on trying to create more value for your customers.”
One-size-fits-all likely won’t work for your customers. They are scaling along with you, and as you both grow, you may see a lot of customer and revenue churn due to your offer simply not matching up with their growing needs.
So, how can you get ahead of this trend? You guessed it–communication.
Maybe you can’t make a huge feature change right away, but you can teach users how to better leverage your tool for their needs. This is where content and education comes back into play. Sending resources, feature updates, success stories, and more can only improve your customer relationships (and in turn, decrease churn).
At Buffer, this revelation led them to transition to a multi-product company, where each product serves a purpose for a specific user rather than trying to put them all under the same umbrella.
While at Zapier, this meant digging deep into how their power users were acting and what was potentially holding them back from doing more with the app–an exercise that Chris says not only moved the needle on account expansion, but also made a significant impact on churn.
Take time early on to see what your customers are working on and where your product may fall short for them. Where are they seeing friction early on? Are there features that would be easy for you to implement that could help them get more value from your solution?
You don’t have to do everything your customers ask for, but regularly spending time engaging with them will make sure you’re at least informed and know why they might be leaving.
4. Regularly show users the value they’re getting from you
As we’ve said from the start, one of the core reasons customers churn is because they think they aren’t getting enough value from you. But sometimes they just might not be aware of the value they could be getting.
Showing them how your product is benefiting them (or how it could be) is a powerful way to address churn before it happens. I can’t emphasize it enough, they key here is communication and education.
For example, at project management app Planio, CEO Jan Schulz-Hofen uses their monthly billing cycle as an opportunity to show value and bring attention to the money users are paying. By being completely transparent with their billing, they are reminding customers of the value they are getting out of the product.
“If your product is great, your customers will be happy to see those receipts and they will be happy about every dollar spent (because not having paid you would have cost them much more in their problems not being solved).”
How you show value will be specific to your product, but it could be usage, milestones hit, features utilized, or even suggestions and tips on how to get more value based on their actions.
The key is to stay top of mind and constantly show how you’re making their life easier and better. This is why transparency with billing is so beneficial for Planio, it keeps the product top of mind for their customers.
Think of your receipts as another touch point in communication. You can include more than a receipt of payment in order to encourage engagement. You could send a monthly digest of their stats, ask them questions, link to relevant blog posts, or send out a survey (just to name a few). Something as simple as your automatic receipts can be leveraged to increase customer retention and reduce churn.
5. Make sure marketing speaks to your ideal customer
We’ve talked a lot about the value of your product and how it relates to churn, but churn isn’t just about your product and it’s features. It’s also about the expectations your leads are bringing with them.
If your marketing is bringing in the wrong people or promising things your product can’t quite deliver, your churn is going to quickly get out of hand. At this point, it’s not a matter of “fixing churn”, but rather getting your whole team aligned around who your ideal customer is and what their success should look like.
Having open lines of communication between marketing, inside sales, customer support, and product development can help make sure that you’re only bringing in fitting leads.
“In the past, we used to sell customers a combination of education and software, and very often this ended up acquiring the wrong kind of customer who would end up churning sooner,” explains Teachable CEO Ankur Nagpal.
“By better qualifying customers likely to be successful on our platform, we were able to meaningfully reduce churn.”
Listening to your customers is invaluable, but it’s also important to make sure the ones coming in are predisposed to get value out of your product.
“Obviously if your churn is way out of whack with industry standards then that’s probably something you should pay attention to,” explains Zapier’s Chris Geoghegan. “But it doesn’t necessarily mean you need to ‘fix churn.’”
“It’s more likely that you’re marketing your product to the wrong people (at least based on what you’ve built today).”
A great way to determine where your marketing may be falling short is by using a churn cohort table.
SAMPLE CHURN COHORT TABLE
This chart can quickly help you identify trends where large cohorts of users drop off.
For example: Did you run a promotion for a certain niche industry, then a month later see a concerning amount of those new signups churn? It’s probably safe to say that industry isn’t a great fit for your product.
Or maybe you see a large percentage of users all churning out after a promotional discount or trial period ends. Does this mean that those customers don’t understand the full value of your product?
Being able to fully understand the groups of people who see the most value in your product will be huge for your long-term growth. When your marketing team understands exactly who they are looking for, you will not only start to see more qualified leads coming through the pipeline, but an overall reduction in churn.
6. Eliminate Involuntary Churn
Tackling involuntary churn is not only one of the easiest holes to plug in your bucket, it’s one of the quickest ways to slash overall churn.
You might think failed payments or billing issues aren’t that big of a deal. But over the past several years, we’ve regularly encountered companies with 50% of their total churn (B2B average) being attributed to failed payments. These numbers climb even higher for some B2C business models that can be more volatile or susceptible to credit card issues.
The good news: typically up to 70% or more of these payment failures are able to be recovered and Customer Lifetime Values (CLTV) restored (though that number may vary depending on your unique business model.)
To start, you’ll want to re-evaluate your basic dunning system (reminding users to update their payment information) you set up in the early days and look into outsourcing to a more advanced system to maximize recoveries. You’re likely letting a lot of customers slip through the cracks, and burdening your support team with higher volumes of customers to try and win back manually.
Companies like Churn Buster not only take the burden of dealing with failed payments off your team’s plate, they have the potential to recover more customers than any in-house system or basic dunning tool on the market. This can have monumental impacts at scale.
There’s zero reason anyone should lose a customer involuntarily.
Take advantage of what’s out there. If it’s effective, it will be one of the few things you can sign up for that actually makes your business money every month.
Even being 1% better with churn and retention can have huge returns for your business. Acquisition and growth are sexy, we know. But customer retention is what will ultimately keep you in business.
As your customer base grows, any small improvement in retention can have amazing downstream effects for your business. If you get a handle on it now, you’ll already be setting yourself up for future success.
Have you tried any of these techniques for identifying and dealing with churn? Let us know on Twitter.