According to a study on SaaS growth and churn, churn rate costs companies worldwide a collective $1.6 trillion every year. If an SaaS business can keep its customers happy, their chances of building a thriving business are much higher. This is where customer churn rate comes into play – it’s a critical metric in determining the overall business success.

WHAT IS SAAS CUSTOMER CHURN?

WHY IS CHURN CRITICAL IN SAAS?

• Up to 70%: is the probability of making a sale to an existing customer. With new prospects the chances fall down to 5-20%. 
• Up to 80%: is the amount of your future profits that will come from just 20%< of your existing customers.
• Up to 65%: amount of a company’s business that comes from existing customers.
• Repeat customers spend 33% more than new customers

As it was already stated before, some customer churn is completely normal. But at what churn rate a business should be worried? In general, a churn rate of 5-7% per year is considered pretty low, whilst any rate above 20% is high. An acceptable customer churn rate depends on various factors, including the value brought in by the retained customers, versus customers lost, new acquisitions over the same period, and your customers’ lifetime. Obviously, the lower your churn rate is, the better.

It is important to look at the churn rate together with the other factors as already mentioned. A 10% annual churn rate could seem high, but if your company is growing rapidly by adding more customers, and the retained ones are paying more and more for the services, then the 10% churn rate doesn’t seem so surprising and is only natural at this stage. You may also measure the churn rate on a monthly basis, but keep in mind the customer losses over the whole year, as the monthly rate number might seem small at the first glance.

Your churn rate will also vary depending on:

• Whether you are B2B or B2C focused.
• The characteristics of your target market.
• The onboarding process you use.
• The primary business model, e.g., free trial, freemium, paid.

Do set a goal, however, to achieve a single-digit annual churn rate.

SIGNS THAT YOU HAVE A CHURN PROBLEM

KEY CAUSES OF CUSTOMER CHURN AND GENERAL TIPS ON REDUCING THE CHURN RATE

Now that we know how dangerous churn can be for any SaaS business, and how to identify that there’s a problem, let’s examine what causes churn. Look at it this way – an SaaS user decides to buy a product because they think it will help them achieve a goal. However, if the tool doesn’t meet expectations, they will abandon the boat, and as always, the devil is in the details.

Want to see how you can maximize your revenue?

Check out Nexway Revenue Boost Calculator

and simulate the potential increase in revenue you could get by selling online.
Then, calculate how much additional revenue you can realize with Nexway
and how to reduce churn and maximize profitability in a few clicks.

1. Poor onboarding – the #1 reason for customer churn

Onboarding is essential. According to a study from Harvard Business Review, successful onboarding procedures can significantly improve revenues, client renewals, and client referrals. Therefore the company has to make sure that their onboarding process is seamless, minimizing the amount of questions the customer might have about the software and its use.

2. Weak customer relationships

Engaging with your customers and maintaining healthy relationships with them should be an ongoing process. The key is to make them feel appreciated and sought after. Therefore, you need to follow a proactive approach and connect with your customers in every possible way through multiple channels.

3. Poor customer service

Excellent customer service should be a vital component of any company’s strategy to build long-term customer loyalty. Unfortunately, many companies perceive customer service as an unnecessary expense rather than an investment in retention rates. Almost 9 in 10 customers leave a business due to poor customer service. In contrast, 86% of customers are willing to pay more just for a better customer experience.

4. A challenging user experience

User experience starts with the onboarding process, and is followed by customer support. These two points were already covered and they have a direct impact on the churn rate, However, the usability of the software/platform offered, and its first-user friendliness is equally as important, since if the customer is unable to understand how to use the service, they will cancel it.

5. Consider your customer’s complaints

If a customer is reaching out with regards to a certain issue, there is a good chance that other customers have experienced a similar problem, but didn’t say anything about it. For every customer who complains, 26 other customers remain silent. Agents need to empathize with customers and take immediate steps to rectify the problem. Once the problem is considered resolved, follow-up is key to making sure the customer remains satisfied.

Conclusion

Historically confined to the entertainment and telecommunications industries, subscriptions are now highly popular with consumers looking for new ways to consume digital products. This is particularly true for video games and PC software industries and mobile applications that are more flexible and better adapted to their needs. As a result, the move to subscription represents a tremendous opportunity for growth. Still, it also constitutes a challenge for digital publishers and retailers because it requires fundamental changes in how they design and market their digital products.

Churn is a critical metric directly linked to revenue and provides statistical data about your retained customers. That’s why every business must understand the issues that lead to churn and fix them. Remember, you need to solve churn before it becomes a significant issue. It will help if you are proactive in nurturing your existing customers throughout their journey.

In a nutshell, the companies that will successfully meet this challenge can deliver a high-value proposition and a first-class user experience.

Some tips on reducing the churn rate include:

• Understanding the reasons behind the churn rate
• Improving the onboarding process.
• Improving the customer relationships.
• Improving customer service.
• Improving the user experience.
• Listening to customer complaints.
• Providing high-quality services.