Every business owner knows that reaching new customers is important. After all, generating sales and subscriptions is essential for driving revenue. But retaining existing customers is just as important (if not even more so!) than acquiring new ones. That’s especially true for SaaS companies, which often earn a significant portion of their revenue through ongoing subscriptions.
So what does a SaaS company to do when they realize they’re experiencing high levels of customer churn?
Focus on customer engagement.
What is Customer Churn?
Before we get into the specifics of reducing churn in SaaS, it’s important to understand what, exactly, this term means. Churn refers to the number of customers or clients who stop using your product or working with your company during a specific time period.
So, for example, if you started a quarter with 1,000 customers and lost 50 customers during that quarter, your churn rate would be 5%. It’s important to note that churn does not take new customers into account. This means that it’s possible to have a relatively high churn rate, but still see overall growth.
In most cases, this metric is used within the context of SaaS companies who aim to generate recurring revenue. That’s because if you operate on a subscription model, each customer represents an ongoing source of revenue. So for each one you lose, you’re essentially missing out on hundreds (or even thousands) over the course of the coming years.
For reference, the average churn rate is 6.73%, with B2B companies performing slightly better overall than their B2C counterparts. But no matter how your company’s churn rate compares to this benchmark, it’s important to take the steps you can to reduce it as much as possible.
Why is Reducing Customer Churn so Important?
If your team has an effective strategy in place for reaching new customers, you may be wondering why it’s worth your time to worry about losing a few of them. After all, as long as you’re earning more customers than you lose, you’re still on track for growth — right?
While a certain amount of churn is inevitable, you’re not growing efficiently if you’re continually losing customers. Plus, for many businesses, the majority of the revenue from each customer comes well after the initial sale.
If a customer stays with your product for years, their initial purchase only represents a fraction of what they’ll ultimately spend. And beyond that, it’s much more cost-effective to retain existing customers than it is to earn new ones.
According to Kissmetrics, it can cost 7 times more to acquire a customer than it does to retain one. So if you don’t have a retention strategy in place, your budget simply isn’t being used as effectively as it could be.
How to Boost Retention with Customer Engagement
Increasing retention requires keeping your customers engaged with your brand and product. If you’re new to this approach, here are 5 ways to boost your engagement — and reduce your churn rates as a result.
1. Figure out Where You’re Losing Customers
The first step to reducing churn is identifying where you’re losing customers. More specifically, you need to know which stage of the customer journey the majority of your churned users were in when they stopped using your product.
If you haven’t spent much time on retention yet, you may find multiple problem areas. But in most cases, one will stand out more than the others. For example, if you notice that many of your users aren’t even making it through the onboarding process, that’s where you’ll want to focus your efforts.
But if customers opt to cancel their subscriptions after using your product for months, that’s a separate problem entirely.
2. Learn Why You’re Losing Customers
A quick data analysis can tell you where you’re losing customers. But it can’t tell you why. That’s where asking for feedback becomes essential. It’s a good idea to check in with your customers regularly, and after they cancel a subscription is no exception.
By sending a brief survey after a user churns, you can learn precisely what it was that they didn’t like about your product. And as you collect these responses, you’ll likely begin to identify patterns that indicate where you’re falling short.
Your surveys don’t need to be complicated to be helpful, either. For example, take a look at this churn survey template from Typeform.
With this question alone, a company could get a basic understanding of why their customers were churning — and what kinds of steps they could take to remedy the issue.
3. Regularly Assess Customer Satisfaction
Post-cancellation surveys are a helpful way to learn from your mistakes, but you shouldn’t wait until a customer leaves to ask for their feedback. If you’re already using CSAT surveys, you likely have a general idea of how satisfied your customers are.
But going beyond this by sending basic customer satisfaction surveys every few months is an excellent way to identify potential issues before they lead to cancellations. You can use these surveys to measure how satisfied your users are with everything from specific features to your customer support.
This will help you determine where your weak points lie so that you can address them before they lead to churn.
It can also help you identify the aspects of your company your customers already love — so that you can ensure you maintain the same level of quality in those areas, and even play them up to other customers.
4. Make Sure You’re Targeting the Right Audience
One of the most overlooked causes of churn is audience mismatch.
After all, it’s impossible to maintain high retention rates if your new customers simply aren’t a good fit for your company. If they don’t have a real need for your product or don’t tend to utilize the type of tool you offer on a monthly basis, they’re unlikely to stick around.
This means that your acquisition strategy can play a significant role in your ability to retain customers. This Lincoln Murphy tweet sums the issue up nicely.
If you’re not sure whether your approach to acquisition is impacting your retention rates, it can be helpful to break your user base down into segments.
Then, identify segments that tend to have higher churn rates and determine what sets them apart from the rest. This could be anything from location to industry to company size.
So, for example, if you find that small business users tend to churn more often than enterprise-level companies, this signals that small businesses may not be the best audience for your product.
Using this insight, you could opt to adjust the language and targeting in your ad campaigns to focus on enterprise users.
Spending time determining who, exactly, you want to attract can help you make sure that you’re reaching qualified users for your product — and ultimately prevent you from spending your marketing budget on those who are likely to churn.
5. Step up Your Customer Service
Customer service can play a significant role in whether your users decide to stick around. In one survey, 49% of consumers said they’d stopped doing business with a company because of poor customer service.
So as you conduct your surveys and analyze your user data, pay particular attention to customer service interactions. If your customers aren’t fully satisfied with the support you offer, this could easily be the cause of a high churn rate — and making this a higher priority could be the solution you need.