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SAAS HEALTH CHECK

Understanding SaaS
Churn Rate

What is Churn Rate?

Customer churn rate (or attrition rate) is a

widely used term in business, mostly referring

to the subscription-based service model.

It shows what percentage of your customers

stopped using your services in a given period.

Why it’s an important SaaS metric?

The first answer is the lower churn rate, the higher the SaaS ROI and LTV.

 

The second answer is acquiring new customers is always more expensive, then retaining the existing ones.

 

When you develop mechanisms to retain your customers and create referral programs, they not only continue to pay you but will also share their positive and successful experience with others.

 

Churned customers can give the most valuable feedback you can ever expect. Why are they dissatisfied? What made them walk away from you? Once you have sincere answers, do your utmost not to repeat the mistakes again and make your customers leave you because of the same issue.

Ask them for review via email, send a direct message or ask to fill in a short form.

 

SaaS companies usually offer services based

on a monthly or annual subscription model.

It’s not about making a one-time payment,

buying a product and coming back after a

year. Your SaaS customers pay for services

every month and if you lose them, they

will hardly come back to you.

How to calculate the SaaS Churn Rate?
(formula+example)

Churn rate calculation is one of the simplest SaaS metrics to calculate. The formula is the total number of customers who left you in a given period divided by the number of customers you had in that given period (and then multiplied that number by 100%).

# of customers who left


# number of total customers

X 100%

For example, in the first half of 2019, the total number of your customers was 250. But in the same period, you lost 18 of them. Your churn rate is 7.2%.

This SaaS metric is very flexible as you can calculate it on a monthly, quarterly or annual basis. It’s also important to take into account what campaigns you ran in that given period to attract those customers, what loyalty programs you offered to understand the reasons behind your company’s performance.

 

The monthly calculation is more preferable as it allows you to react to customer decisions fast, understand the main reasons for churn and immediately start working on improvements.

SaaS Churn Rate: What’s Reasonable?

It depends on several factors, like for which niche your software is envisaged, how much is your revenue or how have you been operating in the industry.

 

If you want to know the average numbers, then the reasonable rate is about 5-7% annually. But examples will be more helpful to you.

 

For example, if your SaaS company is relatively new (1-3 years), then you can expect up to 20% annual churn rate. But in the case of a mature company, it’s supposed that you should already have your loyal customer base and annual churn rate should not exceed 5%.

3 Types of Churn

There is no exact list of churn types. But we are going to divide them into 3 groups based on logic.

Bad from the beginning and unhappy end

In this scenario, your customer buys your product and problems start arising throughout his/her first interaction with you. Probably they don’t understand your product’s full potential, maybe fail to achieve customer success or face other challenges that are out of your control.

Good from the beginning and unhappy end

In this scenario, your customers manage to get a grasp of your software and use it for some period but again something goes wrong. Maybe their interaction with you doesn’t satisfy them, your software lacks specific features or the needs of their company change.

Happy end for your customer, unhappy for you

In this scenario, your customers churn not because of internal or external problems but because their company achieves the final result they wanted to with your software. Your customers are happy and satisfied but they already don’t feel the need to continue with you. For you, it’s still unhappy as you lose a paying customer.

8 warning signs your customer is going to churn

Customer churn stems from internal or external factors. Let’s look at the possible scenarios one by one.

External factors that result in churn

Your customer’s company stops feeling need in your product

Your customer’s company suffers financial problems

Your customer’s company stops existing at all

Internal factors that result in churn:

You promise more than you can give

You don’t improve your software features

You don’t educate how to use your software

You don’t build a relationship with your customers

Your customer success/support team works at a low level

We agree that you don’t have control over external factors but if your company causes any of the internal factors, then you have a lot to think about.

7 steps to reduce churn rate

Identify MAR (Member-at-risk)

Dan Martell, a SaaS growth specialist, an investor says that you should permanently follow the activities of your customers. When you see that they have not logged in for a long time, contact them to ask if they need your assistance.

Ask for feedback

If you tried every single method and couldn’t retain them, at least try to understand why they left you. Ask what is the reason not to continue with you and what complaints they have. You will be able to learn from your mistakes and prevent similar churns in the future.

Engage your customers

Engagement is provided beyond the borders of social media. Ask them to subscribe to your newsletter and send them interesting updates, offer special discounts or invite them to participate in your upcoming webinar.

Create a positive onboarding experience

This is the root of your success or failure. If a company doesn’t know what range of problems they can solve with your software or how to leverage it, the rest is not even important. Find time to create both written (guides, user manuals) and visual (screenshots, videos) content to help them use your software more easily.

Have a responsive and attentive customer support team Even when everything is crystal clear on the guides and tutorials, people may have additional questions or face technical issues. Be ready to not only answer their questions/complaints but ask for clarifications, initiate conversion and offer the best and the fastest solutions.

Demonstrate your product with its whole potential Introducing your product’s features and benefits in the right way is super important but benefits play a much more significant role. Show your customers what your software does and don’t forget to add how it will facilitate your customer’s daily efforts.

Follow the latest market trends Imagine that new companies enter the market with a similar product like yours. If their version offers more advanced features, answers more questions, then you should consider reviewing your existing software. Always think about updating your product so it continues to provide value.

We agree that you don’t have control over external factors but if your company causes any of the internal factors, then you have a lot to think about.

Incredo is an Armenia-based Inbound

Marketing Agency with a qualified staff,

excellent track record, and ever-evolving

approaches. We help SaaS businesses like yours

stand out in the competitive market and find

their way to success.

 

A perfect doctor identifies his patient’s disease,

prescribes the right medicine and follows the

recovery process until the patient can firmly

stand on his own feet.

 

Hit the orange button below and get your

SaaS company diagnosed with our inbound

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